Costly Litigation and Optimal Damages

15 Pages Posted: 18 Nov 2012 Last revised: 12 Feb 2013

See all articles by Steven Shavell

Steven Shavell

Harvard Law School; National Bureau of Economic Research (NBER)

A. Mitchell Polinsky

Stanford Law School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2012

Abstract

A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the influence of litigation costs on the optimal level of damages, assuming that litigation costs rise with the level of damages.

JEL Classification: K13, K41

Suggested Citation

Shavell, Steven and Polinsky, A. Mitchell, Costly Litigation and Optimal Damages (November 1, 2012). Stanford Law and Economics Olin Working Paper No. 436; Harvard Law and Economics Olin Working Paper No. 739 ; Harvard Law School Program on Risk Regulation Research Paper No. 13-06. Available at SSRN: https://ssrn.com/abstract=2173597 or http://dx.doi.org/10.2139/ssrn.2173597

Steven Shavell

Harvard Law School ( email )

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National Bureau of Economic Research (NBER)

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A. Mitchell Polinsky (Contact Author)

Stanford Law School ( email )

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United States
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650-723-3557 (Fax)

National Bureau of Economic Research (NBER)

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United States

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