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Costly Litigation and Optimal Damages

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  • A. Mitchell Polinsky
  • Steven Shavell

Abstract

A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the influence of litigation costs on the optimal level of damages, assuming that litigation costs rise with the level of damages.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18594.

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Date of creation: Dec 2012
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Handle: RePEc:nbr:nberwo:18594

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  1. Katz, Avery, 1988. "Judicial decisionmaking and litigation expenditure," International Review of Law and Economics, Elsevier, vol. 8(2), pages 127-143, December.
  2. repec:reg:rpubli:575 is not listed on IDEAS
  3. Shavell, Steven, 1997. "The Fundamental Divergence between the Private and the Social Motive to Use the Legal System," The Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 575-612, June.
  4. Polinsky, A Mitchell & Rubinfeld, Daniel L, 1988. "The Welfare Implications of Costly Litigation for the Level of Liability," The Journal of Legal Studies, University of Chicago Press, vol. 17(1), pages 151-64, January.
  5. Joni Hersch & W. Kip Viscusi, 2007. "Tort Liability Litigation Costs for Commercial Claims," American Law and Economics Review, Oxford University Press, vol. 9(2), pages 330-369.
  6. Polinsky, A. Mitchell & Shavell, Steven M., 2010. "The Uneasy Case for Product Liability," Working paper 575, Regulation2point0.
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