The controversies over the costs and benefits of the tort system have led to numerous proposals for change at the federal level. This report discusses the potential advantages and disadvantages of various policy options in qualitative terms. Those options—which were chosen to illustrate the trade-offs between efficiency and equity that lawmakers face—fall into three main categories.
Policies for reducing the scope of tort liability include options that would eliminate liability for all injuries or all “nonstranger” injuries, exempt products certified as safe by a federal regulatory body (such as the Food and Drug Administration or the Consumer Product Safety Commission), or replace tort liability with a federal compensation system for injury victims, like the present state-level workers’ compensation system and the federal fund for vaccine victims.
Policies that are more incremental in nature but that could be applied broadly to all types of torts include options that would restrict compensation for pain and suffering or punitive damages, limit fees charged by plaintiffs’ attorneys, reduce the use of joint-and-several liability (under which one or a few injurers can be held responsible for paying all of the damages caused by a number of injurers), or modify the “collateral-source rule” (under which the amount of damages owed by a defendant does not take into account any benefits that an injured plaintiff has received from an insurance policy or other independent source).
Policies targeted toward particular types of tort cases include options that would create specialized courts to hear medical malpractice cases, establish minimum medical criteria for asbestos claims and perhaps set up a victims’ compensation fund, tie the fees received by plaintiffs’ attorneys in class-action suits more closely to benefits actually received by the class members, or allow defendants to shift more class-action cases from state courts to federal courts.
In most cases, data limitations make it impossible for CBO to determine whether a particular option would be likely to improve or reduce economic efficiency. Nonetheless, the economic perspective leads to some general conclusions that decisionmakers may wish to keep in mind as they consider proposed changes to the liability system.
The impact on efficiency of using tort liability to try to improve on market outcomes may be either positive or negative—depending on the incentives that liability provides for potential injurers and potential victims and on how those incentives interact with incentives and constraints from other sources, such as government regulations and private insurance policies.
Most, if not all, options for changing the tort system involve some trade-offs. In particular, policies that seem desirable on efficiency grounds may be problematic from the equity perspective, or conversely.
Federal involvement in an area governed predominantly by state law may be justified by its benefits for interstate commerce, but it limits state innovation and experimentation (as well as the ability of U.S. residents to “vote with their feet” by choosing to live under one state’s liability regime rather than another’s).
Because the efficient solution is the one that minimizes the sum of several different costs, which may vary in their relative importance, different policies may be appropriate for different types of tort cases.
9. One key limitation is that the control group includes only four states; another is that punitive damages would not be expected to deter typical torts but only those rare ones that were egregious enough to be the subject of such damages. See W. Kip Viscusi, “The Social Costs of Punitive Damages Against Corporations in Environmental and Safety Torts,” pp. 285-345, Theodore Eisenberg, “Measuring the Deterrent Effect of Punitive Damages,” pp. 347-357, and David Luban, “A Flawed Case Against Punitive Damages,” pp. 359-380, all in Georgetown Law Journal, vol. 87, no. 2 (November 1998).
10. Tillinghast-Towers Perrin, U.S. Tort Costs: 2002 Update—Trends and Findings on the Costs of the U.S. Tort System (2003).