Punitive Damages as a Social Harm Measure: Economic Analysis Continues
50 Pages Posted: 12 Dec 2008
Date Written: 2006
This article is an attempt to determine on the economic basis the optimal amount of punitive damages in a tort case. For proper deterrence, the optimal amount of damages consists of two components. The first is the "primary losses" inflicted to the victim. The second is the "secondary losses" inflicted to the society, estimated as the amount of the defendant's illicit gains. To reflect the non-unity probability of holding the injurer liable, both components should be inflated by relevant multipliers. The overcompensatory part of the first component may be called "supercompensatory" damages; the second component - "truly punitive" damages. For proper motivation of plaintiffs, the optimal award is the sum of the compensatory and supercompensatory damages; the truly punitive damages should be kept by the state. While the optimal-charge formula is in some correspondence with the existing law, the proposed split-award rule would require a radical statutory reform for implementation.
Keywords: Punitive damages, williams, economic analysis
JEL Classification: K13
Suggested Citation: Suggested Citation