Lessons from America
Edited by Jürgen G. Backhaus, Alberto Cassone and Giovanni B. Ramello
Chapter 6: The Economics of Class Action Litigation
Thomas S. Ulen1 1. INTRODUCTION The United States is almost unique in many aspects of its legal system – for example, in allowing contingent fee contracts between lawyers and clients and in making legal education exclusively graduate education, in using juries in civil disputes, and allowing class action litigation. This last practice – facilitating and regulating the consolidation of numerous similar lawsuits into a single action – is practiced elsewhere, but it has reached its most extensive use in the highly competitive U.S. legal market. The principal argument in favor of class action litigation is straightforward: it is likely to be more efficient to litigate the same general complaint once rather than to do so in a series – perhaps a large number – of similar complaints. To put the matter in economic parlance, there are likely to be economies of scale for both plaintiffs and defendant or defendants in having one large trial than in having individual trials. However compelling this simple argument in favor of class action litigation may be, the practice of class action litigation in the modern United States’ legal system has not commanded universal approval. While there are those who see it as a socially beneficial practice that allows, for example, appropriate redress to small claimants against major corporations, there are those who see class action litigation as socially costly in that it fosters frivolous litigation that threatens to erode business confidence and competitiveness. The public debate between these opposing views has been 1 I owe great thanks to Amber...
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