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Informational externalities and informational sharing in class action suits


  • Deffains, Bruno
  • Langlais, Eric


When several plaintiffs file individually a lawsuit against the same tortfeasor, the resolution of the various cases through repeated trials produces positive informational externalities, which benefit to the later plaintiffs (since there exist precedents, jurisprudence...). Thus, the first filers may have an incentive to initiate a class action as far as it enables the various plaintiffs to share their information. This feature has not been stressed in the literature, and in contrast strategic uses of class actions have been studied in more details (Che (1996), Marceau and Mongrain (2003)). In this paper, we elaborate on a basic strategic model of litigation settlement, focusing on the interactions between the characteristics of the discovery process (as a general technology of production of evidences) in mass tort litigation, those of the compensation rules set by Courts, and the structure of litigation costs, in order to study when a class action fails to occur, and when sequential trials are more likely. We consider the case of a perfect discovery process. We provide sufficient conditions under which a class action is formed. We show that when victims have heterogeneous claims, the compensatory damages rule awarded by Courts is of major importance for the formation of the class action, whatever the degree of heterogeneity: all else equal, there always exists a degree of \textit{damage averaging} under which the class action occurs. 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.

Suggested Citation

  • Deffains, Bruno & Langlais, Eric, 2007. "Informational externalities and informational sharing in class action suits," MPRA Paper 4846, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:4846

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    References listed on IDEAS

    1. Marceau, Nicolas & Mongrain, Steeve, 2003. "Damage averaging and the formation of class action suits," International Review of Law and Economics, Elsevier, vol. 23(1), pages 63-74, March.
    2. Winand Emons, 2006. "Playing It Safe with Low Conditional Fees versus Being Insured by High Contingent Fees," American Law and Economics Review, Oxford University Press, vol. 8(1), pages 20-32.
    3. Winand Emons, 2007. "Conditional versus contingent fees," Oxford Economic Papers, Oxford University Press, vol. 59(1), pages 89-101, January.
    4. Steven Shavell, 1989. "Sharing of Information Prior to Settlement or Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 183-195, Summer.
    5. Lynk, William J, 1994. "The Courts and the Plaintiffs' Bar: Awarding the Attorney's Fee in Class-Action Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 185-209, January.
    6. Emons, Winand & Garoupa, Nuno, 2004. "The Economics of US-Style Contingent Fees and UK-Style Conditional Fees," CEPR Discussion Papers 4473, C.E.P.R. Discussion Papers.
    7. Che, Yeon-Koo & Yi, Jong Goo, 1993. "The Role of Precedents in Repeated Litigation," Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 399-424, October.
    8. Lynk, William J, 1990. "The Courts and the Market: An Economic Analysis of Contingent Fees in Class-Action Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 19(1), pages 247-260, January.
    9. 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.
    10. Che, Yeon-Koo, 1996. "Equilibrium formation of class action suits," Journal of Public Economics, Elsevier, vol. 62(3), pages 339-361, November.
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    Cited by:

    1. Andrew F. Daughety & Jennifer F. Reinganum, 2011. "A dynamic model of lawsuit joinder and settlement," RAND Journal of Economics, RAND Corporation, vol. 42(3), pages 471-494, September.
    2. Deffains Bruno & Demougin Dominique, 2011. "Class Actions, Compliance and Moral Cost," Review of Law & Economics, De Gruyter, vol. 7(2), pages 481-500, December.

    More about this item


    Mass Tort Class Action; information sharing; repeated litigation; contingent fees;

    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • K36 - Law and Economics - - Other Substantive Areas of Law - - - Family and Personal Law
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K0 - Law and Economics - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

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