Assuring Civil Damages Adequately Deter: A Public Good Experiment

Authors

  • Theodore Eisenberg,

  • Christoph Engel

    Corresponding author
    • Direct correspondence to Christoph Engel, Director, Max-Planck-Institute for Research on Collective Goods, Kurt-Schumacher-Straße 10, D 53113, Bonn, Germany; email: engle@coll.mpg.de. Engle is also member of the Faculty of Law and Economics, University of Bonn; Eisenberg was Henry Allen Mark Professor of Law and Adjunct Professor of Statistical Science, Cornell University.

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  • Helpful comments by Aniol Llorente-Saguer, Thomas Miles, Jeroen van de Ven, Konstantinos Chatziathanasiou, Marc Jekel, Alexander Stremitzer, anonymous referees, and by audiences at the Conference on Empirical Legal Studies (2012), the European Law and Economics Association (2012), the Italian Society for Law and Economics (2012), Tel Aviv University Buchmann School of Law, the Amsterdam Law and Economics Seminar, the University of Cologne Behavioral Economics Seminar, the University of Bologna, and the University of Colorado Law School are gratefully acknowledged, as are the programming of the experiment in zTree by Nicolas Meier and the translation of the instructions into English by Brian Cooper.

Abstract

To explore damages rules' deterrent effect we use a public good experiment to tailor punishment to rules used in civil litigation. The experimental treatments are analogous to: (1) damages limited to harm to an individual, (2) damages limited to harm to a group, such as in class actions, and (3) treble damages. For (1) and (2) we also manipulate the probability of a player being entitled to claim damages. The treatments with damages limited to harm to an individual do not prevent deterioration in cooperation over time but deterioration is slower. In the class action treatment, cooperation is stable over time if the probability of having to pay damages is sufficiently high. The same holds for the treble damages treatment. The results persist in variations of (1) and (2) in which the player imposing damages may have them forfeited with no benefit to her. We can therefore rule out that the beneficial effect of sanctions hinges on the participants knowing that the player imposing sanctions cannot intend to enrich herself.

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