The Determinants of State-Level Caps on Punitive Damages: Theory and Evidence
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.
|Date of creation:||Oct 2010|
|Date of revision:|
|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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