Private Monitoring in Common Fund Class Actions
68 Pages Posted: 8 Mar 2001
Date Written: February 2001
Class actions have come to play a significant role in American legal system. Law enforcement is no longer left to the state alone, as private pursuit of self interest is harnessed to promote the common good. But private law enforcement has also had its down sides. Lawyers' gain has often come at the price of class members' loss, and misalignment of interests has many times resulted in less compensation and deterrence and more private attorney profits than desired. The question therefore has been how to guarantee that lawyers pursue their self interest yet leave society at large and class members in particular as well off as possible. This paper analyzes the different monitoring schemes that have been unsuccessfully applied in class actions, namely, monitoring by courts and by class members. Building on this analysis it then proposes a workable alternative: private monitoring by self interested individuals and organizations, not necessarily class members, who would compete and pay to obtain the monitoring position, and would receive a share of the class recovery in return.
JEL Classification: K13, K42
Suggested Citation: Suggested Citation