An Economic Model of Collective Redress, Relevant to Joinder Proceedings, Group Litigation and Class Actions

Abstract

In this paper I use club theory to model the formation of collectives in litigation proceedings in a market like setting, or based on contract, with free exit and entry of class participants. Much concern and attention in the literature focuses on free rider problems or principal agent problems that may plague collective redress, to the neglect of positive analysis of the underlying process of collective formation for litigation to exploit economies of scale in production or consumption. The use of club theory to explore the formation of collectives pursuing legal redress provides a basis for making predictions that can be tested through empirical work. It also challenges possibly artificial legal distinctions drawn between joinder proceedings, representative actions, and collective actions, and enables one to assess the likely effects of different legal rules on procedure.