Friday, May 9, 2008
Saraceno on the Downsides of Group Litigation
Help has arrived if you are looking for counterarguments to the standard (and to my mind, convincing) argument that collective litigation usually aids plaintiffs by providing economies of scale, permitting investment based on aggregate stakes, and creating settlement leverage. University of Pavia Ph.D. student Margherita Saraceno has offered an economic analysis of whether group litigation solves the problem of "diluted liability," reaching the contrarian conclusion that aggregation may reduce access and the overall deterrent effect of tort litigation. Here's the abstract on SSRN of Group Litigation, Access to Justice, and Deterrence:
Policy makers are currently evaluating group litigation as a device to guarantee effective access to justice and to improve deterrence in torts with multiple victims. This paper focuses on how group litigation affects: 1) access to justice, 2) the choice between settlement and litigation, 3) the settlement amount, and finally, 4) deterrence. The main finding is that group litigation does not always improve access to justice and deterrence. On the one hand, group litigation makes it easier for victims to sue, by creating scale economies and improving their confidence in the outcome of a trial. On the other hand, the group is costly for victims to organize and reduces the injurer‘s liability costs by facilitating settlement and creating scale economies at trial. The combined effect might be a reduction, rather than an increase, in the deterrent effect of tort law.