Incentive Effects of Class Actions and Punitive Damages Under Alternative Procedural Regimes

Abstract

In an economic perspective, punitive damages and class actions can be viewed as sharing a common economic function – creating optimal deterrence. Building on Parisi and Cenini (2010), we study the effect of alternative procedural regimes on the effectiveness of punitive damages and class actions. Specifically, we compare the workings of punitive damages and class actions in the American and English (“loser-pays”) regimes. Our findings help explain the limited use and late adoption of class actions and punitive damages in Europe.

Keywords: Punitive Damages, Class Actions, Loser-Pays Rule, Incentives

JEL Classification: K13, K4