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Economic Efficiency and Damage Awards in Personal Injury Torts

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  • George A. Schieren

Abstract

Past discussions about economic efficiency and personal injury torts have focused on the relationship between the optimal amount of care a potential injurer should take for economic efficiency. Typically this discussion has assumed that the economic damages are strictly monetary without any full consideration of how these damages should be measured. This paper constructs a general model which incorporates as an unknown the amount of monetary damages that an injurer should pay in the interest of economic efficiency. The optimal amount of damages need to be known to serve as signal for the amount of care a potential injurer should take. The model shows that the optimal damage award should be at that point where that marginal utility of money paid out by the injurer equals the marginal utility of the money received by the victim under his utility function after the accident and not considering any non-monetary damages.

Suggested Citation

  • George A. Schieren, 2007. "Economic Efficiency and Damage Awards in Personal Injury Torts," Working Papers 07-08, Department of Economics, Appalachian State University.
  • Handle: RePEc:apl:wpaper:07-08
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    File URL: http://econ.appstate.edu/RePEc/pdf/wp0708.pdf
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    References listed on IDEAS

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    1. Calfee, John E & Rubin, Paul H, 1992. "Some Implications of Damage Payments for Nonpecuniary Losses," The Journal of Legal Studies, University of Chicago Press, vol. 21(2), pages 371-411, June.
    2. Steven Shavell, 2003. "Economic Analysis of Accident Law," NBER Working Papers 9483, National Bureau of Economic Research, Inc.
    3. Arlen, Jennifer H, 1992. "Should Defendants' Wealth Matter?," The Journal of Legal Studies, University of Chicago Press, vol. 21(2), pages 413-429, June.
    4. Robert D. Cooter, 1991. "Economic Theories of Legal Liability," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 11-30, Summer.
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