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Deterrence and Aggregate Litigation

31 Pages Posted: 27 Oct 2017 Last revised: 10 Nov 2017

Keith N. Hylton

Boston University - School of Law

Date Written: November 6, 2017

Abstract

This paper examines the deterrence properties of aggregate litigation and class actions, with an emphasis on positive value claims. In the multiple victim scenario with positive value claims, in the absence of the class action device, the probability that an individual victim will bring suit falls toward zero with geometric decay as the number of victims increases. The reason is that the incentive to free ride increases with the number of victims. Deterrence does not collapse but is degraded. Undercompliance is observed, which worsens as the number of victims increases. Compliance is never socially optimal, and the shortfall from optimality increases with the number of victims. These results, which continue to hold even if victims anticipate being joined in a single forum, suggest a more nuanced and potentially more robust justification for the class action than has hitherto been provided. Implications for collusive settlements of class action litigation are discussed.

Keywords: class action, aggregate litigation, positive value claims, negative value claims, deterrence, legal compliance, litigation, joinder, limited fund, monitoring class actions, opting out

JEL Classification: K40, K41, K42, K22, D74

Suggested Citation

Hylton, Keith N., Deterrence and Aggregate Litigation (November 6, 2017). Boston Univ. School of Law, Law and Economics Research Paper No. 17-45. Available at SSRN: https://ssrn.com/abstract=3059583

Keith Hylton (Contact Author)

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States
617-353-8959 (Phone)
617-353-3077 (Fax)

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