Pricing Damages for Pain and Suffering in Court: The Impact of the Valuation Method

Authors

  • Magdalena Flatscher-Thöni,

  • Andrea M. Leiter,

  • Hannes Winner


  • We are grateful to the anonymous referees and the editors in charge (Dawn Chutkow, Theodore Eisenberg), the participants of the 28th Annual Meeting of the European Association of Law and Economics in Hamburg, the 8th Annual Conference of the German Law and Economic Association 2010 in Wiesbaden, the seminar participants at the Universities of Innsbruck, Rotterdam, and Salzburg, and especially to Josef Nussbaumer and Michael Pfaffermayr for valuable discussions and suggestions.

Address correspondence to Dr. Magdalena Flatscher-Thöni, email: Magdalena.Flatscher-Thoeni@umit.at.

Abstract

We analyze the pricing of pain and suffering and, in particular, whether the corresponding compensation for pain and suffering is affected by a court's approach to valuing such damages. For this purpose, we use data on pain and suffering verdicts in Austria, where courts are generally free to choose between a per-diem and a lump-sum scheme to assess damages for pain and suffering. The per-diem approach was introduced in 1990 but was not adopted in all Austrian provincial courts. This enables us to estimate the causal impact of the change in calculation schemes. Applying a difference-in-difference framework to estimate this treatment effect, we observe that courts increased their compensation by about 38 percent to 59 percent after the implementation of the per-diem scheme.

Ancillary