Abstract
This article analyzes class actions as a technology that groups may use in their rent-seeking activity, in addition to other rent-seeking methods such as legislative investment within the political market, when they seek to achieve favorable decisions from decision-makers—courts and legislators. It claims that groups may make their choice between various rent-seeking technologies according to their sensitivity to the problem of free riding. Therefore, it analyzes the effect of the legal instruments that facilitate class action lawsuits and collective litigation in most countries upon the rent-seeking strategies of groups, as compared to rent-seeking through legislation.
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Notes
We develop excludability devices in class actions in the next section.
Socially harmful behavior of self-interested attorneys has been widely documented in the law and economics literature. For instance, it is argued that they may engage in undue class actions leading to “legal extortion” on defendants (Haymond and West 2003). Under some conditions, they may also choose a wrong timing in settlement so as to maximize legal revenue.
Eisenberg and Miller (2005) also note that “[b]y the turn of the century some considered these awards to be ‘routine’”. Now, they conclude that the importance of incentive awards is not quantitatively as important as one could expect: “[i]ncentive awards are given in a nontrivial fraction, but still a minority, of class action settlements. Across all case categories, when an incentive award was granted, the average total award was $128,803 and the median total award was $18,190. Awards were typically split among more than one representative plaintiff. The average award per class representative was $15,992 and the median award per class representative was $4,357. Overall, incentive awards constitute such a small fraction of class action settlements that their effect on distributions to class members is de minimus” (2005, p. 40). See also Eisenberg and Miller (2004) and Nagareda (2006).
French Code de la consommation, A. 422-1.
Rule 23(c) of the US F.R.C.P. specifies that “the judgment in an action maintained as a class action under subdivision (b)(1) or (b)(2), whether or not favourable to the class, shall include and describe those whom the court finds to be members of the class [and] the judgment in an action maintained as a class action under subdivision (b)(3), whether or not favorable to the class, shall include and specify or describe those to whom the notice provided in subdivision (c) (2) was directed, and who have not requested exclusion, and whom the court finds to be members of the class”.
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Harnay, S., Marciano, A. Seeking rents through class actions and legislative lobbying: a comparison. Eur J Law Econ 32, 293–304 (2011). https://doi.org/10.1007/s10657-011-9242-y
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DOI: https://doi.org/10.1007/s10657-011-9242-y