Costly Litigation and Optimal Damages
15 Pages Posted: 18 Nov 2012 Last revised: 12 Feb 2013
Date Written: November 1, 2012
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: Suggested Citation