Deterrence and Behaviour Modification
| Author | Craig Jones |
| Pages | 38-63 |
CHAPTER
THREE
Deterrence
and
Behaviour
Modification
A.
INTRODUCTION
The
purpose
of
this chapter
is to
review
the
ways
in
which
the
aggregation
of
claims into
a
class action
affects
the
outcome
of
litigation.
My
objective
is to
review
some
of the
generally-accepted benefits derived
from
class actions, such
as
enhanced
per-claim
recovery
and
deterrence
of
otherwise
un-actionable
wrongs,
and
also
to
demonstrate some
of the
less apparent ways
in
which aggre-
gation
of
claims provides market
effects
that beneficially
modify
the
behaviour
of
potential
mass tortfeasors.
As
the
discussion proceeds,
I
will also introduce some public
law
implications
of
class action system design, such
as the
sometimes controversial vision
of the
class counsel
as
"private prosecutor," serving
the
public's
interest
in
deterrence
of
wrongdoing.
B.
AGGREGATION,
COMPENSATION
AND
DETERRENCE
In
the
examples that
follow
throughout this book,
I use the
term "defendant"
to
describe
the
potential mass-producer
of a
tort, whether
or not the
tort
has yet
occurred (i.e. whether
we are
considering
ex
ante
-
from
the
viewpoint
of
deter-
38
—
Deterrence
and
Behaviour
Modification
—
rence incentives
- or ex
post
-
after
the
damage
has
arisen
and
litigation
is
under-
way
or
threatened).
(1)
Aggregation
and
Compensation
Consider
a
situation where
a
tortfeasor
harms three remote people through
a
cen-
tralized decision. Each
of the
three
suffers
$500 damages. Assume
it
will cost
$300
(for each plaintiff
and the
defendant)
to
litigate
the
action,
so
each
of the
claims
is
independently viable.
The
defendant, though, exploiting
its
economy
of
scale,
spends only
$300
to
defend
all the
actions.1
You
could view this example
in the
aggregate,
as the
defendant would:
the
defendant's
damages exposure
is
$1500;
its
litigation costs
are
$300,
so the
total
it
stands
to
lose
is
$1800.
The
plaintiffs
stand
to
receive $1500 less their
own
lit-
igation costs
of
$900,
for a net
recovery
of
$600,
or
$200
each.2
In
such circumstances
it is not
difficult
to see the
immediate impact that
aggregation will have
on
compensation.
If the
three claims
are
combined,
and if
litigation costs remain fixed, then
the
plaintiffs
stand
to
recover $1200
($1500
minus
$300
litigation costs),
or
$400 each. This
is the
immediate
effect
of
aggre-
gation
on
compensation
and is
simply
the
result
of the
elimination
of
redundant
costs.3
But
notice that,
so
far, there
is no
enhanced deterrent
effect
from
the
aggre-
gation;
in
either case,
the
defendant
"internalises"
something approaching
the
full
cost
of
harm:
$1500
plus
its own
expenses.
If any of the
three claims
is not
independently viable (i.e.
it
costs more
for the
plaintiff
to
litigate than could
be
recovered),
then optimal
deterrence
might
be
lost
if the
claims were pursued
individually.4
So we can
tell that there
is an
immediate compensation
benefit
to
aggregation
regardless
of
whether
the
claims
are
individually viable. However,
in
this simple
example, there
is no
increase
in
deterrence unless some
of the
claims would
not
have been brought
as
individual
actions.
This
simple calculation
is the
source
of
the
general belief that aggregation
of
numerous individually-viable claims does
nothing
to
enhance
the
deterrence
effect;
that deterrence,
in
other words, relies
on
the
inclusion
of
claims that would
not
otherwise
be
pursued.
1.
Assuming
for
simplicity's
sake
that
there
are no
non-common
issues;
the
example
will
hold
to
some
degree
if
there
is any
"issue
overlap"
at
all.
2.
For
simplicity's
sake
I am
assuming
no
"loser
pays"
cost-shifting
rules
apply.
3.
David
Rosenberg,
"Mass
Tort
Class
Actions
-
What
the
Defendants
Have
and
Plaintiffs
Don't" (2000)
37
Harv.
J.
Legis.
393
[Rosenberg,
"What
the
Defendants
Have"]
at
398.
4.
Consider
for
instance
if two of the
three
claims
were
worth
only
$250
each,
and the
other
$500,
and
litigation
costs
remained
fixed
at
$300.
The two
low-value
claims
would
not be
pursued;
the
defendant,
having
caused
$1000
worth
of
damages,
would
face
only
$500
in
claims
and a
total
of
$800
in
overall
exposure.
39
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