The Determinants of the Incidence and Magnitude of Punitive Damages

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2011
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Haverford College. Department of Economics
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Award
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eng
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Open Access
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Abstract
This paper investigates the determinants of the incidence and magnitude of punitive damage awards in a nationally representative sample of US State Courts in 2005. I evaluate the impact of the compensatory award, disposition type, claim type, the presence of caps, and permanence of injury on the incidence and magnitude of punitive damages in tort and contract cases. A lack of federal regulation and a wide range of state regulation can be attributed as the primary cause of the large variation in punitive damages. Incidence of punitive damages is consistently high in intentional tort, fraud and employment cases. Juries award higher damages than judges, and are more likely to suffer from hindsight bias when awarding damages ex-ante. Caps provide jurors with an anchor, and may cause a higher incidence and magnitude of punitive damages. Incidence is more predictable than magnitude, which is primarily because jurors can rank behavior based on ‘how bad it is’, but struggle to put a monetary value while awarding deterrence awards.
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