Fagan and Khan, ‘Common law efficiency when joinder and class actions fail as aggregation devices’

ABSTRACT
We develop a litigant-based model of rule selection where parties choose to litigate rules that are efficient between two parties, but inefficient as between a potential class or potentially joined litigants and a counter-party. Collective action problems lead to incomplete party formation, which generates continuous litigation of seemingly efficient rules. By accounting for externalities borne by non-parties, we show that rules which are allocatively efficient across both parties and non-parties are evolutionary stable for any given judicial ideology or judicial preference for prestige, thus preserving the explanatory power of the Efficiency of Common Law Hypothesis.

Frank Fagan and Urmee Khan, Common law efficiency when joinder and class actions fail as aggregation devices, European Journal of Law and Economics, February 2019, Volume 47, Issue 1, pp 1–14.

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