Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepeneurial Lawyers

Abstract:     
In this article, we challenge the traditional view that entrepreneurial plaintiffs' class action lawyers operating entirely according to their own economic self-interest serve no social utility, or worse yet, tremendous disutility. In seeking to counter this notion, we try to show that the agency costs problem long derided in class action practice is overblown: in the majority of small-claims class actions, there is no legitimate reason to care whether class members are being undercompensated (or compensated at all), nor any reason to worry that entrepreneurial lawyers are being overcompensated. Rather, we assert that the driving force behind class action practice ­and any effort to reform, reduce, redirect that practice ­should be deterrence. All that matters, we argue, is whether the defendant-wrongdoer is forced to internalize the social costs of its actions ­not to whom it pays those costs.

Keywords: class actions

Accepted Paper Series