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How Tort Reform Affects Insurance Markets

Author

Listed:
  • Martin F. Grace
  • J. Tyler Leverty

Abstract

The impact of a statute that is currently in effect depends on expectations about its future constitutionality. We investigate the effect of tort reform by segmenting reforms into those that are eventually declared unconstitutional (temporary) and those that are unchallenged or upheld (permanent). We find permanent tort reforms lower medical malpractice insurance losses and premiums and increase insurer profitability. In contrast, the effects of temporary reforms are never statistically significant. Measures that combine temporary and permanent reforms, the norm in the literature, significantly misestimate the impact of tort reform. Our results suggest that examining the effect of a current law without accounting for its future treatment produces misleading results. (JEL K13, K4, H7, G22) The Author 2012. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:jleorg:v:29:y:2013:i:6:p:1253-1278
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    File URL: http://hdl.handle.net/10.1093/jleo/ews026
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    Cited by:

    1. Thomas J. Miceli & Michael P. Stone, 2013. "The Determinants Of State-Level Caps On Punitive Damages: Theory And Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 31(1), pages 110-125, January.
    2. repec:bla:jrinsu:v:84:y:2017:i:2:p:691-715 is not listed on IDEAS

    More about this item

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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