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The Simple Economics of Class Action: Private Provision of Club and Public Goods

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  • Cassone, Alberto
  • Ramello, Giovanni B.

Abstract

This article uses economic categories to show how the reorganisation of civil procedure in the case of class action is not merely aimed at providing a more efficient litigation technology, as hierarchies (and company law) might do for other productive activities, but that it also serves to create a well defined economic organization ultimately aimed at producing a set of goods, first and foremost among which are justice and efficiency. Class action has the potential to recreate, in the judicial domain, the same effects that individual interests and motivations, governed by the perfect competition paradigm, bring to the market. Moreover, through economic analysis it is possible to rediscover not only the productive function of this legal machinery, but also that partial compensation of victims and large profits for the class counsel, far from being a side-effect, are actually a necessary condition for reallocation of the costs and risks associated with the legal action.

Suggested Citation

  • 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.
  • Handle: RePEc:uca:ucaiel:3
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    1. Edward L. Glaeser & Andrei Shleifer, 2003. "The Rise of the Regulatory State," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 401-425, June.
    2. Alberto Cassone & Giovanni Ramello, 2011. "The simple economics of class action: private provision of club and public goods," European Journal of Law and Economics, Springer, vol. 32(2), pages 205-224, October.
    3. Sophie Harnay & Alain Marciano, 2011. "Seeking rents through class actions and legislative lobbying: a comparison," European Journal of Law and Economics, Springer, vol. 32(2), pages 293-304, October.
    4. Nicita Antonio & Ramello Giovanni B., 2007. "Property, Liability and Market Power: The Antitrust Side of Copyright," Review of Law & Economics, De Gruyter, vol. 3(3), pages 767-791, December.
    5. Theodore Eisenberg & Geoffrey P. Miller, 2004. "Attorney Fees in Class Action Settlements: An Empirical Study," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 1(1), pages 27-78, March.
    6. Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185.
    7. Dana, James D, Jr & Spier, Kathryn E, 1993. "Expertise and Contingent Fees: The Role of Asymmetric Information in Attorney Compensation," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 349-367, October.
    8. Eisenberg, Theodore & Huang, Kuo-Chang, 2012. "The effect of rules shifting supreme court jurisdiction from mandatory to discretionary—An empirical lesson from Taiwan," International Review of Law and Economics, Elsevier, vol. 32(1), pages 3-18.
    9. Edwards, Brian K & Starr, Ross M, 1987. "A Note on Indivisibilities, Specialization, and Economies of Scale," American Economic Review, American Economic Association, vol. 77(1), pages 192-194, March.
    10. Donatella Porrini & Giovanni B. Ramello, 2011. "Class action and financial markets: insights from law and economics," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(2), pages 140-160, May.
    11. Giovanni Ramello, 2011. "Property rights and externalities: the uneasy case of knowledge," European Journal of Law and Economics, Springer, vol. 31(1), pages 123-141, February.
    12. Marta Cenini & Barbara Luppi & Francesco Parisi, 2011. "Incentive effects of class actions and punitive damages under alternative procedural regimes," European Journal of Law and Economics, Springer, vol. 32(2), pages 229-240, October.
    13. Nancy Gallini, 2011. "Private agreements for coordinating patent rights: the case of patent pools," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2011(3), pages 5-30.
    14. repec:hrv:faseco:30747197 is not listed on IDEAS
    15. Juergen Backhaus & Alberto Cassone & Giovanni Ramello, 2011. "The law and economics of class actions," European Journal of Law and Economics, Springer, vol. 32(2), pages 165-168, October.
    16. Alon Klement, 2004. "Incentive Structures for Class Action Lawyers," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 20(1), pages 102-124, April.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Alain Marciano & Giovanni B. Ramello, 2021. "Foreword," European Journal of Law and Economics, Springer, vol. 51(2), pages 201-202, April.
    2. Ramello, Giovanni B., 2012. "Aggregate litigation and regulatory innovation: Another view of judicial efficiency," International Review of Law and Economics, Elsevier, vol. 32(1), pages 63-71.
    3. Donatella Porrini & Giovanni B. Ramello, 2011. "Class action and financial markets: insights from law and economics," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(2), pages 140-160, May.
    4. Thomas Ulen, 2011. "An introduction to the law and economics of class action litigation," European Journal of Law and Economics, Springer, vol. 32(2), pages 185-203, October.
    5. Falavigna, Greta & Ippoliti, Roberto & Ramello, Giovanni B., 2018. "DEA-based Malmquist productivity indexes for understanding courts reform," Socio-Economic Planning Sciences, Elsevier, vol. 62(C), pages 31-43.
    6. Marta Cenini & Barbara Luppi & Francesco Parisi, 2011. "Incentive effects of class actions and punitive damages under alternative procedural regimes," European Journal of Law and Economics, Springer, vol. 32(2), pages 229-240, October.
    7. Alberto Cassone & Giovanni Ramello, 2011. "The simple economics of class action: private provision of club and public goods," European Journal of Law and Economics, Springer, vol. 32(2), pages 205-224, October.
    8. Juergen Backhaus & Alberto Cassone & Giovanni Ramello, 2011. "The law and economics of class actions," European Journal of Law and Economics, Springer, vol. 32(2), pages 165-168, October.
    9. Varios autores, 2015. "Colección Enrique Low Murtra: Derecho económico. Tomo X," Books, Universidad Externado de Colombia, Facultad de Derecho, number 1018, October.
    10. Frank Fagan & Urmee Khan, 2019. "Common law efficiency when joinder and class actions fail as aggregation devices," European Journal of Law and Economics, Springer, vol. 47(1), pages 1-14, February.
    11. 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.
    12. Sophie Harnay & Alain Marciano, 2011. "Seeking rents through class actions and legislative lobbying: a comparison," European Journal of Law and Economics, Springer, vol. 32(2), pages 293-304, October.

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    More about this item

    Keywords

    class action; collective litigation; mass tort; club; liability; deterrence;
    All these keywords.

    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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