Citation

Boyd J, Ingberman DE. Int. Rev. Law Econ. 1999; 19(1): 47-68.

Copyright

(Copyright © 1999, Elsevier Publishing)

DOI

10.1016/S0144-8188(98)00030-1

PMID

unavailable

Abstract

The paper explores the deterrent effect of punitive damages when capital investment is endogenous to the legal rule. Irrespective of the level of damages, firms can reduce their expected liabilities by either increasing safety (the law's intended goal) or reducing wealth exposed to liability. We show that punitive damages can exacerbate this wealth reduction effect and thereby reduce deterrence. The paper explores policy implications and the conditions under which this deterrence-reducing effect of punitive damages arises.