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The Determinants of State-Level Caps on Punitive Damages: Theory and Evidence

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  • Thomas J. Miceli

    (University of Connecticut)

  • Michael P. Stone

    (Quinnipiac University)

Abstract

Under the standard economic model of torts, punitive damages correct for imperfect detection. Incorporating litigation costs into the model provides a justification for punitive damage caps. At the optimum, caps balance deterrence against the cost of litigation. Empirical testing of the model is performed via Cox proportional and parametric hazard analyses, using a panel dataset from 1981 to 2007. The results reveal a positive relationship between judicial and legal expenditures (a proxy for legal costs) and cap enactment, and a negative relationship between state GSP (a proxy for damages) and cap enactment. Cap enactment is also influenced by political ideology.

Suggested Citation

  • Thomas J. Miceli & Michael P. Stone, 2010. "The Determinants of State-Level Caps on Punitive Damages: Theory and Evidence," Working papers 2010-25, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2010-25
    Note: We acknowledge the helpful advice of Stephen Ross and the comments of participants at the Department of Economics Brownbag, University of Connecticut, November 2009.
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    References listed on IDEAS

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    1. Hylton, Keith N., 1990. "The influence of litigation costs on deterrence under strict liability and under negligence," International Review of Law and Economics, Elsevier, vol. 10(2), pages 161-171, September.
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    6. Martin F. Grace & J. Tyler Leverty, 2013. "How Tort Reform Affects Insurance Markets," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 29(6), pages 1253-1278, December.
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    11. Eisenberg, Theodore & Goerdt, John & Ostrom, Brian & Rottman, David & Wells, Martin T, 1997. "The Predictability of Punitive Damages," The Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 623-661, June.
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    Cited by:

    1. Matter, Ulrich & Stutzer, Alois, 2014. "The Role of Lawyer-Legislators in Shaping the Law: Evidence from Voting Behavior on Tort Reforms," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100452, Verein für Socialpolitik / German Economic Association.
    2. Matter, Ulrich & Stutzer, Alois, 2015. "Politico-economic determinants of tort reforms in medical malpractice," Working papers 2015/02, Faculty of Business and Economics - University of Basel.
    3. Matter, Ulrich & Stutzer, Alois, 2013. "Do Lawyer-Legislators Protect Their Business? Evidence from Voting Behavior on Tort Reforms," Working papers 2013/09, Faculty of Business and Economics - University of Basel.
    4. Matter, Ulrich & Stutzer, Alois, 2016. "The role of party politics in medical malpractice tort reforms," European Journal of Political Economy, Elsevier, vol. 42(C), pages 17-35.

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    More about this item

    Keywords

    Deterrence; litigation costs; punitive damages; statutory caps;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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