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January 10, 2005


New Tillinghast study

Tillinghast-Towers Perrin, the consulting firm that is the definitive source for overall tort system costs, has released its 2004 Update (PDF). According to the study, 2003 tort costs grew 5.4%, a slowdown from the 13-15% growth in the two previous years but still faster than the overall economy's 4.9% growth rate. Sebastian Mallaby has a column in today's Washington Post, "The Trouble with Torts":

In 2003, according to Tillinghast, the tort system cost $246 billion -- meaning that the average American paid $845 for it via more expensive goods and services. But the really shocking thing is where the billions went. Injured plaintiffs -- the fabled little guys for whom the system is supposedly designed -- got less than half the money. . . .

So the tort system's administrative costs are a scandal. But are its other costs much better? Of the 46 cents per dollar in the system that actually make it to plaintiffs, 22 cents are paid out to compensate people for economic damages, including damaged property, lost wages and medical expenses. The other 24 cents are paid to compensate plaintiffs for "pain and suffering." Should we really want a system that pays out billions for emotional distress? A little thought suggests we shouldn't.

A tort system is a form of insurance: Consumers accept higher prices for products and services in exchange for the chance to be compensated if the product or service harms them. Outside the tort system, we have plenty of examples of people buying insurance or warranties. People insure their cars, homes, refrigerators; they want protection against financial setbacks. But people don't buy much insurance to protect themselves from pain and suffering; their revealed preference is that they don't want it. So why have a tort system that provides over $50 billion in pain-and-suffering awards annually? . . . .

Bush is pushing three kinds of tort reform, and all of them are worthy. But the ultimate goal should be to shrink the tort system radically. Measured as a share of GDP, America's tort system is more than twice as expensive as it was in 1960, twice as expensive as the current systems in France or Canada, and three times as expensive as the system in Britain. A reasonable goal for the American tort system is to halve it.

The Washington Post editorial board also weighs in, in a pro-reform column.

Posted by James R. Copland at 10:55 AM | TrackBack (1)



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