Product Liability, Punitive Damages, Business Decisions and Economic Outcomes

by Steven Garber

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The U.S. product liability system — and the role of punitive damages within that system — is very controversial. This article aims to help readers think systematically about the economic effects of product liability and punitive damages. For inferences about effects on business decisions to be reliable and influential, they must rest on an explicit and empirically grounded conceptual foundation. Parts II and III present the conceptual (theoretical) underpinnings for empirical analyses and inferences reported in Parts IV and V. The conceptual framework suggests that the economic effects of product liability and punitive damages will differ substantially across industries and across product areas. Parts IV and V review empirical analyses and conclusions that illustrate these differences. This study suggests that the current product liability system is haphazard as a deterrence mechanism, and both costly and haphazard as a compensation mechanism. When considering potential reforms, however, the goal should be improvement, not perfection.

Originally published in: Wisconsin Law Review, v. 1998, no. 1, 1998, pp. 237-295.

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