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The Determinants Of State-Level Caps On Punitive Damages: Theory And Evidence

  • THOMAS J. MICELI
  • MICHAEL P. STONE

Under the standard economic model of torts, punitive damages correct for imperfect detection. Incorporating litigation costs into the model provides a justification for punitive damage caps. At the optimum, caps balance deterrence against the cost of litigation. Empirical testing of the model is performed via Cox proportional and parametric hazard analyses, using a panel dataset from 1981 to 2007. The results reveal a positive relationship between judicial and legal expenditures (a proxy for legal costs) and cap enactment, and a negative relationship between state GSP (a proxy for damages) and cap enactment. Cap enactment is also influenced by political ideology.

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File URL: http://hdl.handle.net/10.1111/j.1465-7287.2011.00297.x
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Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 31 (2013)
Issue (Month): 1 (01)
Pages: 110-125

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Handle: RePEc:bla:coecpo:v:31:y:2013:i:1:p:110-125
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  1. Anupam Nanda, 2008. "Property Condition Disclosure Law: Why Did States Mandate ‘Seller Tell All’?," The Journal of Real Estate Finance and Economics, Springer, vol. 37(2), pages 131-146, August.
  2. Martin F. Grace & J. Tyler Leverty, 2013. "How Tort Reform Affects Insurance Markets," Journal of Law, Economics and Organization, Oxford University Press, vol. 29(6), pages 1253-1278, December.
  3. Karpoff, Jonathan M & Lott, John R, Jr, 1999. "On the Determinants and Importance of Punitive Damage Awards," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 527-73, April.
  4. Paul H. Rubin & Joanna M. Shepherd, 2007. "Tort Reform and Accidental Deaths," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 221-238.
  5. Eisenberg, Theodore, et al, 1997. "The Predictability of Punitive Damages," The Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 623-61, June.
  6. Joni Hersch & W. Kip Viscusi, 2004. "Punitive Damages: How Judges and Juries Perform," The Journal of Legal Studies, University of Chicago Press, vol. 33(1), pages 1-36, 01.
  7. Danzon, Patricia, 1984. "The Frequency and Severity of Medical Malpractice Claims," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 115-48, April.
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