Scherer, Frederic M. --- "Class Actions in the US Experience: An Economist’s Perception" [2012] ELECD 302; in Backhaus, G. Jürgen; Cassone, Alberto; Ramello, B. Giovanni (eds), "The Law and Economics of Class Actions in Europe" (Edward Elgar Publishing, 2012)

Book Title: The Law and Economics of Class Actions in Europe

Editor(s): Backhaus, G. Jürgen; Cassone, Alberto; Ramello, B. Giovanni

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847208033

Section: Chapter 3

Section Title: Class Actions in the US Experience: An Economist’s Perception

Author(s): Scherer, Frederic M.

Number of pages: 10

Extract:

3. Class actions in the U.S. experience:
an economist's perception
Frederic M. Scherer

My role in this book, addressing important changes being considered
actively in Europe, is akin to what Augustine of Hippo did: confessing and
distilling lessons from the sins of my youth. Specifically, how do class
action suits work from the perspective of an economist who has partici-
pated as an expert witness in several? My focus has been mainly on antitrust
suits, but I will recognize the relevance of other types.


1. THE RATIONALE OF CLASS ACTION LITIGATION

There are two main reasons for laws permitting class action litigation:

(1) To do justice, that is, to compensate a nation's citizens for harm that is
done to them by powerful (usually industrial or medical) actors ­ e.g.,
through price fixing, selling defective and dangerous products or
services, polluting the environment, polluting the information envi-
ronment with false and misleading statements, and engaging in
unwarranted discrimination ­ price or otherwise.
(2) To deter actions that might be illegal, but that might either escape the
attention of law enforcement authorities, or be committed because
the expectation of penalties administered by government agencies is
insufficient, or to solve free-rider problems when no individual has a
sufficient incentive to take corrective action that will benefit many
fellow citizens.

Let us consider first the second of these explanations. Does deterrence from
class action litigation actually work? In principle, the prospect of paying
treble damages for violations of U.S. antitrust ...