Saturday, April 18, 2009
Eric Helland (Claremont McKenna College/RAND) and Jonathan Klick (Penn) have posted on SSRN The Relation Between Regulation and Class Actions: Evidence from the Insurance Industry. Here is the abstract:
Standard 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.