FIN 342 Lecture 10: FIN 342- Tort System Issues and Solutions
Document Summary
Libertarians favor free-market laissez-faire capitalism with minimal government intervention. Economists would generally agree that government intervention comes with costs, but sometimes is necessary because the free market doesn"t operate efficiently. The trade-off is the costs of the tort system vs. the benefits of a more stable economy. Government intervention effects behavior: goal: provide incentives to alter behavior in ways that cause optimal allocation of resources. Specific goals (revisited: provide incentives for safety, provide compensation for victims. Balance: the costs of the tort system. Analogy: the legal liability system is like an insurance mechanism in that we all pay a price for it. If courts are too generous, everyone bears the cost. Long delays in settling and/or litigating lawsuits. Escalating jury awards: higher punitive damages, social inflation (desensitized juries, class action law suits = big stick , medical cost inflation, media coverage. Caps on punitive and pain & suffering damages.
