PUNITIVE DAMAGES IN TEXAS: AN ECONOMIC INQUIRY

Joseph J. Launie, William P. Jennings and Robert C. Witt

Working Papers from Risk and Insurance Archive

Abstract: This study provides an analysis of the economic impact of punitive damages on the economy of Texas. Consistent with our research results, prior studies also found that the size and frequency of the jury awards for punitive damages were increasing over time. However, they ignored the planning uncertainty created for individuals and business firms by potential punitive damages awards and the associated risk costs. Based on a financial-economic analysis of some empirical data on punitive damages awards in Texas, a more comprehensive assessment of the economic implications of punitive damages and the associated cost of risk on the economy of Texas is developed. For 1993, the estimated cost of punitive damages awards in Dallas and Harris Counties alone were approximately 20 percent of sales tax revenues in Texas. The study also shows how the burden of punitive damages may be shifted to employees, bondholders, vendors, tax entities, and customers of the firm. If the damages are deemed to be insurable, they are also shifted to other insured policyholders.

Keywords: PUNITIVE DAMAGES; ECONOMIC IMPACT; COST SHIFTING; INSURABILITY; TEXAS (search for similar items in EconPapers)
Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:wop:riskar:024

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