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Abstract:
This manuscript of the DSTLR (2nd) updates DSTLR (1st) and contains the most detailed, complete and comprehensive legal dataset of the most prevalent tort reforms in the US. The dataset records state laws in all fifty states and the District of Columbia over the last several decades. For each reform we record the effective date, a short description of the reform, whether or not the jury is allowed to know about the reform, whether the reform was upheld or struck down by the states' supreme courts, as well as whether it was amended by the state legislator. Previous and current scholarship which studies the empirical effects of tort reforms uses various different legal datasets, (tort reforms datasets and other legal compilations), some which existed online, some created ad-hoc by the researchers. Besides being different from each other, these datasets frequently do not cover reforms adopted before 1986, miss reforms superseded after 1986, miss court-based reforms, ignore effective dates of legislation, and do not accurately record judicial invalidation of laws. It is possible that at least some of the persisting variation across empirical studies about the effect of tort reforms might be due to variations across legal datasets used. This dataset builds upon and improves existing data sources. It does so by reviewing original sources of legislation and case law to determine the exact text and effective dates. The second draft corrects errors that were found in the first draft, focusing only on the most prevalent reforms, and standardizing the description of the reforms. A link to an Excel file which codes ten reforms in DSTLR (2nd) is provided. It is hoped that by creating one "canonized" dataset our understanding of the impact of tort reform on our life will increase.

health law, law and economics, empirical studies, tort and product liability, medical malpractice

Abstract:
Pain-and-suffering awards make up approximately fifty percent of total awards, at least in some areas of personal injury cases. It is the subject of almost every tort reform, including the current administration attempts to reform medical malpractice law. Is there a rational way to quantify pain-and-suffering awards? In this paper, written for a special centennial issue of NU law review, I explain some of the suggestions for pricing pain and suffering put forward in the literature and preliminary offer a different way to look at the problem.

The theoretical approach I adopt in this paper to the pricing of pain and suffering is to analyze it from a law and economics standpoint, which also incorporates a limited notion of global fairness. My starting point is the "majority view" which states that efficient tort law requires pain-and-suffering damages to be awarded so tortfeasors will internalize the full social costs of their conduct, including the non-monetary ones. My focus in this paper is the fundamental unresolved issue of how to price such damages.

After reviewing various proposals for pricing pain and suffering, I argue that all of these proposals are analytically problematic, and undesirable as a matter of policy. I then propose a new way to price pain and suffering. Under my proposal, a system of age-adjusted multipliers would be assigned to plaintiffs' medical costs (but not to other economic costs) in order to calculate the pain-and-suffering component. The multipliers would be non-binding, allowing the jury to fairly deviate when justice required. This system solves the problem of unpredictability and, at the same time, approximates optimal deterrence, all at very low administrative costs. It combines the advantages of efficiency and fairness by having a jury determine awards on a case-by-case basis, without the high complexity of assessing pain-and-suffering losses present in other proposals.

Abstract:
Should there be pain-and-suffering damages in tort law? Most legal economists say no. Some scholars have reached this conclusion through pure theory. Others have done empirical or experimental work to explore the desirability of pain-and-suffering damages, yet they have reached the conclusion that it is undesirable. In contrast, this paper provides preliminary evidence that it may be desirable to have pain-and-suffering damages in tort law.

Specifically, I present two experimental studies on the demand for pain-and-suffering coverage. The foremost question was whether participants perceive any difference between monetary and non-monetary coverage. In my studies, participants faced insurance decisions involving the purchase of several different types of products: padding for roller skates, a portable saw, computer monitor, trampoline, facial cream, and tires for an SUV. For each product, participants had to state the price that they were willing to pay above the price of the product for monetary and for pain-and-suffering insurance. I then compared the demand for monetary insurance coverage with the demand for pain-and-suffering coverage.

My results in both studies show that the vast majority of the participants treated the two types of insurance the same, either buying them both or buying neither. Moreover, on average, in both studies the majority of participants treated both types of insurance exactly the same, namely, they paid exactly the same amount of money for both types of insurance.

The paper also responds to several objections. Specifically, my study demonstrates that the demand for pain-and-suffering coverage is general and cannot be explained by a demand for coverage for rehabilitation costs or as a way to increase the coverage for monetary insurance coverage.

One of the novelties in this study is methodological. By comparing the relative demand for monetary versus pain-and-suffering coverage, the study overcomes traditional critiques of experiments. Specifically, the study is immune to the participants' cognitive biases, lack of incentives, or computational deficiencies because these problems affect the demand for both types of insurance equally. By comparing relative differences between the demand for monetary versus pain-and-suffering coverage this study controls for these factors.

Abstract:
This study evaluates the impact of six different types of tort reforms on the frequency, size and number of total annual settlements in medical malpractice cases between 1991 and 1998. Previous studies have failed to correctly identify the effective dates of reforms, to account for the retroactive applicability of striking down reforms, or used highly selected samples of jury verdicts or litigated cases. I employ a new legal data set of tort reforms, which carefully evaluates effective dates as well as when certain laws were overturned. Medical malpractice data comes from the National Practitioner Data Bank, which contains more than 100,000 malpractice settlement payments in the study time frame. The data represent the universe of cases in which doctors paid a positive settlement. Thus, the present study has significant advantages over previous work for being the first study to systematically and adequately explore the impact of tort reform on settlements (in contrast to judgments). Of the six tort reforms examined, two reforms (caps on pain-and-suffering damages and limitations on joint and several liability) reduced the number of annual payments, and two reforms (caps on pain-and-suffering damages and the periodic payment reform) reduced average awards. Caps on non-economic damages had an effect on total annual payments, although the statistical significance of that effect was weak. The joint effect of enacting all six reforms was statistically significant for reducing the number of cases but not the state level average award or total payments.

medical malpractice, torts, tort reform, empiricial work, NPDB, DSTLR

Abstract:
In this paper we study contracts with two-sided incomplete information. Prior literature on contract remedies does not formally account for the non-breaching party’s option to not sue for damages upon breach, when her expected payoff from suing is negative, given the contractual terms and her private information about her post breach loss. With this option incorporated into the analysis, we show that: First, courts should commit to awarding fixed damages, because awarding flexible damages based on ex post information will distort the incentives to breach. This result is not driven by the information forcing effect of basing damages on ex ante expectations, à la Hadley vs. Baxendale. Second, the option of acquiescing to the breach expands the breach set under specific performance, which can be more efficient than other remedies. Third, the efficiency advantage of ex ante expectation damages over ex post actual damages is further enhanced when we account for the possibility of renegotiation. The main results are robust when we account for verification cost of plaintiff’s damages and for parties’ litigation cost.

Breach of Contract, Damages Measures, Asymmetric Information, Litigation, Renegotiation

Abstract:
This study evaluates the impact of tort reform on health insurance coverage using the Current Population Survey's March Demographic Files. Proponents of tort reform argue that reform will reduce medical malpractice insurance costs, damage awards, and costs associated with defensive medicine. If proponents are correct, these cost reductions should lower the price of healthcare and increase health insurance coverage. On the other hand, if the prior tort law was functioning well, reform may increase medical costs by reducing doctors' care-taking or increasing the number of unnecessary procedures. In this case, tort reform could actually decrease insurance coverage by raising the price of health care. We evaluate the effect of eight common tort reforms on private health insurance coverage between 1981 and 2004. In triple-difference specifications, we find that reform generally increased health insurance coverage for the most price-sensitive groups (the young, the self-employed, and the single). We also find that those uninsured around the time of reform were more likely to obtain private insurance after reform. Given the multicollinearity of many reforms, it is difficult to gauge the impact of individual reforms. However, the evidence suggests that limitations on punitive and non-economic damages do not affect private insurance coverage, while caps on total damages, collateral source reform, and reforms to liability and payment structure are associated with increased private insurance coverage for price-sensitive groups. Accordingly, we conclude that some tort reforms are effective in reducing healthcare costs. The magnitude of the effects on price sensitive groups suggests that some tort reforms can reduce health care costs by as much as two percent.

tort law, health law, health economics, insurance

Abstract:
Scholars have been debating for years the comparative advantage of damages and specific performance. Yet, most work has compared a single remedy contract to another single remedy contract. But contract law provides the non-breaching party with a variety of optional remedies to choose from in case of a breach, and parties themselves regularly write contracts which provide such options. In this article, we start filling this gap by studying multi-remedy contracts. Specifically, we compare a contract that grants the non-breaching party an option to choose between liquidated damages and specific performance with an exclusive remedy contract, which restricts the non-breaching party's remedy to liquidated damages only.

Abstract:
Scholars have been debating for years the comparative advantage of damages and specific performance. Yet, most work has compared a single remedy contract to another single remedy contract. But contract law provides the non-breaching party with a variety of optional remedies to choose from in case of a breach, and parties themselves regularly write contracts which provide such options. In this article, we start filling this gap by studying multi-remedy contracts. Specifically, we compare a contract that grants the non-breaching party an option to choose between liquidated damages and specific performance with an exclusive remedy contract, which restricts the non-breaching party's remedy to liquidated damages only.

Abstract:
This paper questions the fairness of our current tort-law regime and the philosophical underpinnings advanced in its defense, a theory known as corrective justice. Fairness requires that the moral equality and responsibility of persons be respected in social interactions and institutions. The concept of luck has been used by many egalitarians as a way of giving content to fairness by differentiating between those benefits and burdens that result from informed choice and those that result from fate or fortune. We argue that the theory of corrective justice, along with its institutional embodiment of tort law, is at odds with an egalitarian commitment to fairness because it allows luck an unjustifiable role in determining dissimilar liability for similar wrongs and dissimilar compensation for similar losses to bodily integrity. Many egalitarian political theorists have also recognized, if not defended, the notion of distinct forms of justice, namely corrective, retributive, and distributive. Although theorists of these different forms of justice have been concerned with negating unfair luck inside the operations of each form of justice, there has been little attention to the way in which luck operates to sort cases into each form of justice. We claim that there is a significant way in which luck operates to subject different people to principles of corrective, retributive, and distributive justice - thereby assessing dissimilar liability for similar wrongs and disparate compensation for similar losses - which flies in the face of the egalitarian value of fairness. After surveying the arguments put forward by theorists defending a categorical distinction between corrective justice and retributive and distributive principles, we argue that although analytical distinctions can be made between different forms of justice (although, we also suggest that the distinctions are not as sharp as some commentators suggest), there is no good reason to defend an acoustic separation between these forms of justice when doing so creates unfair outcomes.

Public law, Tort

Abstract:
The existing literature on redistributive legal rules has focused almost exclusively on redistributive policy with respect to income inequality and has, in general, discouraged the use of such rules, favoring instead the exclusive use of the tax-and-transfer system. More recently, this view has begun to come under attack from various quarters. In this Article we examine the redistributive-rules debate and provide our own theoretical framework for deciding when tax rules and when legal rules (or when some combination of the two) should be used to achieve society's redistributive ends. Our basic claims are that (a) income inequality is not the only legitimate target of redistributive policy, and (b) the redistribution-minded policymaker ought to choose the redistributive policy instrument that has a comparative advantage at redistributing with respect to the particular type of inequality that is being targeted. We further suggest that, in making that comparative-advantage determination, the policymaker should consider the relative institutional capacities of the legal system and the tax system both to observe the relevant type of inequality and to redistribute with respect to it. We argue that our framework would apply not only to income inequality, but also to inequality along other dimensions.

One of the contributions of the Article, with respect to income-redistributive-rules in particular, is to distinguish between "class-based redistributive rules" (which redistribute from one preselected class of parties to another) and "case-specific redistributive rules" (which redistribute between the two parties before the court) and to explore the differences in those two approaches. Our general conclusion with respect to income redistribution is that the tax-and-transfer system usually will have a comparative advantage, both in terms of observing or measuring income and in terms of redistributing with respect to it, because of the contracting-around and haphazardness problems. We do suggest, however, that if income-redistributive rules are to be used (as a supplement to the income tax), one of the effects would be to deputize liability insurance companies as a sort of privatized tax collector, which may or may not be desirable.

Another contribution of the paper is to identify several examples of non-income measures of inequality with respect to which the legal system has a redistributive comparative advantage. Perhaps the best example involves genetically determined diseases, such as Huntington's disease. We argue that, with respect to that type of inequality (i.e., the inequality of well-being between those who have the gene and those who do not), the best redistributive tool arguably would be a legal rule that forbade insurers from discriminating on the basis of their insured's genetic information. Such a rule would produce an automatic transfer - via cross-subsidization - at relatively low cost, when compared with a tax-and-transfer alternative.

Tax Rules

Abstract:
Recent work has discussed and formalized the conditions under which Liability Rules are superior to Property Rules in a world with "one-sided" incomplete information. These studies demonstrated how Liability Rules achieve higher social welfare by harnessing one party's private information about its own valuation to the process of optimally allocating the entitlement between the parties. This article introduces a new family of Liability Rules hitherto neglected by courts and legal scholars. Modular Liability Rules is a legal regime in which the court applies legal Rules for which the traditional Liability Rules are building blocks; these Rules harness both parties' private information. Whereas in an efficient Liability Rule 2 (for example) a Polluter is granted a call-option to purchase the right to the air (so to speak) with an exercise price that equals the Resident's harm, in Modular Liability Rule 6+5, (for example) a pair of options, rather than a single one, is allocated; the Resident gets a put option to force a transfer of the entitlement (as under Rule 6), but the Polluter has a consecutive put option to sell the entitlement back to the Resident, if he wishes (as under Rule 5). Interestingly, the maximizing joint welfare exercise-price equals, in general and for uniform distributions, to an amount that is the average of one party's maximum estimated valuation and the other party's minimum estimated valuation. Two paradigmatic worlds of two-sided incomplete information are studied: a symmetric world, in which the court's best estimate of the parties' private valuations is that they are identically distributed, and an asymmetric world. In the symmetric world, Modular Liability Rules are in some respects more efficient and more fair (exact definitions are discussed in the article) than the conventional Liability Rules. In the two-sided and asymmetric world, Modular Liability Rules yield higher joint payoff than regular Liability Rules if, and only if, the difference between the parties' means is larger than the difference between their amount of private information (represented by the distribution's support). A practical way to implement these insights in real life situations is offered.

Abstract:
For many years the conventional wisdom on whether legal rules should be used to redistribute resources in society, or whether instead redistribution should be done exclusively through to the tax-and-transfer system, was considered an empirical question best resolved on a case-by-case basis. More recently, Louis Kaplow and Steven Shavell have demonstrated that, under certain assumptions, it is possible with respect to any income-dependent legal rule to design a "simple alternative" legal regime that is independent of income (and in which all redistribution is accomplished through the tax-and-transfer system) and which leaves everyone as well off as under the income-dependent rule, but that also produces additional revenue for the government.

In this Article we relax two of Kaplow and Shavell's simplifying assumptions. First, following the lead of Chris Sanchirico, we introduce heterogeneity with regard to skill in taking care and with regard to ability to generate income. Second, and more important, we relax the assumption on which Kaplow and Shavell critically rely that the social planner has complete information. In our Article, we are able to present a more complete picture of the ex-ante adjustments that will be made by individuals when they face an income-dependent legal regime. We show that an income-dependent tort rule, for example, gives wealthy potential tortfeasors two degrees of freedom; whereas the income-independent regime gives them only one. The failure of prior researchers to emphasize these two degrees of freedom, we believe, has caused considerable confusion. We argue that, given this two degrees of freedom (and the heterogeneity among individuals), Kaplow and Shavell's theoretical model of a tax-and-transfer alternative to redistributive legal rules is no longer a "simple alternative." To the contrary, it is virtually impossible to implement, for the informational burden on the social planner is insurmountable.

redistribution, distributive justice

Abstract:
Tragedy of the human commons is a special case of tragedy of the commons in which the common resource is composed of human beings. Because humans, unlike trees or fish, behave strategically and because the welfare of humans, unlike that of trees or fish, matters for its own sake, tragedy of the human commons presents different problems and can be solved in different ways. In this Article, we explore - and solve - one important example of tragedy of the human commons: health insurers' failure to make long-term investments in improving the health of their common resource, the pool of insureds who switch among health insurers.

We make three major contributions in this Article. First, we describe the unique characteristics of the tragedy of the human commons. We show that this distinction both complicates analysis of commons problems and makes available a variety of solutions unavailable in regular commons. Second, we develop a rich theoretical framework of possible solutions to the tragedy of the human commons. Third, applying the theoretical framework to the health care system failure to cover prospectively efficient treatments, we outline our proposal for a mandatory-membership clearinghouse among insurers. Through the clearinghouse we propose, insurers would decide on and make transfer payments to each other that would induce each of them to cover efficient treatments. We explain how such a clearing house would work and why such a clearing-house is politically feasible.

tragedy of the commons, common resources, health, clearing house

Abstract:
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.

tort reform, caps on damages, length of dispute resolution

Abstract:
We evaluate the effect of tort reform on employer-sponsored health insurance premiums by exploiting state-level variation in the timing of reforms. Using a dataset of healthplans representing over 10 million Americans annually between 1998 and 2006, we find that caps on non-economic damages, collateral source reform, and joint and several liability reform reduce premiums by 1 to 2 percent each. These reductions are concentrated in PPOs rather than HMOs, suggesting that can HMOs can reduce “defensive” healthcare costs even absent tort reform. The results are the first direct evidence that tort reform reduces healthcare costs in aggregate; prior research has focused on particular medical conditions.

health care reform, tort reform, insruance

Abstract:
In this paper I propose implementing a “private regulation regime” for healthcare which would realign health care providers’ incentives so as to significantly reduce the healthcare system’s three major cost drivers: medical errors, defensive medicine and offensive medicine. The private regulation regime would consist of private firms which would develop clinical practice guidelines and sell them to client health care providers. In exchange for purchasing, and following, the guidelines providers would be immune from medical malpractice lawsuits. The private regulators, though, would face liability for producing suboptimal guidelines. Providers would be less likely to make medical errors because they would be following optimally designed guidelines. They would have no incentive to engage in defensive medicine because they face no liability as long as they follow the guidelines. Lastly, they would be deterred from engaging in offensive medicine because providing treatment not prescribed by the guidelines would expose them to liability. This private regulation regime would require five changes in present legal infrastructure to come to fruition.

Healthcare Reform, Tort Reform, Defensive Medicine, Offensive Medicine, Medical Errors

Abstract:
This paper employs a unique data set comprised of a large sample of hospital in-patients to analyze the effect of tort reform on physician behavior. We examine a sample of 550,000 individuals aged 30 to 64 diagnosed as having had a heart attack between the years 1998 and 2005. We consider a number of different measures of intensity of treatment, including (1) total charges; (2) whether any procedure was done; (3) the number of procedures; and (4) the choice of major interventions (angioplasty versus bypass). We find that tort reform decreases intensity of treatment. More importantly for inference, the effect is most pronounced for the young, the group that poses the greatest liability risk. In addition, we find no evidence that tort reform increased intensity of treatment for those covered by insurance, suggesting that tort reform did not increase “induced demand.”

defensive medicine, induced demand, offensive medicine, tort reform

Abstract:
We evaluate the effect of tort reform on employer-sponsored health insurance premiums by exploiting state-level variation in the timing of reforms. Using a dataset of healthplans representing over 10 million Americans annually between 1998 and 2006, we find that caps on non-economic damages, collateral source reform, and joint and several liability reform reduce premiums by 1 to 2 percent each. These reductions are concentrated in PPOs rather than HMOs, suggesting that can HMOs can reduce defensive healthcare costs even absent tort reform. The results are the first direct evidence that tort reform reduces healthcare costs in aggregate; prior research has focused on particular medical conditions.

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