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

Author Info

  • 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.

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File URL: http://web2.uconn.edu/economics/working/2010-25.pdf
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2010-25.

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Length: 35 pages
Date of creation: Oct 2010
Date of revision:
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.
Contact details of provider: Postal: University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063
Phone: (860) 486-4889
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Web page: http://www.econ.uconn.edu/
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Keywords: Deterrence; litigation costs; punitive damages; statutory caps;

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Find related papers by 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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  1. Paul H. Rubin & Joanna M. Shepherd, 2007. "Tort Reform and Accidental Deaths," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 221-238.
  2. Anupam Nanda, 2006. "Property Condition Disclosure Law: Why Did States Mandate 'Seller Tell All'?," Working papers 2006-16, University of Connecticut, Department of Economics.
  3. Eisenberg, Theodore, et al, 1997. "The Predictability of Punitive Damages," The Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 623-61, June.
  4. Martin F. Grace & J. Tyler Leverty, 2013. "How Tort Reform Affects Insurance Markets," Journal of Law, Economics and Organization, Oxford University Press, vol. 29(6), pages 1253-1278, December.
  5. Joni Hersch & W. Kip Viscusi, 2004. "Punitive Damages: How Judges and Juries Perform," The Journal of Legal Studies, University of Chicago Press, vol. 33(1), pages 1-36, 01.
  6. Danzon, Patricia, 1984. "The Frequency and Severity of Medical Malpractice Claims," Journal of Law and Economics, University of Chicago Press, vol. 27(1), pages 115-48, April.
  7. Karpoff, Jonathan M & Lott, John R, Jr, 1999. "On the Determinants and Importance of Punitive Damage Awards," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 527-73, April.
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Cited by:

  1. Ulrich Matter & Alois Stutzer, 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.

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