Regulation, Taxation, and Litigation
24 Pages Posted: 13 Mar 2011 Last revised: 27 Nov 2012
Date Written: March 10, 2011
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.
Keywords: regulation, litigation, master settlement agreement, regulatory compliance defense, cigarettes
JEL Classification: I18, K32, K13, K10
Suggested Citation: Suggested Citation