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Incentives to Invest in Litigation and the Superiority of the Class Action

61 Pages Posted: 27 Oct 2011 Last revised: 12 Dec 2014

David Rosenberg

Harvard Law School

Kathryn E. Spier

Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER)

Date Written: September 12, 2014

Abstract

We formally demonstrate the general case for class action in a rent-seeking contest model, explaining why separate action adjudication is biased in the defendant’s favor and collective adjudication is bias-free. Separate action bias arises from the defendant’s investment advantage in capitalizing on centralized control over the aggregate (classwide) stake in the common question defense, while the plaintiff, with only an individual recovery at stake, spends much less. Class action eliminates bias by enabling both parties to make their best case through centralized optimal classwide investments. Our social benefit-cost analysis shows that class action surpasses alternative methods for achieving bias-free adjudication.

Keywords: Class Actions, Civil Litigation, Liability, Torts

JEL Classification: K00, K13, K41

Suggested Citation

Rosenberg, David and Spier, Kathryn E., Incentives to Invest in Litigation and the Superiority of the Class Action (September 12, 2014). Forthcoming, Journal of Legal Analysis; Harvard Public Law Working Paper No. 11-28. Available at SSRN: https://ssrn.com/abstract=1950196

Michael Rosenberg

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-496-4558 (Phone)
617-495-1110 (Fax)

Kathryn E. Spier (Contact Author)

Harvard University - Law School - Faculty ( email )

1575 Massachusetts
Hauser 302
Cambridge, MA 02138
United States
(617) 496-0019 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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