An Overview of Policy Optionsfor Changing the Tort System
Various scholars and policy advocates have proposed altering the tort liability system to reduce what they see as excessive transaction costs and other problems associated with it. Those proposals are too numerous for all of them to be discussed here. Instead, this chapter examines a number of policy options to illustrate the range of choices available to lawmakers. The chapter outlines each option's potential implications for efficiency and equity. For reasons of space, however, it cannot analyze any one option in full detail. (For example, it does not consider the effects on state law or the potential transition problems associated with a particular change, nor does it discuss the many possibilities for combining policies that are not mutually exclusive.)
The options discussed here can be grouped according to their general approach. The first approach would greatly reduce the scope of the tort system and rely more heavily on other tools to control the costs of injuries. The second group contains options that are more incremental in nature but that could be applied broadly to the universe of torts. The final set comprises options targeted toward types of tort claims that have raised particular policy concerns, such as claims arising from medical malpractice or asbestos exposure and those litigated as class actions.
In all three groups, most of the proposals can be seen as addressing one or more of the fundamental barriers to efficiency discussed in Chapter 3:
· The difficulty of giving both potential injurers and potential victims incentives to choose the efficient form and scale of their risk-related activities;
· The added difficulty of optimally distributing (insuring) the risks that remain after efficient precautions have been taken; and
· Problems relating to the cost and scarcity of information, including transaction costs, errors in judgments and in settlements, and inefficient standards for due care.
Other options respond to issues that arise from broader aspects of the legal system, such as the perceived problem that some locally elected judges are biased against out-of-state corporate defendants.
 
Options for Reducing the Scope of Tort Liability
The policy changes in this group--which involve replacing some or all types of tort liability with private or public insurance--generally go well beyond the kinds of proposals now being considered by the Congress. They are included here because they help clarify the strengths and weaknesses of the tort system or provide useful comparisons with other options.
Replacing Tort Liability with Private Insurance
Some academic economists favor the approach of eliminating tort liability, except perhaps for injuries between "strangers" (such as injuries from automobile accidents).(1) Potential victims would rely to a greater extent on their own insurance for protection against injury risks. In cases in which potential injurers could cost-effectively reduce those risks, they would be motivated to do so to the extent that they could gain a marketing advantage--by advertising the safety of their products or by offering injury compensation in a warranty, purchase contract, or the like.(2) Some increases in government regulation might also occur.
From the standpoint of efficiency, eliminating tort liability would have several desirable implications, although it would fall short of the ideal. It would give potential victims the incentive to take all cost-effective precautions and to obtain the optimal amount of risk spreading through insurance or other compensation contracts. And provided that the insurance and contract terms were clear enough, the amount of litigation would decline significantly, reducing both transaction costs and the inefficiencies associated with erroneous judgments. However, this approach would weaken incentives for potential injurers to exercise cost-effective forms of care (at least those not required by regulation) and could increase inefficiencies associated with imprecise or too-stringent regulation.
From the standpoint of equity, the implications of shifting primary responsibility for injury costs to victims could be considered both good and bad. Lower liability-related costs for businesses should lead to lower prices for many consumer goods and services and reduce the extent to which consumers are implicitly forced to pay for unwanted insurance for nonpecuniary damages. But victims would usually get compensation only for pecuniary losses, and those who had not bought insurance might get no compensation at all. Moreover, injurers would pay compensation only to the extent that they had contracted in advance to do so, and in cases of subtle, delayed, or indirect harm, some injurers' roles might go undetected because few, if any, plaintiffs' attorneys would be working to identify the causes of injuries.
A narrower variant of the same basic idea would eliminate liability only for those products (or features of products) that have been certified as safe by a federal body, such as the Food and Drug Administration, the National Highway Traffic Safety Administration, or the Consumer Product Safety Commission. Many of the arguments for and against completely eliminating tort liability would apply here as well, at least qualitatively. For example, the same efficiency and equity implications would follow from making consumers bear the risk of using the relevant products. The main immediate difference from the standpoint of efficiency is that focusing on products that satisfied federal safety regulations would presumably limit the extent of any increase in injury risks. From the perspective of equity, removing the threat of liability from firms whose products met federal standards might be particularly appropriate. Over time, however, this variant could result in a greatly expanded role for federal regulators--with potentially significant consequences for both efficiency and equity--as firms and industries seeking to exempt their products from liability pushed to broaden the scope of federal safety standards.
Replacing Tort Liability with Public Insurance
Another variant of the previous approach would eliminate (or greatly restrict) tort liability as described above but replace it with a public insurance system, like the present workers' compensation system or the fund for vaccine victims. In this option, victims would receive compensation from a government fund according to a fixed schedule based on the type of injury they had and other relevant factors.(3) To finance the fund, businesses would pay "experience-rated" premiums that reflected the previous record of injuries associated with their products. (Companies would ultimately pass on the costs of those premiums to their customers, workers, or investors in the form of higher prices, reduced wages, or lower returns on capital, respectively.) Depending on the details of the proposal, nonprofit organizations and state and local governments might also participate. But cost considerations would probably make it impractical to rate and collect premiums from individuals, so the injuries they caused might still be handled through the tort system.
Proponents of this variant hope that by standardizing the amount of compensation awarded for similar injuries, this approach would cap or reduce punitive damages and compensatory awards for pain, suffering, and other nonmonetary losses. The effects of reducing such nonpecuniary awards would be qualitatively similar to (though not as large as) the effects of simply eliminating tort liability. Again, potential victims would have better incentives to take efficient precautions, and risk would be distributed more efficiently (because consumers would not be implicitly paying for so much unwanted insurance for nonpecuniary damages). However, some injurers might not face sufficient penalties, and some victims might not receive full compensation for their pain and suffering.
Other implications of the public insurance approach flow from its shift away from litigation to an administrative mechanism. For example, one key argument made for the approach is that it would significantly reduce transaction costs from the 54 percent estimated under the current tort system. (However, transaction costs would probably remain higher than the 20 percent estimated for state workers' compensation programs because of higher costs for such things as determining which injuries were compensable and associating injuries with particular injurers.) Conversely, one argument against public insurance is that the schedule of damages might not do justice to individual cases. Another is that in some cases of subtle, indirect, or delayed harm--such as cancers with long latencies caused by exposure to a particular chemical-- victims might not recognize that they had suffered a compensable injury, since there would be few, if any, plaintiffs' attorneys working to identify injury causes. In addition, this option would represent a sharp departure from current practice for injuries that are judged under a negligence standard. Providers of medical care, for example, are now held liable only for injuries considered to result from negligence; but with this option, all compensable injuries to patients under their care would be reflected in their assessed premiums for the public fund.
The incentives for potential injurers to exercise care might be more or less efficient under a public insurance program than they are now. For a firm to be encouraged to take all cost-effective precautions, its assessed premiums would need to reflect all of the effects of its actions on expected future injury costs, and the experience rating would probably not be that thorough. However, even if the new incentives fell on the low side, the error could be smaller than it is now if current incentives are inefficiently high because of mistaken or excessive trial awards.
 
Options for Reforming the Tort System as a Whole
Changes that would maintain the basic structure of the tort system can take many forms. The options discussed here focus on nonpecuniary damages, attorneys' fees, joint-and-several liability, and payments from "collateral sources," such as victims' insurance policies. (Those options are summarized in Table 3.) All of the policy changes could be applied to the broad universe of tort claims or, alternatively, to one or more subsets of particular concern.
              
Table 3. 
The Primary Effects of Some Broad Options for Tort Reform
 
  Effects on Efficiency     
Option   Positive   Negative   Effects on Equity
 
Control Nonpecuniary Damages 
  Cap or prohibit nonpecuniary damages   Improves allocation of risk (by reducing implicit overinsurance); may reduce distortions of safety incentives if current damages are excessive or arbitrary   May undermine incentives for care and encourage excessive consumption of risky products if current damages are appropriate   Consumers are not forced to buy as much bundled insurance for nonpecuniary losses; depending on the character of existing damages, lower payments by injurers may reduce excessive judgments or punish injurersinadequately, and lower awards to victims may represent inadequate compensation or smaller windfalls
 
  Allow buyers and sellers to agree in advance to limit liability damages   Same as above   Same as above   Same as above, except that incomplete compensation to victims may be viewed as equitable if it follows voluntary, informed choices by consumers
 
  Allow unlimited insurance subrogation   Improves allocation of risk (by reducing implicit overinsurance) and incentives for care by consumers   No major negative effects   Consumers can effectively undo the bundled insurance for nonpecuniary losses; injurers still pay such damages, but the payments go to victims' insurance companies rather than to victims
Control Attorneys' Fees 
  Cap contingent fees   Reduces nuisance suits   Makes it harder for some victims with difficult claims to find representation   Defendants face fewer claims for both legitimate and nuisance suits; some victims receive cheaper representation but others cannot find representation
 
  Promote early offers and limit fees when such offers are made and accepted   Reduces transaction costs for some cases; may reduce nuisance suits   May indirectly make it harder for some victims (though fewer than above) to find representation if attorneys cannot subsidize difficult cases with profits from easy cases   Defendants may face fewer nuisance suits and perhaps fewer legitimate suits; some victims receive cheaper representation but others(though fewer than above) cannot find representation
 
Restrict or Eliminate Joint-and-Several Liability   May reduce transaction costs if the inability to target injurers with deep pockets discourages some suits; may make incentives for care more or less efficient   May increase transaction costs if plaintiffs pursue larger numbers of defendants; may make incentives for care more or less efficient   Injurers with deep pockets pay lower damages and transaction costs; victims get less compensation and may pay higher transaction costs
 
Offset Payments from Collateral Sources   May reduce erroneous findings of liability if some verdicts are motivated by concern that plaintiffs need money for their injuries (such as for medical care)   Reduces incentives for care to the extent that potential injurers expect losses to be covered by other sources   Injurers pay lower damages; victims are not doubly compensated, nor are victims' insurance companies and other collateral sources reimbursed for the benefits they provide
 
Source: Congressional Budget Office.
 
Controlling Nonpecuniary Damages
As noted above, one goal of people who advocate public insurance as an alternative to tort liability is to control nonpecuniary damages. That goal can be achieved in other ways, however--most directly, through statutory limits or bans on those damages. Many states impose such restrictions, either in general or for particular types of torts. In addition, several federal bills considered in recent years have proposed limits in specific contexts. Examples from the current Congress include the Asbestos Compensation Fairness Act of 2003 (H.R. 1586), which would prohibit punitive damages in asbestos cases, and the HEALTH Act of 2003 (H.R. 5) and the Common Sense Medical Malpractice Reform Act of 2003 (H.R. 321), which would limit noneconomic compensation in medical malpractice cases to $250,000 and punitive damages to twice the economic damages or $250,000, whichever was greater.
A second, less centralized way to reduce nonpecuniary damages would be to allow producers of goods and services to specify in advance the extent of damages they would pay in the event of an injury. Products carrying limits on damages could be offered at lower prices (because their expected costs would be lower), and the forces of supply and demand would determine the options available in the market. That approach could lead to the elimination of nonpecuniary damages for risky products--if, as argued in Chapter 3, consumers would rather have lower prices than actuarially fair insurance for such damages. In principle, the courts could implement this option on their own, without legislation, by enforcing damage-limitation contracts in injury cases. They have not done so up to now, however (which is why producers today cannot offer consumers lower prices in exchange for reduced liability). Moreover, Congressional action could allow a faster and clearer transition to the new system.(4)
The efficiency effects of letting producers and consumers limit tort liability damages through contracts would be similar to those of capping or prohibiting damages by statute. Again, to the extent that nonpecuniary damages were reduced, uncertainty would be distributed more efficiently, but lower prices for risky products would probably lead to inefficiently high consumption unless consumers took the risks into account in their decisions about purchases.
The equity implications of the two approaches would differ, however. According to some conceptions of equity, limiting victims' access to compensation for pain and suffering is problematic if it is done by legislative fiat but not if it results from the victims' own choices (provided those choices are adequately informed and voluntary).
A third option focusing on nonpecuniary damages--known as unlimited insurance subrogation (or substitution)--would allow insurance policies to specify that the insurance company would collect all of a liability award or settlement paid by an injurer for an injury covered by the victim's policy.(5) In contrast, the limited subrogation allowed under current law lets a company receive only the portion of an award that is necessary to reimburse it for benefits paid under its policy.
Assuming that consumers continued to insure themselves only for pecuniary losses, the result of this option would be that insurance companies could collect more than they paid out whenever one of their policyholders was awarded punitive damages or compensation for pain and suffering (or pecuniary damages in excess of the policy's benefits). The expected value to insurers of the net proceeds from such cases would reduce their costs, and in a competitive market, they would pass on the savings to consumers through the premiums they charged. In principle, the result for the average consumer would be to exactly undo the inefficient "bundled" coverage for nonpecuniary damages that is implicitly included in the prices of risky goods and services. Taking into account their savings on premiums and their restricted compensation in the event of an injury, consumers would be paying for and receiving coverage only for pecuniary damages.
Like the previous two options, unlimited subrogation would reduce the inefficiency associated with bundled insurance for nonpecuniary damages at the cost of reducing the compensation received by victims. Indeed, it would probably go farther than proposals that merely cap such damages, by eliminating them for injuries covered under most, if not all, insurance policies. But unlike the previous options, it would leave injurers liable for such damages--the difference being that the awards and settlements would go to insurance companies rather than to victims.(6) Thus, potential injurers would still have an incentive to consider the full social costs of their risk-related actions, and consumers would continue to see those total costs reflected in the prices of products. In short, the unlimited-subrogation approach would not only allocate consumers' wealth more efficiently between the uninjured and injured states (again, by reducing or eliminating overinsurance for nonpecuniary damages) but would also maintain efficient incentives in product markets.
Controlling Attorneys' Fees
Typically, plaintiffs' attorneys in tort cases charge their clients "contingent" fees that are based on a percentage of any damages ultimately received from the defendants. Like nonpecuniary damages, those fees could be constrained by law. The Congress has considered various proposals that would cap such fees in specific contexts.(7)
In an ideal world without errors and information costs, attorneys would pursue only meritorious claims; thus, from the standpoint of efficiency, restricting their incentive to do so by limiting the fees they could charge would be unambiguously negative.(8) Proponents of such caps argue that in practice, however, the costs of inhibiting some legitimate claims would be outweighed by the benefits of reducing the number of "nuisance suits" (such as those filed solely to extract settlements from defendants who would face high litigation costs).(9) From the standpoint of equity, capping contingent fees would help some victims by letting them keep a larger share of the damages they collected, but it could hurt other victims by reducing their access to legal representation.
Some more-targeted versions of this approach could lessen the negative effects. Under one variant--called the "early offers" proposal--a plaintiff's attorney who charged contingent fees would be required to send claim notices in all personal injury cases; his or her fees would be capped only if the defendant made an offer within a specified time after receiving the claim notice and the plaintiff accepted the offer.(10) Because that variant would cap fees only in cases for which the plaintiff's attorney had done relatively little work, it would be likely to reduce any adverse effect on the ability of injury victims to find legal representation. Still, limiting attorneys' fees in those cases could make it harder for attorneys to take chances on meritorious but difficult cases that might ultimately yield them no income.
Restricting or Eliminating Joint-and-Several Liability
For injuries caused by more than one party, the question arises of how much liability to assign to each party. Courts generally use one of two rules in answering that question (although other approaches can be imagined). Under joint-and-several liability, any one injurer or subset of injurers can be held responsible for paying all of the damages. That individual or group often has the right to seek reimbursement from the remaining injurers. Under several liability, by contrast, the court determines the relative contribution of each injurer in causing the harm and holds each one responsible for only that proportion of the damages. In the past 20 years, many states have either eliminated joint-and-several liability under some or all circumstances or have restricted it in various ways--for example, by limiting it to certain types of damages or to injurers whose liability exceeds a certain percentage threshold.
Whether such changes have increased or decreased efficiency is not clear. Ideal incentives require joint injurers to each face liability equal to the incremental effect of their own actions, but neither joint-and-several nor several liability reliably achieves that result. To illustrate, consider a case in which the actions of two injurers are both necessary to cause harm--for example, in which each one disposes of a chemical and the two chemicals then combine to produce an explosion. Avoiding the explosion is efficient if either party could do so at a cost lower than the cost of the resulting damage. But neither injurer might take care if it expected to share liability evenly under either joint-and-several or several liability and its prevention costs exceeded 50 percent of the damage.(11)
What is clear is that several liability has two disadvantages for plaintiffs--and conversely, two advantages for defendants--relative to joint-and-several liability. First, it makes plaintiffs bear a higher share of the transaction costs. Instead of pursuing only a selected subset of the alleged injurers (often just the single party with the deepest pockets) and shifting the costs of dealing with the remaining parties to that selected group, plaintiffs must sue everyone from whom they hope to collect damages. Second, if some of the injurers are bankrupt, defunct, or otherwise unable to pay their share of the damages, several liability leaves plaintiffs partially uncompensated, whereas joint-and-several liability compensates them more fully, to the extent that other, deeper-pocketed injurers can be tapped for their fellow injurers' shares.
Offsetting Payments from Collateral Sources
Under the law's traditional "collateral-source rule," the fact that an injured plaintiff has received benefits from some independent source--such as an insurance policy--may not be considered in determining whether a defendant should pay damages and, if so, how much. In some cases, the collateral source exercises a lien or right of subrogation and is reimbursed for the overlap between the benefits and the damages. In many cases, however, the effect of the collateral-source rule is to allow victims to receive double compensation for their injuries.
In the past two decades, many states have revised the collateral-source rule in various ways that could serve as models for federal action. Those revisions range from merely allowing collateral payments to be introduced as evidence in certain types of cases to requiring that damages be reduced to offset such payments under all circumstances. If verdict errors never occurred, there would be no clear economic rationale for such changes--efficiency dictates that injurers should face the costs of their actions (or, at least, of their negligent actions) regardless of the other benefits available to victims. However, if judges or juries sometimes wrongly find defendants liable because of conscious or subconscious concern that plaintiffs may lack the resources to deal with their injuries, then such changes may improve efficiency. In either case, it may be more equitable for injurers not to pay victims who receive collateral benefits, at least under some circumstances--which may argue for allowing information about such benefits to be introduced as evidence and considered by juries and judges.
 
Options for Reforming Certain Types of Torts
Most of the recent Congressional attention on tort reform has focused on specific types of claims, particularly those arising from medical malpractice or asbestos exposure and those litigated as class actions. Proposals that target those types of claims often include the application of one or more of the broad approaches discussed above, but they generally also include some options that reflect more specifically the nature of the particular claims. This section discusses some of those narrower options.
Creating Specialized Courts
Will the tort system function better if special courts are established to hear particular kinds of claims? For certain classes of difficult cases, specialized courts may yield one or both of the following benefits. First, they may achieve administrative efficiencies that will move cases through the judicial system faster or at lower cost. The pursuit of such efficiencies appears to be the main reason that 10 states (as of August 2000) have created courts focusing on business or complex litigation.(12) Second--as advocates of the creation of special courts to hear medical malpractice claims argue--assigning certain types of complex cases to judges with particular expertise in a subject may improve the quality of case outcomes.(13) The idea is that judges who have experience or specialized training can more accurately interpret scientific or technical issues (in the terms discussed in Chapter 3, lower the cost of information), provide more consistent application of the law, or both.
One potential argument against specialized courts is that to the extent that they make the process of litigation more efficient, they may encourage additional plaintiffs to bring suits. Indeed, some analysts argue that efforts to streamline asbestos cases (in part by consolidating claims for trial) "actually increased the total dollars spent on the litigation by increasing the numbers of claims filed and resolved."(14) In addition, a tension exists between using judges with special areas of expertise to improve case outcomes and the tradition and values of using nonspecialist juries.
Addressing Asbestos Claims
As noted in Chapter 2, claims for injuries resulting from asbestos exposure have grown rapidly over the past three decades, have involved larger amounts of damages than the average tort case, and have been implicated in the bankruptcies of dozens of defendants. Another notable feature of asbestos claims is that a large share of the plaintiffs have not yet become sick--that is, they are not functionally impaired--but nonetheless they are subject to statutes of limitations that begin when they discover (or should have discovered) bodily evidence of exposure. Thus, one option that the Congress has considered is to specify certain medical criteria that asbestos victims would have to satisfy in order to pursue claims.(15) In effect, asbestos injury would be redefined in terms of impairment rather than exposure.
Limiting asbestos claims to those involving impairment would probably improve efficiency by reducing the number of cases and hence lowering total transaction costs. In addition, allowing injurers to avoid paying damages to people who have been exposed but are not notably impaired should have little adverse effect on the efficiency of incentives for precaution against future tort injuries. From the standpoint of equity, this option would benefit victims who are sick today by reducing the competition for court time and injurers' compensation funds. Conversely, it would impose a loss on victims who are not yet impaired, many of whom will incur higher medical costs to monitor their condition over time. Moreover, those victims would not be guaranteed to benefit if they became impaired later, because the funds available to pay claims might be greatly diminished by then.
Another option that the Congress has considered would combine the approach of setting minimum criteria for impairment and establishing a public fund that would compensate victims according to a schedule reflecting the severity of injury and perhaps other relevant factors, such as smoking history.(16) Such a fund would be a narrower variant of the idea of replacing tort liability with public insurance, but some of the pros and cons of the broader idea discussed above would be less relevant here. In particular, because asbestos exposures generally happened decades ago, using a public fund rather than the liability system to compensate victims would have little impact on incentives for precaution against future injuries. The main issues raised by proposals for a compensation fund are the potential savings in transaction costs and the adequacy and appropriateness of the funding sources and compensation schedule.
Addressing Class-Action Claims
Several approaches have been proposed for changing the rules that govern class-action claims. One of those approaches would broaden the "diversity of citizenship" rule to allow more cases to be removed from state court to federal court.(17) That rule--which currently states that U.S. district courts have jurisdiction in civil cases in which no plaintiff and no defendant are citizens of the same state and at least one plaintiff seeks at least $75,000 in damages--could be broadened to a greater or lesser degree. At the extreme, all cases (or perhaps all cases above some low monetary threshold) that involve at least one plaintiff and one defendant from different states could be made removable.
In a simple model of how courts work, changes to the diversity rule would at best be irrelevant--and at worst be harmful to both efficiency and equity to the extent that they inhibited some claims by raising plaintiffs' costs. But the evaluation is less clear when two complicating factors are taken into account. On the one hand, if significant problems of bias against out-of-state defendants exist in some local courts, an expanded diversity rule may improve efficiency and equity by circumventing those problems. Evidence about the highly disproportionate incidence of class-action suits in a small number of jurisdictions suggests that local bias may indeed be a significant problem.(18) On the other hand, if expanded diversity leads to lengthy delays in trying legitimate claims because federal courts have more-limited capacity than state courts do, the costs to efficiency and equity may subtract from or outweigh the benefits.
A second type of proposal targets a different perceived problem with class-action suits--namely, that plaintiffs' attorneys often act independent of any effective oversight by members of the class and collude with defendants to reach settlements that reflect their own interests rather than those of class members.(19) Proposals to address that problem attempt to bring attorneys' interests more closely in line with those of the class. One approach might be to tie the compensation of plaintiffs' attorneys to the benefits actually received by class members. (For example, in the case of a settlement that gave class members coupons for discounts on future purchases from a defendant, the attorney's compensation might be made proportional to the number of class members who used the coupons.) In principle, aligning the two sets of interests should improve both efficiency and equity. In practice, however, it might be difficult to devise rules that would be both comprehensive (and thus not easily circumvented) and flexible enough to accommodate the full range of possible circumstances.
 
1.  See, for example, Paul H. Rubin, Tort Reform by Contract (Washington, D.C.: American Enterprise Institute, 1993).
2.  Contracting in advance for compensation is not possible between parties that had no previous contact or relationship, which is one argument for maintaining tort liability for stranger injuries.
3.  Public insurance funds have also been proposed in narrower contexts; an option that focuses on asbestos injuries is discussed later in this chapter.
4.  Rubin, Tort Reform by Contract.
5.  See David Rosenberg, Deregulating Insurance Subrogation: Toward an Ex Ante Market in Tort Claims, Discussion Paper 395 (Cambridge, Mass.: Harvard Law School, John M. Olin Center for Law, Economics, and Business, undated).
6.  This approach assumes that insurance companies could secure the cooperation of their injured policyholders at trial. For a discussion of that issue, see ibid., footnote 22.
7.  For example, the HEALTH Act of 2003 would allow plaintiffs' attorneys in medical malpractice cases to collect no more than 40 percent of the first $50,000 recovered in a case by all plaintiffs, 33 percent of the next $50,000, 25 percent of the next $500,000, and 15 percent of any amount above $600,000.
8.  In that textbook world, the ideal approach would be to allow attorneys to buy claims from the plaintiffs for agreed-upon amounts and collect 100 percent of any settlement or judgment, since that would give them the incentive to pursue cases to the efficient extent. But under current law, such complete transfer of a claim from plaintiff to attorney (known as "champerty") is illegal. See Robert D. Cooter, "Economic Theories of Legal Liability," Journal of Economic Perspectives, vol. 5, no. 3 (Summer 1991), p. 20.
9.  Versions of this approach that would limit contingent fees for court judgments but not for voluntary settlements would have the additional effect of giving plaintiffs' attorneys more incentive to settle. Again, that effect is clearly inefficient in a simple textbook world, but it may improve efficiency if other factors currently bias attorneys against settlement and toward trial.
10.  The capped fees would increase plaintiffs' incentives to accept early offers and thus defendants' incentives to make them.
11.  In that case, strict liability could provide efficient incentives if each party faced potential liability for 100 percent of the damages, rather than 100 percent for both parties combined. Negligence standards could also provide efficient incentives here; as discussed above, however, such standards are not fully efficient in general because they do not provide appropriate incentives for the scale of nonnegligent activities. See Thomas J. Miceli and Kathleen Segerson, "Joint Liability in Torts: Marginal and Infra-Marginal Efficiency," International Review of Law and Economics, vol. 11, no. 3 (December 1991), pp. 235-249.
12.  National Center for State Courts, "Focus on Business and Complex Litigation Courts," Civil Action: A Briefing on Civil Justice Reform Initiatives, vol. 1, no. 1 (August 2000), available at www.ncsconline.org/wc/publications/Res_SpePro_CivilActionV1N1pub.pdf
13.  See the remarks of Philip K. Howard before the Common Good forum, "Beyond Patients' Rights: Do We Need a New System of Medical Justice?" hosted by the AEI/Brookings Joint Center for Regulatory Studies, Washington, D.C., April 24, 2002, available at http://cgood.org/medicine/item?item_id=3390.
14.  Stephen J. Carroll and others, Asbestos Litigation Costs and Compensation: An Interim Report (Santa Monica, Calif.: RAND Institute for Civil Justice, 2002), p. 26.
15.  See, for example, the Asbestos Claims Criteria and Compensation Act of 2003 (S. 413).
16.  See the Fairness in Asbestos Injury Resolution Act of 2003 (S. 1125). Another bill, the Asbestos Compensation Act of 2003 (H.R. 1114), takes an intermediate approach: like S. 1125, it would establish a fund that would offer compensation to asbestos victims according to a schedule. (Both bills would allow unimpaired victims of asbestos exposure to be reimbursed for some medical monitoring costs.) But the fund would be financed on a claim-by-claim basis through settlements with or judgments against individual defendants, rather than as a public insurance program. Moreover, victims would retain the right to file claims in court instead of accepting compensation from the fund.
17.  See, for example, the Class Action Fairness Act of 2003 (H.R. 1115 and S. 274).
18.  John H. Beisner and Jessica Davidson Miller, Class Action Magnet Courts: The Allure Intensifies, Civil Justice Report No. 5 (New York: Center for Legal Policy, Manhattan Institute, July 2002).
19.  For examples of seemingly abusive class-action settlements, see Trial Lawyers for Public Justice, Class Action Abuse Prevention Project, brochure (Washington, D.C.: Trial Lawyers for Public Justice, undated), available at www.tlpj.org/caappbrochure.pdf.