Costly Litigation and Optimal Damages

A. Mitchell Polinsky, Steven Shavell

NBER Working Paper No. 18594
Issued in December 2012
NBER Program(s):   LE

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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Acknowledgments

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