Citation

Bhole B, Wagner J. Int. Rev. Law Econ. 2010; 30(3): 253-264.

Copyright

(Copyright © 2010, Elsevier Publishing)

DOI

10.1016/j.irle.2010.06.001

PMID

unavailable

Abstract

Juries/courts sometimes award large punitive damages when the probability of detecting harm is high and take the recklessness of actions into account. However, economic theory suggests punitive damages should generally be low in such contexts. We argue that juries may be acting wisely. In particular, we show that: (a) even if the probability of conviction is one, punitive damages can raise welfare by aligning an injurer's perceived and actual benefit of care; and (b) a recklessness requirement for awarding punitive damages can be welfare-enhancing when there is uncertainty about the court's view of appropriate care.