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Punitive Damages and the Optimal Level of Product Failure

Author

Listed:
  • Raymond J. Ballard

    (Texas A&M University-Commerce)

  • Dale R. Funderburk

    (Texas A&M University-Commerce)

Abstract

For several years a battle has been waged between trial lawyers and American business regarding the issue of punitive damage awards. Given the staggering magnitude of the monetary penalties that modern juries often impose against defendant firms, as well as the potential damage to the reputation of the company, how far should a supplier go in terms of efforts to improve product performance and reduce safety risks? We present a simple model that may be used as a framework for determining the optimal level of product safety/failure.

Suggested Citation

  • Raymond J. Ballard & Dale R. Funderburk, 2002. "Punitive Damages and the Optimal Level of Product Failure," Journal of Economic Insight (formerly the Journal of Economics (MVEA)), Missouri Valley Economic Association, vol. 28(1), pages 67-78.
  • Handle: RePEc:mve:journl:v:28:y:2002:i:1:p:67-78
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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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