Costly Litigation and Optimal Damages

Details

Author(s):
Publish Date:
March 31, 2014
Publication Title:
International Review of Law and Economics
Format:
Journal Article
Citation(s):
  • A. Mitchell Polinsky & Steven Shavell, Costly Litigation and Optimal Damages, 37 International Review of Law and Economics 86 (2014) (also issued as NBER Working Paper, No. 18594 (2012); issued as Stanford Law and Economics Olin Working Paper no. 436 (2012); Harvard Law and Economics Olin Working Paper no. 739 (2012)).
Related Organization(s):

Abstract

A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the influence of litigation costs on the optimal level of damages, assuming that litigation costs rise with the level of damages. Due to this consideration, we demonstrate that optimal damages can lie anywhere between zero and the harm plus the victim’s litigation costs.