Costly Litigation and Optimal Damages

14 Pages Posted: 7 Dec 2012

See all articles by A. Mitchell Polinsky

A. Mitchell Polinsky

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

Steven Shavell

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

Multiple version iconThere are 2 versions of this paper

Date Written: December 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.

Suggested Citation

Polinsky, A. Mitchell and Shavell, Steven, Costly Litigation and Optimal Damages (December 2012). NBER Working Paper No. w18594. Available at SSRN: https://ssrn.com/abstract=2186323

A. Mitchell Polinsky (Contact Author)

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Steven Shavell

Harvard Law School ( email )

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