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Punitive damages and deterrence of efficiency-promoting analysis: a problem without a solution?

I. INTRODUCTION

Professor Viscusi addresses an important concern, namely, that economic efficiency can be undermined by the threat of punitive damages because of a well-executed, socially oriented risk or benefit-cost analysis.(1) While Viscusi refers occasionally to environmental liability, his analysis focuses on product liability, so my comments pertain only to product liability. I've analyzed effects of product liability, including punitive damages, on corporate decisions and economic efficiency, focusing on pharmaceuticals, medical devices, and automobiles.(2) I've also deplored the threat of punitive damages for performing benefit-cost analyses.(3)

I agree with much of Viscusi's analysis.(4) I believe, however, that aspects of it can be strengthened and that his key policy recommendation lacks foundation. In the sections that follow, I discuss Viscusi's implicit assumption that promotion of economic efficiency is the only legitimate social goal of punitive damages, comment on the nature and strength of his historical evidence that punitive damages are often assessed because companies perform risk or benefit-cost analysis, sketch a theory of why the threat of such assessments is likely to deter socially worthwhile analysis in many cases, and comment on potential policy responses.

II. SHOULD ECONOMIC EFFICIENCY BE THE GOAL OF PRODUCT LIABILITY?

Professor Viscusi implicitly assumes that product liability policy should aim only to promote economic efficiency. He offers no hint that there can be other legitimate social goals. However, social goals are legitimate if they sensibly represent the preferences of enough members of society. In the context of product liability, some members of society may desire retribution(5) or value product safety more highly than is implied by their private risk-taking behavior.(6)

This economist is willing to respect the pursuit of policy goals other than economic efficiency if that's what enough members of society really want. There is ample reason to believe that much behavior within our product liability system undermines efficiency. But it is far from clear that this reflects widespread preferences for other objectives, because much of that behavior may, in fact, stem from mistaken beliefs about the actual effects of product liability. For example, who is actually punished when punitive damages are assessed on companies?(7) What does it cost society to pursue punishment or product safety beyond efficient levels? Are most individuals overly optimistic that firms rather than consumers bear such costs? Do most members of society really wish corporations to place a greater value on statistical lives than individuals implicitly place on their own lives through their private risk taking decisions? Have public policy deliberations about product liability and punitive damages generally been based on honest and intelligent consideration of economic effects?

At present, it is premature to conclude that economic efficiency is as unimportant to society as one might infer from observing product liability policy in its design and implementation. Unless it becomes clear that legal doctrine and the behavior of judges and jurors that undermine efficiency are based on accurate information and preferences for social goals besides efficiency, economists should--as Viscusi does--try to clarify economic effects of product liability, advocate pursuing efficiency through product liability policy, and propose policies aimed at efficiency. My comments are offered in that spirit.

III. PREVALENCE, INCIDENCE, AND SIGNIFICANCE OF PUNITIVE DAMAGES FOR ANALYSIS

Readers might wonder, despite Professor Viscusi's analysis, whether threats of punitive damages for risk and benefit-cost analysis actually deter such analyses and thereby undermine efficiency. They might wonder, for example, because his mock jury experiments involve automobile safety, and he points to instances of punitive damages for undertaking analysis only in the context of automotive product liability, but he does not discuss efficiency consequences for automotive manufacture, designs, or warnings.(8) Moreover, Viscusi points to inefficient responses to product liability in the pharmaceutical industry,(9) but points to no instances of punitive damages for undertaking analysis in that industry.(10)

As I read his automotive case studies, Viscusi identifies four instances in which an analysis existed, and for only two of them does he argue that the analysis contributed to an assessment of punitive damages.(11) Some readers may reasonably be skeptical, then, that Viscusi provides adequate support for claims such as "juries often regard corporate risk analyses as red flags"(12) or "many of the most well-known cases involving punitive damages are also those in which corporations undertook a risk analysis, or in some cases, a sound benefit-cost analysis,"(13) even if these claims are interpreted to apply only to automotive product liability.

However, the absolute frequency of such occurrences may provide only a very tenuous link to a key element of deterrence effects, namely, perceptions of corporate decision makers of the extent of the risk to their companies posed by punitive damages. Even a small number of instances in which risk or benefit-cost analysis is believed to have resulted in assessment of punitive damages, even if they occurred outside of the industry of a particular decision maker, may suffice to make very salient the possibility of future instances in his or her industry. This is because, according to the "availability heuristic" of the behavioral decision-making literature: "People using this heuristic judge an event to be likely or frequent if instances of it are easy to imagine or recall.(14) Such instances can be particularly easy to recall because of mass media attention, for example.(15) In fact, I believe that corporate decision makers generally believe that benefit-cost analysis is legally hazardous.(16)

IV. WHY POTENTIAL PUNITIVE DAMAGES SHOULD BE EXPECTED TO DETER RISK AND BENEFIT-COST ANALYSES

A substantial perceived threat of punitive damages for a specific type of behavior will raise the potential costs of, and thus tend to deter, that behavior. The behavior under consideration here is performing risk or benefit-cost analyses, and, more generally, any corporate behavior that might produce evidence that could be construed in court as indicating that a company was either aware of a risk and chose to accept it, or considered cost in deciding whether to implement a design change that could reduce any particular risk. The incentive to avoid such behavior is greater the more likely corporate decision makers believe it to be that the behavior would lead to punitive damages and the greater are the costs associated with punitive damages assessed for this reason. The perceived probability issue was discussed above. The relevant costs can be very large, indeed.

The most obvious costs of punitive damages are judgments actually paid. Punitive damages can be very large in an individual case. This is vividly illustrated by the jury's punitive award of $4.9 billion in the recent Anderson case in Los Angeles, which was reduced to $1.09 billion by the trial judge.(17) Moreover, in the product liability context, punitive damages can be assessed repeatedly for the same behavior.(18) Some observers have speculated that the award of billions of dollars by the Anderson jury may reflect the recent tobacco settlements that totaled hundreds of billions.(19) If this speculation is correct, the sizes of many future punitive awards may be much larger than they have been historically, and, more importantly for anticipating deterrence effects, corporate decision makers may fear that this will be the case.(20) There are other potential legal costs to consider, including additional defense costs or higher settlement values when viable claims for punitive damages are made.

Moreover, there are potential "indirect" costs that manufacturers appear to take very seriously, such as publicity about litigation that may damage the company's reputation or trigger additional lawsuits, reactions of consumers that could reduce product demand, and reactions of safety regulators such as investigations, product recalls, or stricter regulations.(21) Even when punitive damages are reduced or overturned, negative publicity and various other indirect costs are unlikely to be recouped.

In sum, the perceived likelihood and potential costs associated with punitive damages for performing risk or benefit-cost analyses can be large enough to attract attention by corporate decision makers and deter them from doing such analyses. Moreover, the management literature suggests that behavioral effects are likely to be even larger than what would be predicted if corporate decision makers were risk neutral. Specifically, managers tend to evaluate risks in terms of worst-case scenarios, and they seem willing to forego substantial amounts of expected profits to avoid risks that could lead to financial disaster or prevent managers from achieving their performance targets.(22)

Outsiders cannot observe corporate decision makers being deterred from undertaking risk and benefit-cost analyses. Nonetheless, it is very hard to imagine that decision makers would generally be unaware of or often choose to ignore the kinds of considerations just described. As Viscusi argues, our society has a very strong interest in reducing risks only when they can be reduced at a social cost that does not exceed the social benefit. Features of our product liability system that discourage performance of the kinds of analyses required to identify such risks are counterproductive from a social point of view.

V. POLICY RESPONSES TO DETERRENCE OF EFFICIENCY-PROMOTING ANALYSIS

What might be done to ameliorate this threat to economic efficiency? In concluding, I offer some perspective on the context for policy deliberation, comment on policy responses aimed directly at the threat of punitive damages for corporate risk or benefit-cost analyses, critique Viscusi's proposal to abolish punitive damages in product liability, and suggest a more modest approach to attempting to improve the incentive effects of punitive damages.

A. Context

Much thinking and writing about deterrence effects of product liability (and tort liability generally) is based on the implicit assumption that liability is the only reason for manufacturer's to be concerned about safety. However, as is widely recognized(23) and is emphasized by Viscusi in other articles,(24) manufacturers face both market and regulatory penalties for injury risks associated with their products. When analyzing efficiency effects of product liability, then, the key issue is how product liability changes behavior relative to a situation without liability but with other incentives for safety in place.

For some industries or types of products, there may be little scope for product liability to improve efficiency. For example, this may be the case for prescription pharmaceuticals and those medical devices that have been reviewed by the FDA through the premarket approval process,(25) and for motor vehicles.(26) A very powerful incentive for safety in the case of medical products is FDA regulation, and there is considerable evidence of market-driven demand for safety in automobiles.(27) In industries with relatively weak market incentives for providing safety and less stringent safety regulation there may be considerable scope for well-conceived and well-implemented product liability policies to improve efficiency. Viscusi, however, approaches the policy problem as one of seeking reforms that would apply to most, if not all, industries and products.

B. Responses Targeted at Punitive Damages for Analysis

Viscusi briefly considers and rejects as largely unpromising policy responses aimed narrowly at reducing the threat of punitive damages for corporate risk or benefit-cost analysis. Such responses include attempts to change jury behavior and shifting some responsibility for assessing punitive damages from juries to judges. I agree with Viscusi that such approaches are likely to offer quite limited improvement. I think it is premature to dismiss them, however, because there are no apparent alternatives that are both intellectually defensible and politically feasible.

Changing jury instructions. Could legal reforms greatly mitigate, if not eliminate, the tendency of jurors to award punitive damages for corporate risk analysis while preserving jury authority to assess punitive damages? For example, could such changes in behavior be accomplished through revised jury instructions specifying that a well-done, socially oriented benefit-cost analysis is not grounds for punitive damages? Probably not.(28) Specifically, I find quite plausible Viscusi's view that the tendency for jurors to assess punitive damages for benefit-cost analysis is deeply rooted in cognitive biases relating to ex post probability assessments, juror sympathy for identifiable victims, or juror indignation or anger about prior corporate knowledge that not all risks had been eliminated. In light of the Juror Outlook survey results described by Viscusi, any of these sources of jurors' inclinations to assess punitive damages could lead a jury to ignore instructions and do what "they believe is the right thing."(29) More fundamentally, deterrence of corporate risk or benefit-cost analyses will not be substantially attenuated unless corporate decision makers come to believe that juries are either no longer inclined or are no longer empowered to assess punitive damages for socially worthwhile analysis.

Shifting responsibility from juries to judges. In principle, the threat of punitive damages for socially worthwhile analyses might be mitigated by reducing or eliminating the role of juries in assessing punitive damages in product liability. This could involve giving judges responsibility for deciding whether punitive damages are appropriate, deciding the amount of damages, or both. Viscusi considers the transfer of "the responsibility for awarding punitive damages from jurors and to judges."(30) But he dismisses the idea, explaining that it "would not be a total solution because judges are not fully rational in their handling of risk either."(31) I agree that such an approach is no panacea, but reallocating responsibility between judges and juries, despite obvious policy hurdles, may offer enough improvement to justify efforts to design and implement some reallocation.(32)

C. Abolishing Punitive Damages in Product Liability

Viscusi's key recommendation for addressing the threat of punitive damages for socially worthwhile analyses is abolishing punitive damages in product liability. The supporting argument and evidence are, however, far from compelling. Viscusi's case rests partly on the claim that punitive damages have essentially no benefits in terms of deterring socially undesirable behavior.(33)

In a study of the economics of product liability in the pharmaceutical and medical device industries,34 I concluded that economic effects of product liability include some effects that promote efficiency and others that undermine efficiency.(35) Prescription pharmaceuticals and some medical devices are among the most strictly regulated products in the United States. In considering policy responses for any or all industries, then, it seems appropriate to try to preserve socially valuable deterrence while mitigating socially detrimental deterrence.

Quantitative comparison of efficiency costs and benefits of product liability even in a single industry is not possible because many of the most important economic effects of product liability claimed alternatively by proponents of reform and defenders of the status quo are not observable or measurable.(36) Isolating and quantifying the parts of any such effects that are attributable specifically to punitive damages add another layer of insurmountable complexity.

Nonetheless, Viscusi econometrically analyzes quite aggregated data to compare various safety-related outcomes in the four states that he classifies as not permitting punitive damages with outcomes in other states. He "fails to find any systemic differences in the safety and environmental performance between states with punitive damages and those without them."(37) On this basis, he argues that a quantitative comparison of costs and benefits of punitive damages is unnecessary, writing, for example: "[I]s there any basis whatsoever for believing that the benefits derived from punitive damages exceed the wide range of costs generated by punitive awards? The benefits side of the ledger indicates no significant gains to society."(38) Setting aside the question of whether a single or even several statistical analyses--even of much more detailed data--could convincingly establish the absence of benefits, I argue presently that the analyses Viscusi reports contain essentially no information about effects of punitive damages in product liability.

The only product liability outcome examined by Viscusi is total product liability premiums paid.(39) To motivate examination of state-level insurance premiums Viscusi argues "[i]f punitive damages deter firms from making risky decisions, the risk levels should decline, lowering the associated premium levels."(40) This logic seems appropriate if "premium levels" are interpreted as insurance prices--i.e., the premium for a given amount of insurance coverage. However, what Viscusi measures and calls "insurance premiums" are total payments for product liability insurance. This is, at best, a very rough proxy for insurance prices. For example, if lower product liability exposure due to less risky behavior were to reduce insurance prices and thereby induce more companies to insure, then this could increase Viscusi's measure of risk, even though the extent of risky behavior had decreased.(41) In fact, many companies in industries heavily exposed to product liability, such as pharmaceuticals and automobiles, buy little if any product liability insurance,(42) presumably because they believe the price of product liability insurance is too high to warrant purchasing it. Moreover, for nationally marketed products, manufacturing, design, and warnings are typically uniform across the country. Thus, we should not expect states with and states without punitive damages to differ in terms of product safety for most products.(43) Even if such a comparison were successfully made, it would tell us essentially nothing about the effects of a nationwide prohibition of punitive damages in product liability.

Perhaps the social benefits of punitive damages in product liability do fall far short of the social costs, but no convincing case has been made. Proponents of punitive damages, both scholars and policy advocates, will be especially hard to convince.

CONCLUDING COMMENTS

The prospects for dramatically reducing deterrence of socially worthwhile risk or benefit-cost analysis are not good. Policy responses that might help only a little should not be dismissed, because no panacea is apparent.

In seeking to improve the incentive effects of punitive damages in product liability, it is helpful to recognize that deterrence of socially worthwhile risk or benefit-cost analysis is part of a larger problem. This is the problem of vague doctrinal standards for the availability of punitive damages.(44) Statutes and case law in different states specify that punitive damages are available for acts that are variously described as "outrageous," "oppressive," "wilful," "wanton," or "malicious."(45) Such vagueness leaves judges and juries with great discretion in awarding punitive damages and contributes to an environment in which threats of punitive damages for socially desirable behavior--such as well-performed risk and benefit-cost analyses--are very salient to corporate decision makers.

The best--but not necessarily good--prospect for ameliorating this problem appears to be identifying and implementing reforms that move us closer to a system in which: (1) standards for the availability of punitive damages and processes for applying the standards restrict assessment of punitive damages to behavior that society wants to deter in the strongest terms but do not enable assessment of punitive damages for behavior that society does not want to deter; and (2) respect for such standards is communicated sufficiently clearly and strongly through legal doctrine and its application that corporate decision makers can be confident that socially desirable behavior will not be punished. Identifying practical means of moving in this direction is very challenging. As with threats of punitive damages for efficiency-promoting analyses, it is doubtful that highly effective reforms are in the cards anytime soon.

The history of federal product liability legislation suggests that national statutory reforms are likely to be industry- or product-specific and emerge only in response to actual or impending availability crises for more-or-less specific products.(46) Perhaps the best hope for reforms that cut across industries--such as reforms mitigating deterrence of efficiency-promoting analyses--are changes in common law stemming from more informed views of judges about the economic effects of punitive damages. Economists and others have lots of work to do.

(1.) See W. Kip Viscusi, Corporate Risk Analysis: A Reckless Act?, 52 STAN. L. REV. 547 (2000).

(2.) See STEVEN GARBER, PRODUCT LIABILITY AND THE ECONOMICS OF PHARMACEUTICALS AND MEDICAL DEVICES (1993) [hereinafter GARBER, PRODUCT LIABILITY AND ECONOMICS]; Steven Garber, Product Liability, Punitive Damages, Business Decisions and Economic Outcomes, 1998 WIS. L. REV. 237 (1998) [hereinafter Garber, Product Liability and Punitive Damages]; Steven Garber & John Adams, Product and Stock Market Responses to Automotive Product Liability Verdicts, in 1998 BROOKINGS PAPERS ON ECONOMIC ACTIVITY: MICROECONOMICS 1 (Martin Neil Baily, Peter C. Reigs, & Clifford Winston eds., 1999); and Steven Garber & Anthony G. Bower, Newspaper Coverage of Automotive Product Liability Verdicts, 33 L. & SOC'Y REV. 93 (1999).

(3.) See Garber, Product Liability and Punitive Damages, supra note 2, at 287 n.135; Garber and Adams supra note 2, at 35 n.66.

(4.) Interpreting and critiquing Viscusi's mock juror experiment, tasks for which I have no expertise, is left in the very able hands of Professor MacCoun. See Robert J. MacCoun, The Costs and Benefits of Letting Civil Juries Punish: Comment on Viscusi, 52 STAN. L. REV. 1821 (2000).

(5.) See, e.g., David Luban, d Flawed Case Against Punitive Damages, 87 GEO. L.J. 359, 378-79 (1998).

(6.) For a discussion of the goals of safety advocates, see Garber, Product Liability and Punitive Damages, supra note 2, at 241,241-42 n.7.

(7.) For example, Professors Polinsky and Shavell argue that punitive damages assessed against firms may punish stockholders and customers rather than culpable employees. See A. Mitchell Polinsky & Steven Shavell, Punitive Damages: An Economic Analysis, 111 HARV. L. REV. 869, 948-52 (1998).

(8.) For discussions of potential inefficient responses to product liability in automobiles, see Charles W. Babcock, Jr., Approaches to Product Liability Risk in the U.S. Automotive Industry, in PRODUCT LIABILITY AND INNOVATION: MANAGING RISK IN AN UNCERTAIN ENVIRONMENT 82 (Janet R. Hunziker & Trevor O. Jones eds., 1994); Francois J. Castaing, The Effects of Product Liability on Automotive Engineering Practice, in PRODUCT LIABILITY AND INNOVATION: MANAGING RISK IN AN UNCERTAIN ENVIRONMENT 77 (Janet R. Hunziker & Trevor O. Jones eds., 1994). For a summary of their arguments, see Garber, Product Liability and Punitive Damages, supra note 2, at 272.

(9.) See GARBER, PRODUCT LIABILITY AND ECONOMICS, supra note 2, at 77-167, and Garber, Product Liability and Punitive Damages, supra note 2, at 265-70, for analysis and examples, as well as examples of effects that promote efficiency.

(10.) I am not aware of any claimed instances of punitive damages being assessed for risk or benefit-cost analysis in the context of pharmaceuticals. This may be largely because it is widely accepted that drugs cannot be perfectly safe and because the trial-and-error nature of drug discovery leaves little, if any, room for explicit benefit-cost balancing in drug design.

(11.) See Viscusi, supra note 1, at 568-78. Specifically, Viscusi points to the Anderson trial (fuel tank placement in the Chevrolet Malibu) and the Miles trial (Ford shoulder harness).

(12.) Viscusi, supra note 1, at 578.

(13.) Id. at 586.

(14.) Paul Slovic, Baruch Fischhoff, & Sarah Lichtenstein, Behavioral Decision Theory Perspectives on Protective Behavior, in TAKING CARE: UNDERSTANDING AND ENCOURAGING SELF-PROTECTIVE BEHAVIOR 14, 19 (Neil D. Weinstein ed., 1987).

(15.) See Gather & Bower, supra note 2, for an econometric analysis showing that both the existence of a punitive component to an automotive product liability award and a larger dollar amount of the total award have substantial but independent roles in increasing the incidence of newspaper reporting of verdicts. Television coverage of awards is relatively rare, but the key factor may be the existence of a large punitive award. See Gather, Product Liability and Punitive Damages, supra note 2, at 281. Viscusi discusses the Anderson verdict in Los Angeles. See Viscusi, supra note 1, at 576-78. This verdict was widely reported on both television and in newspapers. Specifically, it was reported on the evening news programs of July 9, 1999 on CBS, NBC, and ABC. Vanderbilt University, Television News Archive, <http://www.tvnews.vanderbilt.edu>. The verdict was also reported in The Wall Street Journal, the New York Times, and at least 46 of 102 other newspapers that could be searched online in December 1999 in the DIALOG PAPERS database group. See Garber & Bower, supra note 2, at 97-99, for a description of the databases and methods used to search newspapers.

(16.) "It seems widely agreed by both plaintiffs' and defense attorneys that credible trial evidence of cost-benefit balancing--so-called `trading off lives against dollars'--makes punitive damages particularly likely. This is in stark contrast to the fact that economic efficiency--and deterrence aimed at economic efficiency--requires benefit-cost balancing." Garber, Product Liability and Punitive Damages, supra note 2, at 287 n.135. In the context of the Anderson case and the 1973 Ivey memo discussed at length by Viscusi, supra, note 1, at 574-78, it appears that GM feared the legal consequences of the memo at least as early as 1981: "Obviously, Ivey is not an individual whom we would ever, in any conceivable situation, want to be identified to the plaintiffs in (an accident) case.... The documents he generated are undoubtedly some of the potentially most harmful and most damaging were they ever to be produced." Michael White, Jury Orders GM to Pay $4.9 Billion, CHI. TRIB., July 10, 1999, at 20.

(17.) See Frederic M. Biddle, GM Verdict Cut $3.8 Billion in Suit Over Explosion, WALL ST. J., Aug. 27, 1999, at B5.

(18.) For example, the Ivey memo that played a prominent role in the Anderson case was not specifically about the Chevrolet Malibu. See Viscusi, supra note 1, at 574-75. This memo may appear in future cases involving various GM vehicles.

(19.) See Frank Swoboda & Caroline E. Mayer, A $4.9 Billion Message: Jury Hits GM with Historic Crash Verdict, WASH. POST, July 10, 1999, at A1 (comment by Victor Schwartz) ("This just shows that the new figures of billions of dollars that have begun to be tossed around in the tobacco cases have changed the perspectives of American jurors."); Ann W. O'Neill, Henry Weinstein, & Eric Malnic, GM Ordered to Pay $4.9 Billion in Crash Verdict, L.A. TIMES, July 10, 1999, at A14 (comment by David Davis) ("It could be that the tobacco settlements have set a new psychological standard for jurors.").

(20.) Such a dynamic might also be fueled by the widespread media reporting of the size of the jury award in the Anderson trial. See note 15 supra. Moreover, the reduction of the award to $1.09 billion by the trial judge also received substantial newspaper attention. It was reported in The Wall Street Journal, the New York Times, and at least 34 of the other 102 newspapers contained in the DIALOG PAPERS database. See note 15 supra. It was also reported on the ABC Evening News on August 27, 1999, but apparently not on the CBS or NBC evening news programs. See Vanderbilt University, supra note 15.

(21.) For discussions of such "indirect" costs of product liability in the automobile industry, see Garber, Product Liability and Punitive Damages, supra note 2, at 245-46, 273-84; Garber & Adams, supra note 2, at 34; Garber & Bower, supra note 2; and sources cited therein. The existence of a punitive component to a jury award looms very large in generation of mass media attention to automotive product liability verdicts; regarding newspapers, see Garber & Bower, supra note 2, and regarding television, see Gather, Product Liability and Punitive Damages, supra note 2, at 280-81. Econometric analyses of effects of automotive verdicts on stock prices of automobile manufacturers and on sales of new vehicles reported in Garber & Adams, supra note 2, suggest that individual verdicts do not typically have discernible effects. However, there may be discernible effects of unusually large awards or individual verdicts in cases involving issues relevant to many pending, similar cases. Moreover, even more typical verdicts may contribute to a costly dynamic that is very hard to disentangle empirically.

(22.) See discussions along these lines in GARBER, PRODUCT LIABILIY AND ECONOMICS, supra note 2, at 75-76, and Garber, Product Liability and Punitive Damages, supra note 2, at 247-48, applying findings reported in James G. March & Zur Shapira, Managerial Perspectives on Risk and Risk Taking, 33 MGMT. SCI. 1404 (1987) (exploring the relationship between theoretical conceptions of risk and the conceptions held by executives).

(23.) See, e.g., AMERICAN LAW INSTITUTE, REPORTERS' STUDY, ENTERPRISE RESPONSIBILITY FOR PERSONAL INJURY, VOLUME I: THE INSTITUTIONAL FRAMEWORK (1991).

(24.) See, e.g., W. Kip Viscusi, The Social Costs of Punitive Damages Against Corporations in Environmental and Safety Torts, 87 GEO. L.J. 285 (1998) [hereinafter, Viscusi, Social Costs].

(25.) See generally GARBER, PRODUCT LIABILIY AND ECONOMICS, supra note 2 (examining the effects of product liability in the pharmaceutical and medical device industries).

(26.) See Garber & Adams, supra note 2 (examining the effects of product liability on the automotive industry).

(27.) For discussions of market and regulatory incentives for safety in automobiles, see Garber & Adams, supra note 2, at 3; Garber, Product Liability and Punitive Damages, supra note 2, at 271; and sources cited therein.

(28.) Viscusi's suggestion that "corporate risk analyses in compliance with federal regulatory guidelines ... should be given a statutory defense against punitive damages," Viscusi, supra note 1, at 588, may have some promise, although such an exemption might often fall prey to claims of noncompliance made by plaintiffs combined with jurors' desires to assess punitive damages for risk or benefit-cost analysis. No other approaches that preserve the roles of juries in assessing punitive damages seem very promising. For example, excluding all risk or benefit-cost analyses from evidence seems inappropriate if defective analyses (such as analyses that focus on litigation costs rather than social costs) are viewed as legitimate grounds for punitive damages. It also seems unlikely that judges can be expected routinely to assess the nature and quality of risk and benefit-cost analyses and exclude from evidence those analyses that do not contain grounds for punitive damages.

(29.) Id. at 589, citing results from the 1998 Juror Outlook Survey reported in Bob Van Voris, Civil Cases: Jurors Do Not Trust Civil Litigants. Period., NAT'L L.J., Nov. 2, 1998, at A24.

(30.) Viscusi, supra note 1, at 589.

(31.) Id.

(32.) For a thoughtful and interesting analysis of the potential for redefining the roles of juries and judges in assessing punitive damages, see Cass R. Sunstein, Daniel Kahneman & David Schkade, Assessing Punitive Damages (with Notes on Cognition and Valuation in Law), 107 YALE L.J. 2071 (1998).

(33.)
 Elsewhere I have proposed abolishing punitive damages for corporate safety
 and environmental torts. My underlying rationale is that compensatory
 damages coupled with market forces and vigorous regulatory enforcement
 regimes in those areas would be provide [sic] adequate incentives to stop
 companies from marketing unreasonably dangerous products. Moreover, there
 is no statistically significant evidence that abolishing punitive damages
 would have any effect on any of a wide variety of measures of safety,
 ranging from the rate of toxic chemical spills to product accident rates.


Viscusi, supra note 1, at 589. The arguments for abolishing punitive damages are presented in Viscusi, Social Costs, supra note 24, and W. Kip Viscusi, Why There is No Defense of Punitive Damages, 87 GEO. L.J. 381 (1998) [hereinafter Viscusi, No Defense].

(34.) See GARBER, PRODUCT LIABILITY AND ECONOMICS, supra note 2.

(35.) As summarized in Garber, Product Liability and Punitive Damages, supra note 2, at 269: "The primary beneficial effects appear to be hastening withdrawal of products that are too hazardous for economic efficiency, deterring the withholding or distorting of reports to the FDA, and generating information useful to physicians and the FDA. The primary detrimental effects appear to be limiting the availability of socially valuable products, inefficiently distorting the mix of innovative investments, and encouraging companies to provide hard to interpret information to physicians and no information to patients." For econometric analyses of product liability effects on pharmaceutical prices, see Richard L. Manning, Changing Rules in Tort Law and the Market for Childhood Vaccines, 37 J.L. & ECON. 247 (1994), and Richard L. Manning, Products Liability and Prescription Drug Prices in Canada and the United States, 40 J.L. & ECON. 203 (1997).

(36.) Discouragement of innovation and deterrence of dangerous corporate behavior are examples of such effects. See Garber, Product Liability and Punitive Damages, supra note 2, at 238.

(37.) Viscusi, Social Costs, supra note 24, at 287.

(38.) Id. at 333-34.

(39.) See id. at 296 (Table 4, middle panel).

(40.) Id. at 297.

(41.) This would depend, for example, on the price elasticity of demand for insurance and the degree to which insurance demand is sensitive to the perceived product liability threat that determines the value or "quality" of any given amount of insurance coverage.

(42.) See W. KIP VISCUSI, REFORMING PRODUCTS LIABILITY 25-26, 189 (1991).

(43.) See Luban, supra note 5, at 363. Viscusi, No Defense, supra note 33, at 382 seems to grant this point: "For precisely the concern that [Luban] raises, I omitted nationally marketed products such as motor vehicles from my analysis...."

(44.) The discussion that follows summarizes arguments I have made elsewhere. See Garber, Product Liability and Punitive Damages, supra note 2, at 256-57, 287.

(45.) AMERICAN LAW INSTITUTE, ENTERPRISE RESPONSIBILITY FOR PERSONAL INJURY, VOLUME II: APPROACHES TO LEGAL AND INSTITUTIONAL CHANGE 244 (1991).

(46.) Examples include childhood vaccines, National Childhood Vaccine Injury Act of 1986, P.L. 99-660; small aircraft, General Aviation Revitalization Act, P.L. 103-298; and materials used in implantable medical devices, Biomaterials Access Assurance Act of 1998, P.L. 105-230.

Steven Garber, Ph.D., Senior Economist, RAND Institute for Civil Justice (ICJ), 1700 Main Street, Santa Monica, CA 90407. Phone: 310-393-0411, ext. 6488; fax: 310-451-7062; e-mail: garber@rand.org. This work was supported by the ICJ. I also gratefully acknowledge the support of the Alfred P. Sloan Foundation and the ICJ for earlier work on which I draw. Conclusions and opinions do not necessarily reflect the views of the ICJ, RAND or its research sponsors.
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Title Annotation:response to article by W. Kip Viscusi in this issue, p. 547
Author:Garber, Steven
Publication:Stanford Law Review
Geographic Code:1USA
Date:Jul 1, 2000
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