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THE DETERMINANTS OF STATE-LEVEL CAPS ON PUNITIVE DAMAGES: THEORY AND EVIDENCE

Authors

  • THOMAS J. MICELI,

    1. Miceli: Professor, Department of Economics, University of Connecticut, Storrs, CT. Phone (860) 486-5810, Fax (860) 486-4463, E-mail Thomas.Miceli@UConn.edu.
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  • MICHAEL P. STONE

    1. Stone: Visiting Assistant Professor, Department of Economics, Quinnipiac University, Hamden, CT. Phone (203) 582-3941, Fax (203) 582-8664, E-mail Michael.Stone@Quinnipiac.edu
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    • We acknowledge the helpful advice of Stephen Ross, Eric Brunner, and the comments of participants at the Department of Economics Brownbag, University of Connecticut, November 2009. We also thank an anonymous reviewer and Wade Martin (editor) for their comments.


Abstract

Under the standard economic model of torts, punitive damages correct for imperfect detection. Incorporating litigation costs into the model provides a justification for punitive damage caps. At the optimum, caps balance deterrence against the cost of litigation. Empirical testing of the model is performed via Cox proportional and parametric hazard analyses, using a panel dataset from 1981 to 2007. The results reveal a positive relationship between legal services employment (a proxy for legal costs) and cap enactment, and a negative relationship between state gross state product (a proxy for damages) and cap enactment. Cap enactment is also influenced by political ideology. (JEL K13, K41, L51)

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