The Unexpected Effects of Caps on Non-Economic Damages
AbstractWe study the economic and legal implications of the enactment of caps on noneconomic damages on parties in conflict 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 several surprising predictions: First, caps may increase the length of resolution of 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, 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 conclude that to increase welfare legislators have to tailor caps to the economic and constitutional circumstances in their state in ways which we characterize in the paper.
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Bibliographic InfoPaper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 353.
Date of creation: 2008
Date of revision:
Tort reform; caps on recoveries; length of dispute resolution;
Other versions of this item:
- Avraham, Ronen & Bustos, Álvaro, 2010. "The unexpected effects of caps on non-economic damages," International Review of Law and Economics, Elsevier, vol. 30(4), pages 291-305, December.
- 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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