Deterrence and Aggregate Litigation

This paper examines the deterrence properties of aggregate litigation and demonstrates a justification for the class action. As the number of victims grows, the incentive to free ride increases and the probability that an individual victim will sue falls to zero. As a result, a potential defendant's compliance with lawis never socially optimal, and the shortfall from optimality increases with the number of victims. With class actions, by contrast, undercompliance vanishes as the class size grows. These results suggest a more nuanced and potentially more robust justification for the class action which does not rely on victims having unlitigable negative-value claims.