The Economics of Class Actions and Class Action Waivers

Making Firms Liable for Consumers’ Mistaken Beliefs: Applications to the U.S. Mortgage and Credit Card Markets

“…Rosenberg and Spier () argue that class action lawsuits allow numerous plaintiffs to pool their resources against a defendant that has much more at stake than an individual plaintiff, increasing social welfare by enabling both the combined plaintiff class and the defendant to make their best cases. Hylton () argues that class action waivers present a, familiar from the industrial organization literature, problem of naked exclusion: the plaintiffs can accomplish something only by pooling their resources together; however, neither one of the class members is marginal, and thus does not have the right incentive to invest in pooling resources . However, Hylton () also makes the point that some class action waivers might be efficient if a sufficient number of consumers do not waive their rights, using the familiar arguments for individual litigation waivers .…”

“…Hylton () argues that class action waivers present a, familiar from the industrial organization literature, problem of naked exclusion: the plaintiffs can accomplish something only by pooling their resources together; however, neither one of the class members is marginal, and thus does not have the right incentive to invest in pooling resources . However, Hylton () also makes the point that some class action waivers might be efficient if a sufficient number of consumers do not waive their rights, using the familiar arguments for individual litigation waivers . Choi and Spier () analyze product liability waivers in a model with moral hazard on the part of the producers and adverse selection on the part of the consumers.…”