The Economics of Class Action Waivers

23 Pages Posted: 4 Aug 2020 Last revised: 11 Mar 2021

See all articles by Albert H. Choi

Albert H. Choi

University of Michigan Law School

Kathryn E. Spier

Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER)

Date Written: March 11, 2021

Abstract

Many firms require consumers, employees, and suppliers to sign class action waivers as a condition of doing business with the firm, and the US Supreme Court has endorsed companies' ability to block class actions through mandatory individual arbitration clauses. Are class action waivers serving the interests of society or are they facilitating socially harmful business practices?
This paper synthesizes and extends the existing law and economics literature by analyzing the firms' incentive to impose class action waivers. While in many settings the firms’ incentive to block class actions may be aligned with maximizing social welfare, in many other settings it is not. We examine conditions in which class action waivers can compromise product safety, facilitate anticompetitive conduct, and support harmful employment practices. Our analysis delivers a more nuanced, policy-based critique of the recent US Supreme Court cases, highlights several new unresolved issues, and identifies future challenges for legal scholarship.

Keywords: class actions, class action waivers, mandatory individual arbitration clause

Suggested Citation

Choi, Albert H. and Spier, Kathryn E., The Economics of Class Action Waivers (March 11, 2021). 38 Yale Journal on Regulation 543 (2021), U of Michigan Law & Econ Research Paper No. 20-020, Available at SSRN: https://ssrn.com/abstract=3665283 or http://dx.doi.org/10.2139/ssrn.3665283

Albert H. Choi (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

HOME PAGE: http://www.law.umich.edu/FacultyBio/Pages/FacultyBio.aspx?FacID=alchoi

Kathryn E. Spier

Harvard University - Law School - Faculty ( email )

1575 Massachusetts
Hauser 302
Cambridge, MA 02138
United States
(617) 496-0019 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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