The Effect of Liability Environment on Tort System Costs: Evidence from Automobile Insurance

Abstract

This study tests the relation between liability system environment and costs of the tort system. We employ a unique measure of liability environment calculated using responses from a survey conducted for the U.S. Chamber of Commerce. Measures of liability system costs are regressed on the measure of liability system environment. We find a consistent and strong negative relation between liability environment and costs of the liability system. Evidence also suggests that efforts to reduce moral hazard, reduce onerous price regulation, and increase driver safety will decrease automobile liability costs.

Keywords: Tort reform, Legal liability, Insurance

JEL Classification: K13, K41, G22