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Class action and financial markets: insights from law and economics

Listed author(s):
  • Donatella Porrini

Purpose - Class action (CA) has long been used in practice (mainly in the USA) and studied by academics especially in the shareholder protection area. This paper aims to apply the same practice within the current financial meltdown context. Design/methodology/approach - The paper faces the issue by comparing Findings - According to LE, pure economic loss is a private loss that is not socially relevant but simply implies a redistribution of wealth. Consequently, wrongful behavior that induces reallocation of costs and benefits with no consequences on social welfare is not considered socially harmful, so is not necessarily subject to compensation. Since pure economic loss is very often financial, the above reasoning also applies to financial markets. However, the same LE arguments suggest that in financial markets, the policy of internalizing pure economic loss by means of CAs can be more far-sighted than simply compensating the victims: the liability system has the particular feature of producing deterrence and driving the market towards an efficient outcome. Originality/value - The paper maintains that CA intended as a complementary

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Article provided by Emerald Group Publishing in its journal Journal of Financial Economic Policy.

Volume (Year): 3 (2011)
Issue (Month): 2 (May)
Pages: 140-160

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Handle: RePEc:eme:jfeppp:v:3:y:2011:i:2:p:140-160
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  1. Cassone, Alberto & Ramello, Giovanni B., 2011. "The Simple Economics of Class Action: Private Provision of Club and Public Goods," IEL Working Papers 3, Institute of Public Policy and Public Choice - POLIS.
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