Wednesday, April 15, 2009
A very intriguing analysis just posted on bepress calls into question whether litigation is a substitute for regulation. See Eric Helland and Jonathan Klick, The Relation Between Regulation and Class Actions: Evidence from the Insurance Industry, available here.
Here is the abstract:
law and economics models imply that regulation and litigation serve as
substitutes. We test this by looking at the incidence of insurance
class actions as a function of measures of regulatory enforcement. We
also look specifically at whether states with clear regulatory
standards regarding the use of OEM parts experience less litigation
over this issue. We find no evidence of substitution between regulation
and litigation. We also examine the possibility that litigation is more
frequent in states where regulators are more likely to be captured by
industry interests, finding no support for this hypothesis either.
Instead, litigation is more likely in states where similar litigation
has been successful in the past, calling into question standard law and
economics models in this area.