Diffusion of Legal Innovations: The Case of Israeli Class Actions

Under the standard model in law and economics, agents maximize expected profit subject to constraints set by legal rules. In such a model, the expected reaction to legal innovations is immediate. However, this is not what we observe after class actions have been introduced into Israeli law. For a long time, the new procedure was rarely utilized. Then, the adoption process gained momentum. We discuss alternative explanations for this phenomenon. We find that class action filings are explained not only by law firms' own litigation outcomes, but also by the available information about other firms' success, and their cumulative filing pattern. We thus explain the observed filing pattern by both individual and social learning, and cannot exclude mere social imitation.