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Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International

Document Type


Publication Date

Spring 2002




Oxford University Press




This article examines a model of strict liability with costly litigation and presents conditions under which (1) potential injurers take optimal precautions, (2) increasing the cost of litigation enhances precaution and social welfare, (3) the optimal level of liability exceeds the compensatory level, and (4) increasing the rate of settlement enhances social welfare. The results have implications for controversies surrounding fee shifting, optimal damage awards (e.g., punitive damages), and the social desirability of settlement. The most striking implication is that fee shifting in favor of prevailing plaintiffs is socially desirable in low-transaction-cost settings.


Updated with published version of paper on 9/24/22

Working paper available on SSRN

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Working paper available on SSRN

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Litigation Commons



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