More on Punitive Damages

Alex Tabarrok comments on the punitive damages issue I blogged about last week. He makes the important point that taxation of punitive damages (and, by extension, my tongue-in-check proposal to burn them) would create a greater incentive for both parties to settle out of court. That's not necessarily a bad thing, of course.

UPDATE. A conversation with some colleagues prompted me to add the following: Juries might simply inflate their punitive damage awards if they knew the “victims” would only get 25% of them. Is this really likely to happen? The key question is why juries are inclined to make large punitive damage awards. If their desire is to give victims giant lottery jackpots (even though compensatory damages are supposed to be large enough to make the victims whole), then there is good reason to think they’d inflate the damages. On the other hand, if their desire is to punish the evil corporations (or whatever), then they’d have no reason to inflate the damages any more than they do now, because the defendants have to pay the entire amount.