New Economics Papers
on Law and Economics
Issue of 2009‒12‒11
three papers chosen by
Jeong-Joon Lee, Towson University

  1. Legal Liability when Individuals Have Moral Concerns By Bruno Deffains; Claude Fluet
  2. Insolvency and Biased Standards--The Case for Proportional Liability By Stremitzer, Alexander; Tabbach, Avraham
  3. The Changing Landscape of Blockbuster Punitive Damages Awards By Alison F. Del Rossi; W. Kip Viscusi

  1. By: Bruno Deffains; Claude Fluet
    Abstract: We incorporate normative motivations into the economic model of accidents and tort rules. The social norm is that one should avoid harming others and should compensate if nevertheless harm is caused. To some extent, this is internalized through intrinsic moral concerns; moreover, those thought not to adhere to the norm are met with social disapproval. Moral and reputational concerns are not strong enough, however, for injurers to willingly compensate their victims. Absent legal liability, normative concerns induce precautions to prevent harm but precautions are then socially inefficient. By contrast, perfectly enforced legal liability crowds out informal incentives completely (e.g., individuals causing harm suffer no stigma) but precautions are then socially efficient. Under imperfectly enforced legal liability, formal legal sanctions and normative concerns are complements and interact to induce more precautions than under no-liability.
    Keywords: Intrinsic motivations, social norms, esteem, strict liability, negligence, crowding out
    JEL: D8 K4 Z13
    Date: 2009
  2. By: Stremitzer, Alexander (Yale University and University of Bonn); Tabbach, Avraham (Tel-Aviv University)
    Abstract: We analyze liability rules in a setting where injurers are potentially insolvent and where negligence standards may deviate from the socially optimal level. We show that proportional liability, which sets the measure of damages equal to the harm multiplied by the probability that it was caused by an injurer's negligence, is preferable to other existing negligence-based rules. Moreover, proportional liability outperforms strict liability if the standard of due care is not set too low. Our analysis also suggests that courts should rely on statistical evidence and bar individualized causal claims that link the harm suffered by a plaintiff to the actions of the defendant. Finally, we provide a result which might be useful to regulators when calculating minimum capital requirements or minimum mandatory insurance for different industries.
    JEL: K13
    Date: 2009–11
  3. By: Alison F. Del Rossi; W. Kip Viscusi
    Abstract: This article investigates the determinants of the blockbuster punitive damages awards of at least $100 million. As of the end of 2008, there had been 100 such awards with an average value of $3.0 billion. The U.S. Supreme Court decision in State Farm v. Campbell suggested a single digit upper bound on the punitive damages/compensatory damages ratio, which reduced the annual number of blockbuster awards, the total annual value of blockbuster awards, and the punitive damages/compensatory damages ratio. Applying the 1:1 ratio from Exxon Shipping Co. et al. v. Baker et al. broadly would eliminate most of the blockbuster awards.
    JEL: K10 K40
    Date: 2009–12

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