| Abstract: |
According to the law and economics approach, pure economic loss is a private
loss that is not socially relevant but simply implies a redistribution of
wealth. Consequently, wrongful behavior that induces reallocation of costs and
benefits with no consequences on social welfare is not considered socially
harmful, so is not necessarily subject to compensation. Since pure economic
loss is very often financial, the above reasoning also applies to financial
markets. However, the same law and economics arguments suggest that in
financial markets, the policy of internalizing pure economic loss by means of
class actions can be more far-sighted than simply compensating the victims:
the liability system has the particular feature of producing deterrence and
driving the market towards an efficient outcome. In this vein, the paper
argues that class action intended as a complementary ex-post regulatory device
can play a significant role in addressing a failure that ex-ante regulation
has not. This is coherent with the law and economics tradition that interprets
tort law remedies as a solution for internalizing externality and providing
the correct incentive to the markets. |