Measuring Business Interruption Losses and Other Commercial Damages, 3rd Edition

CHAPTER 12Economics of Punitive Damages

The topic of punitive damages has evoked great debate both in the field of law and within the economics profession. Various groups, especially those representing potential defendants, have claimed that such damages are often inappropriate and “out of control.” Such groups claim that the imposition of punitive damages often constitutes a violation of their right to due process. This chapter addresses the economics of punitive damages as they relate to corporations. The chapter explores the extent to which punitive damages serve the goals set forth in the law, and points out the various areas in which such damages may not serve the purposes of punitive damages as set forth by the law. In addition, it reviews some of the approaches plaintiffs use when making presentations to juries on punitive damages. This chapter focuses on the problems with some of these types of presentations and explores what can be done to address them.

Evolving Position of the U.S. Supreme Court on Punitive Damages

Punitive damages have a long history in the law. The doctrine of punitive damages can be traced back with certainty to English common law, although others have claimed that its roots begin even further back in history.¹ Punitive damages are a penalty that is applied in addition to compensatory damages when the defendant’s conduct is judged to be particularly reprehensible.² While they have a long history, courts have struggled to reach a consistent position ...