Welfare Implications of Costly Litigation under Strict Liability

Posted: 29 Feb 2008  

Keith N. Hylton

Boston University - School of Law

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Abstract

This article examines a model of strict liability with costly litigation and presents conditions under which (1) potential injurers take optimal precautions, (2) increasing the cost of litigation enhances precaution and social welfare, (3) the optimal level of liability exceeds the compensatory level, and (4) increasing the rate of settlement enhances social welfare. The results have implications for controversies surrounding fee shifting, optimal damage awards (e.g., punitive damages), and the social desirability of settlement. The most striking implication is that fee shifting in favor of prevailing plaintiffs is socially desirable in low-transaction-cost settings.

Suggested Citation

Hylton, Keith N., Welfare Implications of Costly Litigation under Strict Liability. American Law and Economics Review, Vol. 4, No. 1, pp. 18-43, 2002. Available at SSRN: https://ssrn.com/abstract=874194

Keith N. Hylton (Contact Author)

Boston University - School of Law ( email )

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