Creating Conditions for Economic Growth: The Role of the Legal Environment
Released at the 12th Annual Legal Reform Summit, this working paper examines the economic impacts of all 50 states’ legal environments. Commissioned by ILR and conducted by NERA Economic Consulting, the report uses a first-of-its-kind econometric model to estimate the economic savings each state can realize by improving its legal environment.
It is widely recognized that the cost of the U.S. tort system is excessive relative to other countries. It is also excessive when examined in absolute terms based on its high transaction costs as well as some of its unique features, such as punitive damages and civil jury trials that can lead to excessive outcomes.
This study is based on a data set of state liability costs never before made available to public policy researchers, which provides an excellent basis for a reliable state-by-state comparison of costs. We analyzed that data and developed an econometric model that effectively uses the data to tell the full story: how liability costs vary by state and how great potential cost savings could be from incremental improvements in the legal environment in individual states. Some states are perceived to be much less fair and reasonable than others, having much higher levels of tort filings in relation to their size, which consistently produces a greater proportion of the most extreme verdict awards and, based on our analysis in this study, higher tort costs overall. In this study, we show that by simply raising the bar in the states with the costliest legal environments, and achieving savings that some states have already been able to achieve, tort costs in individual states could be reduced by up to 26%.
Released: Oct 26, 2011