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Costly Litigation and Optimal Damages

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  • A. Mitchell Polinsky

    ()
    (Stanford Law School)

  • Steven Shavell

    ()
    (Harvard Law School)

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    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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    File URL: http://www-siepr.stanford.edu/repec/sip/12-005.pdf
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    Bibliographic Info

    Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 12-005.

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    Date of creation: Dec 2012
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    Handle: RePEc:sip:dpaper:12-005

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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. 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.
    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. Shavell, Steven, 1999. "The level of litigation: private versus social optimality of suit and of settlement," International Review of Law and Economics, Elsevier, vol. 19(1), pages 99-115, March.
    6. repec:reg:rpubli:575 is not listed on IDEAS
    7. Hylton, Keith N., 1990. "The influence of litigation costs on deterrence under strict liability and under negligence," International Review of Law and Economics, Elsevier, vol. 10(2), pages 161-171, September.
    8. Polinsky, A. Mitchell & Shavell, Steven M., 2010. "The Uneasy Case for Product Liability," Working paper 575, Regulation2point0.
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