A Theory of Wealth and Punitive Damages

Abstract:     
One recurring problem in the punitive damages case law is the degree to which the wealth of the defendant should matter in the determination of a punitive award. Intuition suggests that the wealthy should pay more than the non-wealthy. On the other hand, the view has been expressed that wealth should not play a role in the determination of a punitive award. I will use examples to develop several arguments. The claim that wealth is seldom relevant to the determination of a punitive award is unsupportable. The key proposition advanced in this paper is that the defendant's wealth is relevant when either the victim's loss or the defendant's gain from wrongdoing is unobservable and correlated with the defendant's wealth. Since the victim's loss typically will be observable, wealth will tend to be a relevant factor when optimal deterrence requires elimination of the defendant's gain.

Keywords: punitive damages, punitive award, defendant's wealth as a factor in determining the award, optimal deterrence

JEL Classifications: K00, K13, K40, K49

Accepted Paper Series