Jon D. Hanson

THE NONPECUNIARY COSTS OF ACCIDENTS: PAIN-AND-SUFFERING DAMAGES IN TORT LAW

Conventional wisdom holds that tort awards for nonpecuniary losses are undesirable from an insurance standpoint. Professors Croley and Hanson challenge this wisdom. After providing a critique of several reform proposals predicated on that wisdom and explaining why rational consumers might well demand insurance against nonpecuniary losses, they argue that the empirical evidence upon which the conventional wisdom is largely based is more complicated than previously recognized. In particular, several market impediments seriously limit the extent to which inferences about consumer demand can be drawn from looking solely to first-party insurance markets. With those impediments in mind, however, one can see more clearly the modest market evidence of such demand. Moreover, certain nonmarket evidence further suggests that consumers may demand insurance against nonpecuniary losses, though the markets ability to answer that demand is limited. The tort system, in contrast, has several advantages that may render it a superior institution for providing nonpecuniary-loss insurance.

Game Theory and the Law

This chapter introduces the history, uses, methods, strengths, and limits of law and economics and game theory as applied to law. Through a game-theoretic analysis of a famous judicial opinion, United States v. Carroll Towing, the chapter describes the efficiency consequences of different potential legal rules and illustrates some of the considerations and challenges inherent in selecting the efficient legal rule. The chapter also highlights some of the trade-offs inherent in the law and economics approach and in employing game theory as a tool for modeling legal problems.