Auctioning Class Action Representation

31 Pages Posted: 15 Feb 2019 Last revised: 17 Apr 2019

See all articles by Alon Klement

Alon Klement

Buchman Faculty of Law, Tel Aviv University

Moran Ofir

Interdisciplinary Center (IDC) Herzliyah

Date Written: April 15, 2019

Abstract

Class actions feature severe agency problems, resulting from divergence of interests between class members and the class attorney. This paper proposes a novel mechanism for selecting the class attorney and aligning her interests with those of the represented class. The mechanism applies a combined percentage and hourly litigation fee structure, in which lawyers earn a percentage of the class’ common fund, and bear the same percentage over their time investment. To guarantee a maximum expected payoff for the class, we supplement this fee structure with a preliminary auction, in which the role of the lawyer is tendered using competitive bidding. We propose an auction mechanism which elicits bids equal to the net expected value for the class and extracts all rents from lawyers. We then extend the model and apply the proposed mechanism to litigation funding, and to alternative fee-shifting rules.

Keywords: Class Action, Litigation Funding, Insurance, Auction, Agency Problem

JEL Classification: K41, D44, K20

Suggested Citation

Klement, Alon and Ofir, Moran, Auctioning Class Action Representation (April 15, 2019). Available at SSRN: https://ssrn.com/abstract=3329380 or http://dx.doi.org/10.2139/ssrn.3329380

Alon Klement

Buchman Faculty of Law, Tel Aviv University ( email )

Tel Aviv
Israel

Moran Ofir (Contact Author)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

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