This paper presents an overview of the two fundamental purposes of punitive damages (deterrence and punishment) and their balancing in courts’ decisions. Punitive damages should in fact be imposed when deterrence otherwise would be inadequate because of the possibility that injurers might escape liability. In particular, punitive damages should be set at a level such as to confront potential injurers with the total social cost of their actions, something that is achieved when their damage payments will, on average, equal harm. For this purpose, an appropriate “multiplier formula,” is introduced and explained in the paper. It is further submitted that punitive damages might alternatively be set at a compromise between the levels that are optimal when each objective is considered indipendently. Finally, it has been attempted to compare and contrast the two goals of punitive damages by observing the behavior of judges and juries in actual cases.
- Punitive Damages,
- Exxon Valdez