Welfare Implications of Costly Litigation under Strict Liability
AbstractThis article examines a model of strict liability with costly litigation and presents conditions under which (1) potential injurers take optimal precautions, (2) increasing the cost of litigation enhances precaution and social welfare, (3) the optimal level of liability exceeds the compensatory level, and (4) increasing the rate of settlement enhances social welfare. The results have implications for controversies surrounding fee shifting, optimal damage awards (e.g., punitive damages), and the social desirability of settlement. The most striking implication is that fee shifting in favor of prevailing plaintiffs is socially desirable in low-transaction-cost settings. Copyright 2002, Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal American Law and Economics Review.
Volume (Year): 4 (2002)
Issue (Month): 1 (January)
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- De Mot, Jef & Depoorter, Ben, 2010. "Tort law and probabilistic litigation: How to apply multipliers to address the problem of negative value suits," International Review of Law and Economics, Elsevier, vol. 30(3), pages 236-243, September.
- Liu, Zhiyong & Avraham, Ronen, 2012. "Ex ante versus ex post expectation damages," International Review of Law and Economics, Elsevier, vol. 32(4), pages 339-355.
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