Deterrence and Aggregate Litigation
31 Pages Posted: 27 Oct 2017 Last revised: 10 Nov 2017
Date Written: November 6, 2017
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: Suggested Citation