Lessons from America
Edited by Jürgen G. Backhaus, Alberto Cassone and Giovanni B. Ramello
Chapter 12: Collective Litigation versus Legislation: A Rent-Seeking Approach to Class Actions
Sophie Harnay and Alain Marciano A traditional conception of courts considers them as meeting the individual demands of litigants to fill the gaps in legislation. The argument can easily be extended to collective litigation in which a collective demand to courts can be interpreted as the consequence of inadequate public regulation. However, although class actions were at first adorned with any virtue, the abuses and excesses observed since the 1990s in the USA and the emphasis put on the costs that they may bring on firms and collectivity have modified this overall positive perception. This chapter argues that despite their well-known drawbacks, class actions nevertheless entail some advantages that should not be underestimated. More precisely, we argue that class actions and political lobbying in the political market may provide groups with two alternative rent-seeking technologies, allowing groups to obtain their desired legal outcome that may therefore take the form either of a favourable legislation or a favourable judicial ruling. However, although much of the economic literature has been devoted to studying the choice between litigation and settlement, the choice between litigation and legislation has been quite overlooked. Furthermore, the rare papers that consider the choice between litigation and legislation do not consider the collective dimension of litigation through class action but only individual suits. This chapter is an attempt to suggest some elements to fill this gap. More precisely, among other determinants, we suggest that the choice of a group between the two technologies of influence – that is, the choice...
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