Integrating Punishment and Efficiency Concerns in Punitive Damages for Reckless Disregard of Risks to Others

Posted: 7 Dec 2001

See all articles by Peter A. Diamond

Peter A. Diamond

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

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Abstract

Justifications for the use of punitive damages refer to deterrence and punishment. After formulating a social welfare function that incorporates both economic efficiency and a desire for retribution, optimal punitive damages are considered to balance concerns for economic efficiency and for retribution. This optimal balancing is considered where compensatory damages alone provide the correct level of deterrence, allowing the ideal retribution to vary with the level of wealth and with the level of precaution. The analysis is extended to situations where some accidents do not result in liability.

JEL Classification: K13

Suggested Citation

Diamond, Peter A., Integrating Punishment and Efficiency Concerns in Punitive Damages for Reckless Disregard of Risks to Others. Available at SSRN: https://ssrn.com/abstract=291797

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