Aggregate damages: why the whole might not be the sum of the parts

Many legal regimes allow for the award of aggregate damages in collective or class claims. That is to say, an award may be made reflecting the losses of the class as a whole, with little or no information as to the losses suffered by individual class members. Economists are able to calculate damages at a class level without complete individual data by applying two different but not mutually exclusive sets of methodologies, which we refer to as ‘top-down’ and ‘sample-based’ approaches. This article discusses some of the advantages and pitfalls that may arise in estimating aggregate damages under each approach, and illustrates some circumstances in which the process of aggregation may lead to upward or downward bias in the estimate of total loss. We also compare the relative merits of each approach, and consider some of the practical steps by which such biases may be avoided.