CADR and Settlement of Claims. A Few Economic Observations

chapter in: Hodges, Chr. and Stadler, A. (Eds.), Resolving mass disputes. ADR and settlement of mass claims, pp. 38-60, Cheltenham: Edward Elgar, 2013

26 Pages Posted: 27 Oct 2014

See all articles by Michael G. Faure

Michael G. Faure

University of Maastricht - Faculty of Law, Metro; Erasmus University Rotterdam (EUR) - Erasmus School of Law

Date Written: October 21, 2014

Abstract

This paper starts from a hypothetical case whereby one consumer has lost a relatively limited amount of money as a result of negligence of the bank in the wake of the financial crisis. The consumer will not file suit because of the so-called rational disinterest problem and because the losses are dispersed. The consumer is, however, not alone and many face similar problems. Hence the paper argues that a market failure arises and the remainder of the paper questions how that market failure can be remedied. One possibility is to look for solutions to lower the barriers to access to justice, for example through a transfer of claim, legal expenses insurance or conditional fee arrangements. The pros and cons of each of those solutions are discussed from a law and economics perspective. The other problem is the one of dispersed losses resulting in rational disinterest of the consumer. One solution may be group litigation or a representative suit. Other solutions may go in the direction of consumer ADR. The benefits of consumer ADR are discussed both from the consumers as well as from society’s perspective. Finally the paper continues by addressing specific problems that may arise in the settlement of mass claims related to the incentives of lawyers and to the incentives of the judiciary.

Keywords: market failure, rational apathy, rational disinterest, dispersed losses, mass claims, settlement, CADR, alternative dispute resolution, conditional fee arrangements, legal expenses insurance, transfer of claim, third party funding, collective action, group litigation, representative su

JEL Classification: K41

Suggested Citation

Faure, Michael G., CADR and Settlement of Claims. A Few Economic Observations (October 21, 2014). chapter in: Hodges, Chr. and Stadler, A. (Eds.), Resolving mass disputes. ADR and settlement of mass claims, pp. 38-60, Cheltenham: Edward Elgar, 2013. Available at SSRN: https://ssrn.com/abstract=2512746 or http://dx.doi.org/10.2139/ssrn.2512746

Michael G. Faure (Contact Author)

University of Maastricht - Faculty of Law, Metro ( email )

PO Box 616
Maastricht, 6200 MD
Netherlands
+31 - 43 - 388 30 60 (Phone)
+31 - 43 - 325 90 91 (Fax)

HOME PAGE: http://www.michaelfaure.be

Erasmus University Rotterdam (EUR) - Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

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