Allocation Rules and the Stability of Mass Tort Class Actions

Abstract:     
This paper studies the effects of allocation rules on the stability of mass tort class actions. I analyze a two-stage model in which a defendant faces multiple plaintiffs with heterogeneous damage claims. In stage 1, the plaintiffs play a noncooperative coalition formation game. In stage 2, the class action and any individual actions by opt-out plaintiffs are litigated or settled. I examine how the method for allocating the class recovery interacts with other factors -- the shape of the damage claim distribution, the scale benefits of the class action, and the plaintiffs' probability of prevailing at trial and bargaining power in settlement negotiations -- to determine the asymptotic stability of the global class. My results suggest criteria to attorney and courts for structuring and approving efficient allocations plans in mass tort class actions and for evaluating the predominance and superiority requirements for class certification in mass tort cases.

Number of Pages in PDF File: 42

Keywords: allocation rules, coalitions, damage averaging, mass tort class actions, stability

JEL Classification: C72, K41

working papers series