November, 2007

Mercatus on Policy: Using Economics Experiments to Evaluate Tort Reform Proposals

  • Kevin McCabe

    Mercatus Center Scholar
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Over the last three decades, the costs associated with the U.S. tort system have grown dramatically. Since 1980, the annual cost of tort claims filed in the United States has risen from $42.7 billion to over $260.8 billion (controlling for inflation), an increase of more than 610 percent. These increasing costs have generated widespread concern about unfairness, wasted resources, and congestion within the legal system. Calls for tort reform are growing more insistent, and many politicians have come to see tort reform as a legislative priority.

The fundamental purpose of the tort system is to compensate injured parties for their losses while ensuring that those responsible for injuries bear the consequences of their harmful actions. A costly tort system that is slow to resolve disputes is especially harmful to injured parties. Money that could be used to compensate tort victims is wasted on costly litigation. Today only 46 percent of annual tort cost goes into compensating victims-the other 54 percent is lost to administration and attorney fees. Plaintiffs with financial needs resulting from their injury may have to wait months or even years for their claims to be resolved.

Tort reforms designed to promote pre-trial settlement and relieve congestion in the system would mitigate these problems. If more cases could be induced to settle (or settle sooner), this would allow more money to go toward compensating injured parties while giving them quicker access to the funds they need.