Tuesday, December 4, 2012
Professors Mitchell Polinsky (Stanford) and Steven Shavell (Harvard) have posted on SSRN a draft of their article, Costly Litigation and Optimal Damages. Here’s the 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.