INTRODUCTION

In situations involving mass harm, victims may not bring a suit because the costs and risks outweigh the expected benefits, so that they stay ‘rationally apathetic’. Or they wait for others to start a procedure on which they can free-ride, with the possible result that no one actually brings a suit. This is a problem from the perspective of compensation, but also from the perspective of confronting tortfeasors with the losses they have caused to incentivise them to change their behaviour.

Here we analyse collective actions as a possible remedy for these problems. We do not distinguish between various forms of collective actions, but focus on the common general principle of collective actions, namely that one collective claim instead of a series of individual claims is brought.

We discuss the possible advantages (section 2) and disadvantages (section 3) of collective actions. We then focus on the issue of the financing of collective actions (section 4). By way of an example, we briefly comment on the recent EU Directive (section 5), before concluding (section 6).

ADVANTAGES OF COLLECTIVE ACTION

INTRODUCTION: THE CHALLENGES OF PRIVATE ENFORCEMENT

Law and economics studies law in its capacity to provide incentives to legal subjects. In the context of this book, the topic of negative externalities is especially important. These are costs that are not borne by the actor who causes them. The actor may therefore undertake the activity too oft en and/or take too few precautions which could limit or avoid the loss.

Law can address this issue via regulation, tax law, criminal law and tort law. In order for law to provide the desirable incentives, it must be enforced. This can be done via public and private enforcement. This chapter focuses on the latter.

There are several challenges for private enforcement. Bringing a claim is costly. In addition, it may be difficult to correctly assess the costs, benefits, and chances of success, so that uncertainty plays a role. If the assessed costs outweigh the compensation that a successful plaintiff receives, they may remain rationally apathetic and not bring a claim. This problem is most pressing in situations of scattered losses. A subsequent challenge is that victims may not bring a claim in the hope that others do.