TY  - JOUR
AU  - Polinsky,A. Mitchell
AU  - Rubinfeld,Daniel L.
TI  - The Welfare Implications of Costly Litigation in the Theory of Liability
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1834
PY  - 1988
Y2  - October 1988
UR  - http://www.nber.org/papers/w1834
L1  - http://www.nber.org/papers/w1834.pdf
N1  - Author contact info:
A. Mitchell Polinsky
Stanford Law School
Stanford University
Stanford, CA  94305
Tel: 650/723-0886
Fax: 650/723-3557
E-Mail: polinsky@stanford.edu

Daniel L. Rubinfeld
Robert L. Bridges Professor of Law and
Professor of Economics Emeritus
788 Simon Tower, Boalt Hall
University of California, Berkeley
Berkeley, CA 94720
Tel: 510/642-1959
Fax: 510/642-3767
E-Mail: drubinfeld@law.berkeley.edu
AB  - One of the principal results in the economic theory of liability is that, assuming litigation is costless, the rule of strict liability with compensatory damages leads the injurer to choose the socially appropriate level of care. This paper reexamines this result when litigation is costly. It is shown that strict liability with compensatory damages generally leads to a socially inappropriate level of care and to excessive litigation costs. Social welfare can be increased by adjusting compensatory damages upward or downward, with the desired direction depending on the effect of changes in the level of liability on the injurer's decision to take care and on the victim's decision to bring suit.
ER  -