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The Collateral Source Rule: A Common Law Norm Under Special Interest Attack

Listed author(s):
  • David Schap


    (Department of Economics, College of the Holy Cross)

  • Andrew Feeley

    (Department of Economics, College of the Holy Cross)

According to Posnerian law and economics, common law (i.e., judge-made law) tends to promote efficiency. Public choice teaches that statutory (legislated) law need have no such efficiency property because, unlike appointed judges, legislators are subject to short election cycles and are beholden to special interests for election and re-election. The collateral source rule is a common law norm that permits an injured party to recover damages from both the tortfeasor (injurer) and from private insurance. Published work in the law and economics literature indicates that despite an appearance that the rule permits unwarranted double recover, the rule is indeed generally efficient. Despite its efficiency properties, the rule has been modified by statute in many jurisdictions in recent decades. Insurers reap transitory gains if exceptions to the collateral source rule are granted by statute whereas medical care providers achieve an ongoing gain if their sector is specifically excluded from the rule's application. The authors report the results of their exhaustive survey of statutory law concerning the collateral source rule in the fifty states, District of Columbia, Puerto Rico and Virgin Islands. The categorized findings reveal significant exceptions to the collateral source rule introduced into statutory law to the benefit of the special interests identified.

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File Function: Originally presented at the Public Choice Society Meetings, New Orleans, LA, March 29, 2006
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Paper provided by College of the Holy Cross, Department of Economics in its series Working Papers with number 0606.

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Date of creation: Jun 2006
Publication status: Published in Cato Journal, Vol. 28:1, Winter 2008, pp. 83-99.
Handle: RePEc:hcx:wpaper:0606
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  1. David Schap & Andrew Feeley, 2006. "(Much) More on the Collateral Source Rule," Working Papers 0605, College of the Holy Cross, Department of Economics.
  2. Rubin, Paul H & Bailey, Martin J, 1994. "The Role of Lawyers in Changing the Law," The Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 807-831, June.
  3. Epstein, Richard A, 1988. "The Political Economy of Product Liability Reform," American Economic Review, American Economic Association, vol. 78(2), pages 311-315, May.
  4. Paul Rubin, 2005. "Public choice and tort reform," Public Choice, Springer, vol. 124(1), pages 223-236, July.
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