Regulation, Taxation, and Litigation
W. Kip Viscusi
Vanderbilt University - Law School; National Bureau of Economic Research (NBER); Vanderbilt University - Department of Economics; Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Strategy and Business Economics
March 10, 2011
Vanderbilt Law and Economics Research Paper No. 11-12
Vanderbilt Public Law Research Paper No. 12-24
Policy tools that potentially foster efficient levels of health and safety are regulation, litigation, and taxation. Most U.S. regulatory agencies set standards that are more stringent than the efficient level of safety. As a result, there is strong justification for a regulatory compliance defense when companies are in compliance with specific regulations. Given the recent U.S. Supreme Court ruling in Wyeth v. Levine, legislation would be needed to establish a meaningful defense. Tort litigation on behalf of government entities may lead to settlements that do not involve conventional damages payments but rather impose both regulation and taxation. The Master Settlement Agreement for the cigarette litigation included regulatory components that had potentially anti-competitive effects. It also imposed an excise tax equivalent of 40 cents per pack that is prospective and will affect all firms, including those that have exhibited no wrongful conduct. New entrants and smokers were excluded from the negotiations, which generated disproportionate financial benefits to some states. The use of litigation to impose regulations and taxation should be discouraged.
Number of Pages in PDF File: 24
Keywords: regulation, litigation, master settlement agreement, regulatory compliance defense, cigarettes
JEL Classification: I18, K32, K13, K10
Date posted: March 13, 2011 ; Last revised: November 27, 2012
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