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Bharat Bhole and Jeffrey Wagner
''On the consideration of potential harm in the award of punitive damages''
( 2009, Vol. 29 No.2 )
Multiple empirical studies find that juries/courts take account of potential harm in the determination of punitive damages. The received view in economic theory, however, is that punitive damages should not depend on potential harm. The purpose of this note is to provide an efficiency rationale for the courts'' behavior. Our particular result is that when the punitive damage multiplier decreases as the actual harm increases, the optimal multiplier does depend on the potential harm.
Keywords: Compensatory damages, potential harm, punitive damages
JEL: K1 - Basic Areas of Law: General (Constitutional Law)
K3 - Other Substantive Areas of Law: General
Manuscript Received : Jan 28 2009 Manuscript Accepted : May 22 2009

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