The Unexpected Effects of Caps on Non-Economic Damages
We study the economic and legal implications of the enactment of caps on noneconomic damages on parties in conflict who know that state supreme courts may strike down the caps as unconstitutional within a few years of enactment. We develop a simple screening model where parties have symmetric expectations regarding the probability of a strike down and asymmetric information regarding plaintiff's non-economic harm. Our model makes several surprising predictions: First, caps may increase the length of resolution of disputes if the caps are low enough or the probability of a strike down is large enough. Second, although caps always increase the percentage of disputes that are settled out of courts, they do not necessarily save litigation expenses. Third, while caps always reduce the recoveries of plaintiffs with large claims, caps may increase recoveries of plaintiffs with low claims compared to their recoveries in states with no caps. We conclude that to increase welfare legislators have to tailor caps to the economic and constitutional circumstances in their state in ways which we characterize in the paper.
|Date of creation:||2008|
|Contact details of provider:|| Postal: Avda. Vicuña Mackenna 4860, Macul, Santiago|
Phone: (562) 354-4303
Fax: (562) 553-1664
Web page: http://www.economia.uc.cl
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kessler, Daniel, 1996. "Institutional Causes of Delay in the Settlement of Legal Disputes," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(2), pages 432-460, October.
- Yasutora Watanabe, 2005. "Learning and Bargaining in Dispute Resolution: Theory and Evidence from Medical Malpractice Litigation," 2005 Meeting Papers 440, Society for Economic Dynamics.
- Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
- Ronen Avraham, 2007. "An Empirical Study of the Impact of Tort Reforms on Medical Malpractice Settlement Payments," The Journal of Legal Studies, University of Chicago Press, vol. 36(S2), pages 183-229, 06.
- Danzon, Patricia M., 2000.
"Liability for medical malpractice,"
Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 26, pages 1339-1404
- Patricia M. Danzon, 1991. "Liability for Medical Malpractice," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 51-69, Summer.
- Janet Currie & W. Bentley MacLeod, 2008. "First Do No Harm? Tort Reform and Birth Outcomes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 795-830.
- Janet Currie & W. Bentley MacLeod, 2006. "First Do No Harm?: Tort Reform and Birth Outcomes," NBER Working Papers 12478, National Bureau of Economic Research, Inc.
- William M. Landes, 1974. "An Economic Analysis of the Courts," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 164-214 National Bureau of Economic Research, Inc.
- Landes, William M, 1971. "An Economic Analysis of the Courts," Journal of Law and Economics, University of Chicago Press, vol. 14(1), pages 61-107, April.
- Daughety, Andrew F. & Reinganum, Jennifer F., 1994. "Settlement negotiations with two-sided asymmetric information: Model duality, information distribution, and efficiency," International Review of Law and Economics, Elsevier, vol. 14(3), pages 283-298, September.
- Andrew F. Daughety & Jennifer F. Reinganum, 1994. "Settlement Negotiations with Two-Sided Asymmetric Information: Model Duality, Information Distribution and Efficiency," Game Theory and Information 9403009, EconWPA.
- Babcock, Linda & Pogarsky, Greg, 1999. "Damage Caps and Settlement: A Behavioral Approach," The Journal of Legal Studies, University of Chicago Press, vol. 28(2), pages 341-370, June.
- Daniel P. Kessler & Daniel L. Rubinfeld, 2004. "Empirical Study of the Civil Justice System," NBER Working Papers 10825, National Bureau of Economic Research, Inc.
- George L. Priest & Benjamin Klein, 1984. "The Selection of Disputes for Litigation," The Journal of Legal Studies, University of Chicago Press, vol. 13(1), pages 1-56, January.
- Bebchuk, Lucian Arye, 1988. "Suing Solely to Extract a Settlement Offer," The Journal of Legal Studies, University of Chicago Press, vol. 17(2), pages 437-450, June.
- Lucian Arye Bebchuk, 1987. "Suing Solely to Extract a Settlement Offer," NBER Working Papers 2161, National Bureau of Economic Research, Inc.
- Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter.
- Holger Sieg, 2000. "Estimating a Bargaining Model with Asymmetric Information: Evidence from Medical Malpractice Disputes," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1006-1021, October.
- Urs Schweizer, 1989. "Litigation and Settlement under Two-Sided Incomplete Information," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 163-177. Full references (including those not matched with items on IDEAS)