The appropriate level of total damages must be reached by adjusting the value of punitive damages. The criteria for evaluating punitive damages in personal injury cases must be different from the criteria used in business torts. This article proposes the following punitive damages formula for wrongful death cases: the total value of punitive damages plus compensatory damages must equal the VSL.
SETTING DAMAGES FOR DETERRENCE
Thus, the sum of compensatory and punitive damages would be equal to VSL plus medical expenses. For example, a 10 percent increase in a person's income level will increase the VSL by only 5-6 percent.30 Acknowledging income heterogeneity in determining damages would set the income-specific VSL equal to the sum of compensatory damages and punitive damages. In effect, routine compensation for wrongful death victims under VSL will be forced to purchase an insurance policy they do not value.
Thus, compensation will be sufficient for cases in which the goal of insurance is the most important; however, if the central concern is deterrence, the inclusion of VSL in punitive damages will be justified. While VSL is a sound economic approach to establishing deterrence incentives, it is not an appropriate approach to determining compensatory damages. The use of VSL to determine the non-economic compensatory component of compensatory damages or loss of enjoyment of life has become known as "hedonic compensatory value". Recently, Posner and Sunstein also advocated the use of VSL as a compensation measure36.
As indicated above, the optimal amount of insurance in terms of payout to survivors will be below the VSL. Even if the sole objective is deterrence, the Posner-Sunstein prescription is excessive because it adds to the VSL amount an additional compensatory component—survivor damage.
THE LAW AND ECONOMICS THEORY OF DETERRENCE Although jury instructions do not provide precise guidance with
The same simple formula of dividing compensatory damages by the probability of discovery will not establish effective levels of deterrence for bodily injury cases given the current method of determining compensatory damages. Even with a probability of detection of 1.0, damage equivalent to the VSL is required to establish effective levels of deterrence. Adding the additional complication of a probability of detection of less than 1.0 in no way compensates for the inadequacy of the compensatory damages as an adequate deterrent to bodily harm.
This generalization of the legal and economic formula when the probability of discovery is less than 1.0 is the same as the formula proposed by Polinsky and Shavell in situations where punitive damages are warranted. While Polinsky and Shavell propose that compensatory damages be determined in such a way as to establish a deterrent effect, our proposal limits the role of VSL to the punitive damages component. We propose that the level of punitive damages be increased to the level dictated by this formula whenever the probability of detection is less than 1.0 because deterrence concerns are the dominant focus of punitive damages.
In contrast, Polinsky and Shavell seek to use the same formula for both property damage and bodily injury cases—that is, total damages equal the value of compensatory damages divided by the probability of discovery. To then fulfill the function of deterrence, compensatory damages in wrongful death cases should be increased to VSL, regardless of whether punitive damages are warranted.
LEGISLATIVE CONSTRAINTS
It is possible to avoid these problems by not trying to lump the punitive damages formula into the same construction for property damage cases and personal injury cases. The solution is to have a different but parallel approach to punitive damages in wrongful death cases that provides deterrence when punitive damages are warranted without distorting the compensatory damages approach to cases generally. Punitive damages of this magnitude are not possible if there are legislative limitations on the permitted amount.
Legislative limitations on punitive damages in wrongful death cases thus undermine deterrence efforts for the most serious personal losses. It should also be noted that the recipients of punitive damages in a property damage case will also in fact be paid an overinsurance amount. Compensatory damages are ideally set to compensate for the financial value of the damage so that the additional punitive damages amount will exceed the full insurance amount.
In terms of a general policy proposal, we do not recommend imposing limits on punitive damages in personal injury or wrongful death cases. We also conclude that the current emphasis on limiting punitive damages awards for personal injury cases to a greater extent than for property damage cases is clearly misplaced.
THE U.S. SUPREME COURT'S LIMITATIONS ON PUNITIVE DAMAGES RATIOS
Several Supreme Court cases have addressed the role of the punitive damages ratio, but the first summary of the prominent role of the ratio in determining the reasonableness of punitive damages awards was in BMW of North America v. compensation in the 1990s, there was little guidance on what ratios were appropriate. This lack of firm guidance did not hold as the Supreme Court subsequently imposed substantial structural limits on punitive damages ratios.
An award of punitive damages cannot be greater than an amount that has a reasonable relationship to the harm caused to members of the plaintiff's class by the defendant's misconduct. Should the jury consider the ratio of punitive damages, an issue that is not addressed at all in the jury instructions, but has loomed large in the court's decisions. Although the 1:1 ratio provides a new benchmark for determining the admissibility of punitive damages awards, the Court acknowledged that factors such as low probability of discovery or malicious conduct may also influence the appropriate size of the award.77 How to such additions.
Regardless of the accuracy of the ratio approach, this article will demonstrate that the uniform application of such ratios to assess the appropriateness of punitive damages is fundamentally flawed. What is important for deterrence purposes is not the ratio of punitive damages, but the total amount of damages, including losses that may not have been compensated by compensatory damages.
EMPIRICAL EVIDENCE ON PUNITIVE DAMAGES BY CASE TYPE
For purposes of the following analysis, we make the following trial restrictions: (1) the prevailing party is the plaintiff, and (2) the plaintiff is awarded affirmative damages and affirmative damages. In twenty-four of the 180 punitive damages cases, no information has been reported on the distribution between economic and non-economic damages. Panel A reports the results for the full sample of 156 cases with positive values of punitive damages.
There is considerable heterogeneity among case types in terms of compensatory damages levels and punitive damages ratios. Compared to non-personal injury cases, personal injury cases have, on average, a higher share of non-economic damages compared to punitive damages. The main exceptions are defamation and employment cases.91 However, the amounts of economic damages and punitive damages can be quite high.
Five of the nine types of property damage have average punitive damages of at least $1 million. The largest punitive damages award for a wrongful death case in the 2005 CJSSC data set is $18 million in a medical malpractice case.
MULTIPLE REGRESSION ANALYSIS OF PUNITIVE DAMAGES
Thus, one might empirically expect that in all cases of bodily injury, higher levels of non-economic damages will in turn increase the level of punitive damages.'00. The coefficients have a simple interpretation—on average, each additional dollar of economic damages increases punitive damages by $b, and similarly, each additional dollar of noneconomic damages increases punitive damages on average by $c. In this linear version, if b and c are identical, then each dollar of economic damages has the same effect on punitive damages as each dollar of noneconomic damages.
This equivalence is the assumption underlying the use of punitive damages ratios as a benchmark. On average, each additional dollar of economic damages increases punitive damages by $1.19 per full. On average, each additional dollar of noneconomic damages increases punitive damages by $1.50, while each additional dollar of economic damages increases punitive damages by.
The opposite pattern emerges for cases not involving bodily injury—each additional dollar of economic damages increases punitive damages by $2.16, while each additional dollar of noneconomic damages increases punitive damages by $1.15. These findings have three main consequences for the Supreme Court's focus on punitive damages ratios.
CONCLUSION: PUNITIVE DAMAGES TO ESTABLISH DETERRENCE FOR CASES OF WRONGFUL DEATH
Second, for personal injury cases, the greater influence of non-economic damages than of economic damages on the amount of damages is consistent with what would be expected from the standpoint of an economic theory of deterrence. Compensatory damages do not provide fully adequate deterrence in personal injury cases, and increasing damages based on the amount of non-economic damages is consistent with providing adequate deterrence. Third, the relatively greater role of economic damage in determining the amount of punitive damages for property damage cases is not consistent with a deterrence hypothesis, as economic damage and non-economic damage should have a symmetrical effect when losses are converted into equivalent financial conditions.
These results are consistent with an alternative hypothesis about how punitive damages awards are set. The relatively greater impact of noneconomic damages in bodily injury cases and economic damages in property damage cases suggests that the damage component that is more central to the character of the loss has the greatest effect on punitive damages. Thus, the determination of punitive damages can be seen as influenced by a framing effect, where the process of determining damages is structured in terms of the component of the harm that appears to be the greatest in the particular case.
What we do not observe is a process consistent with conceptualizing appropriate damages amounts in terms of punitive damages relations. Economic and non-economic damages are not weighted equally and then used to calculate punitive damages based on some target punitive damages ratio.
