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Costly litigation and optimal damages

  • Polinsky, A. Mitchell
  • Shavell, Steven
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    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. Due to this consideration, we demonstrate that optimal damages can lie anywhere between zero and the harm plus the victim's litigation costs.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0144818813000422
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    Article provided by Elsevier in its journal International Review of Law and Economics.

    Volume (Year): 37 (2014)
    Issue (Month): C ()
    Pages: 86-89

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    Handle: RePEc:eee:irlaec:v:37:y:2014:i:c:p:86-89
    Contact details of provider: Web page: http://www.elsevier.com/locate/irle

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    1. 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.
    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, 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.
    4. repec:reg:rpubli:575 is not listed on IDEAS
    5. Katz, Avery, 1988. "Judicial decisionmaking and litigation expenditure," International Review of Law and Economics, Elsevier, vol. 8(2), pages 127-143, December.
    6. Keith N. Hylton, 2002. "Welfare Implications of Costly Litigation under Strict Liability," American Law and Economics Review, Oxford University Press, vol. 4(1), pages 18-43, January.
    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.
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