When Lord Woolf laid out the first of the three main objectives of the ‘new procedures’ that are needed for dealing with group interests in the Final Report on Access to Justice in 1996, he was effectively making an economic argument for the access to justice benefits of opt-out class actions. The first objective is to ‘provide access to justice where large numbers of people have been affected by another's conduct, but individual loss is so small that it makes individual action economically unviable’. With this in mind, this chapter offers an accessible framework for understanding the economics of class actions. It outlines some key concepts and economic enablers that allow for mass litigation, focusing on claimants, lawyers and funders (both private and public). This is based on the recognition that the most important aspect of a class action regime is its economic viability. Before delving further, however, a brief background on this approach is warranted.

Economic analysis of law

The economic analysis of law has come under scrutiny from across the legal and political spectrum. Although this approach – what has come to be known as the ‘law and economics’ methodology – has become a mainstream movement in American legal research, this enthusiasm has not been shared in England and Wales. Critics have raised concerns about the legal implications and political biases of the movement, its funding sources, its assumptions rooted in neoclassical economics, and its role in the conservative legal movement from the 1970s onwards. Notable potent criticisms have been raised over central tenets such as the primacy of efficiency as a normative ideal, the optimality of outcomes produced in competitive ‘free’ markets, and wealth maximization being a primary social good. One overarching criticism has been the movement's perceived economism; that is, the overvaluing of economic metrics, methodologies and theory, and a concomitant subordination and reduction of social reality to the same. This author shares these concerns.

For the present purposes, however, we can make use of some of the insights that economic analysis can offer without subscribing to the political and philosophical baggage of the movement. Indeed, the concepts and tools of such analysis have by now become widely accepted across the spectrum, if only for their utility and the analytical clarity they can provide.