The unexpected effects of caps on non-economic damages
AbstractThis paper focuses on the economic and legal implications of the enactment of caps on non-economic damages on conflicting parties who know that state supreme courts may strike down the caps as unconstitutional within a few years of enactment. We develop a simple screening model where parties have symmetric expectations regarding the probability of a strike down and asymmetric information regarding plaintiff's non-economic harm. Our model makes the following predictions: First, caps may increase the length required to resolve disputes if the caps are low enough or the probability of a strike down is large enough. Second, although caps always increase the percentage of disputes that are settled out of courts, they do not necessarily save litigation expenses. Third, when caps increase the length of dispute resolution, they also increase litigation expenses if and only if the settlement negotiation costs are neither too small nor too large. Fourth, while caps always reduce the recoveries of plaintiffs with large claims, caps may increase recoveries of plaintiffs with low claims compared to their recoveries in states with no caps. We end by discussing the robustness of the results.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Law and Economics.
Volume (Year): 30 (2010)
Issue (Month): 4 (December)
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Web page: http://www.elsevier.com/locate/irle
Tort reform Caps on recoveries Length of dispute resolution;
Other versions of this item:
- Álvaro Bustos & Ronen Avraham., 2008. "The Unexpected Effects of Caps on Non-Economic Damages," Documentos de Trabajo 353, Instituto de Economia. Pontificia Universidad Católica de Chile..
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
- K20 - Law and Economics - - Regulation and Business Law - - - General
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
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