Tuesday, December 4, 2012

Polinsky & Shavell on Costly Litigation

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.



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A colleague of mine complained that his students no longer argue right, but economics. So too this article, A legal system is about justice. Economics may inform it, but not drive it.

How am I to understand the statement of the authors: “the optimal level of damages will often be less than the harm and, when the incentive effect of damages is low, could be zero.”? To the victim, the optimal level of damages is what it takes to make things right.

Without permission you took my car and totaled it in an accident. To restore my right is for you to give me the value of the car plus the litigation costs of making you pay what you refuse to pay.

That is the logic of right. As David Dudley Field said: “The losing party ought to indemnify the other as far as possible against his losses by the suit. The former is wrong; the latter is right; one ought not to lose by the wrong of the other.” Quoted in my book James R. Maxeiner, "Failures of American Civil Justice in International Perspective" 33 (Cambridge University Press 2011, paperback edition forthcoming December 13, 2012, for either 20% discount count MAXEINER13 http://www.cambridge.org/us/knowledge/isbn/item7167317/?site_locale=en_US ).

Most of the world follows this rule of right. See the new book "Cost and Fee Allocation in Civil Procedure " (M. Reimann, ed., Springer, 2012, surveying 25 jurisdictions).

James Maxeiner
J.D., LL.M., Ph. D. in law (Dr. jur. Munich)

Posted by: James Maxeiner | Dec 5, 2012 7:04:31 AM

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