Should Tort Damages Be Multiplied?

Posted: 12 Jul 2005

See all articles by Keith N. Hylton

Keith N. Hylton

Boston University - School of Law

Thomas J. Miceli

University of Connecticut - Department of Economics

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Abstract

The notion that damages should be multiplied by the reciprocal of the probability of punishment is one of the basic lessons of the law and economics literature. However, the simple 1/p multiplier turns out be inapplicable in the civil damages setting. The multiplier that brings about first-best deterrence must be chosen by striking a balance between the supply of lawsuits and the need to internalize costs. Moreover, given the costs of litigation, a multiplier that minimizes overall social costs (in contrast to achieving first-best deterrence) may need to be set at a level that effectively bars many claims. This article derives optimal damage multipliers for a costly civil litigation system and examines the conflicting implications of deterrence and social cost minimization as objectives in the design of an optimal multiplier. An empirical application suggests that the first-best deterrence multiplier for the tort system is roughly equal to two.

Suggested Citation

Hylton, Keith N. and Miceli, Thomas J., Should Tort Damages Be Multiplied?. The Journal of Law, Economics, and Organization, Vol. 21, No. 2, pp. 388-416, 2005. Available at SSRN: https://ssrn.com/abstract=754846

Keith N. Hylton (Contact Author)

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States
617-353-8959 (Phone)
617-353-3077 (Fax)

Thomas J. Miceli

University of Connecticut - Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States
860-486-5810 (Phone)
860-486-4463 (Fax)

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