Informational Externalities and Settlements in Mass Tort Litigations
This paper elaborates on a basic model of mass tort litigation, highlighting the existence of positive informational externalities afforded by the discovery process (as a general technology of production of evidences) in order to study when a class action is formed, or when a sequence of individual trials is more likely. We illustrate the argument that when several plaintiffs file individually a lawsuit against the same tortfeasor, the resolution of the various cases through repeated trials produces positive informational externalities. When class actions are forbidden, these externalities only benefit to the later plaintiffs (through precedents, jurisprudence...). When they are allowed, the first filers may have an incentive to initiate a class action as far as it enables him to benefit from these externalities, through the sharing of information with later filers. We provide sufficient conditions under which a class action is formed, assuming a perfect discovery process. We also show that when contingent fees are used to reward attorneys' services, plaintiffs become neutral to the arrival of new information on their case.
|Date of creation:||30 May 2010|
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- Winand Emons & Nuno Garoupa, 2006. "US-style contingent fees and UK-style conditional fees: agency problems and the supply of legal services," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 27(5), pages 379-385.
- Alon Klement, 2004. "Incentive Structures for Class Action Lawyers," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 102-124, April.
- Lorenzo Sacconi, 2011. "The case against lawyers’ contingent fees and the misapplication of principal-agent models," European Journal of Law and Economics, Springer, vol. 32(2), pages 263-292, October.
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