The economics of the European Commission's recommendation on collective redress

The 2013 European Commission Recommendation on Collective Redress recommended that all Member States of the European Union have national collective redress systems, and identified a number of principles relating both to judicial and out-of-court collective redress that should be observed in common across the Union. This paper explores from an economic perspective the issues or problems which the Commission’s specifically European model of collective redress seeks to overcome, and what Member States will need to address to implement it, in order to promote efficient outcomes, or social welfare in Europe. The paper thus critically examines the economic costs and benefits of using collective redress procedures to aggregate multiple individual claims relative to conducting individual suits. Collective redress raises economic welfare through scaling effects, which reduce the overall amount of private and public resources allocated to litigation, and by making small claims judicially and economically viable. However, collective redress procedures also generate various sources of information and agency costs. This article combines several models of collective redress litigation to review the main arguments in favour or against the use of collective redress procedures.