US State Tort Liability Reform and Entrepreneurship

Abstract

Tort and civil liability reform has been a hotly debated issue across US states. This has spawned a large theoretical and empirical academic literature that evaluates the implications of such reform and the impact that it can have on various aspects of an economy. This study adds to that literature by considering how various tort reforms affect entrepreneurial activity across states. The study employs the Database of State Tort Law Reforms (6th Edition) and utilizes the Kauffman Index of Entrepreneurial Activity between 1996 and 2016, finding that liability reform is generally positively associated with increased entrepreneurial activity. These results are largely driven by reforms to joint and several liability, caps on noneconomic damages, collateral source reform, and contingency fee reform.

Keywords: Entrepreneurship, Tort Reform, Liability, Kauffman, Economic Growth

JEL Classification: D78, H73, K13