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US State Tort Liability Reform and Entrepreneurship

  • John A. Dove EMAIL logo and Laura R. Dove
Published/Copyright: March 3, 2020
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Review of Law & Economics
From the journal Review of Law & Economics Volume 16 Issue 3

Abstract

Tort and civil liability reform has been a hotly debated issue across US states. This has spawned a large theoretical and empirical academic literature that evaluates the implications of such reform and the impact that it can have on various aspects of an economy. This study adds to that literature by considering how various tort reforms affect entrepreneurial activity across states. The study employs the Database of State Tort Law Reforms (6th Edition) and utilizes the Kauffman Index – an index of entrepreneurial startup activity – between 1996 and 2016, finding that liability reform is generally positively associated with increased entrepreneurial activity. These results are largely driven by joint and several liability, caps on noneconomic damages, limits on contingency fees, and collateral source rules though this latter result is somewhat less robust, while the effects of joint and several liability do not persist through time.

Keywords: entrepreneurship; tort reform; liability; Kauffman; economic growth
JEL Classification: D78; H73; K13

Appendix

Table 14:

OLS results with 1-year lead of each liability rule.

Dependent Variable: Kauffman Index of Entrepreneurial Activity
(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13)(14)(15)(16)
Joint and Several Liability Reform t + 1 (1 = Yes)0.00512 (0.0129)0.00590 (0.0114)
Caps on Noneconomic Damages t + 1 (1 = Yes)0.00784 (0.0117)0.0129 (0.00951)
Caps on Punitive Damages t + 1 (1 = Yes)0.0157 (0.0142)0.0108 (0.0116)
Split Recovery Reform t + 1 (1 = Yes)0.00812 (0.0220)0.0122 (0.0206)
Collateral Source Reform t + 1 (1 = Yes)0.0205 (0.0150)0.0248* (0.0141)
Punitive Evidence Reform t + 1 (1 = Yes)−0.00432 (0.0276)−0.00441 (0.0233)
Periodic Payments Reform t + 1 (1 = Yes)0.0206 (0.0138)0.0111 (0.0124)
Contingency Fee Reform t + 1 (1 = Yes)0.0861*** (0.0307)0.0704*** (0.0270)
Observations8338338338338338338338331,0501,0501,0501,0501,0501,0501,0501,050
R-squared0.5800.5810.5810.5800.5810.5800.5810.5830.5680.5690.5680.5680.5690.5680.5680.570
State Fixed EffectsYYYYYYYYYYYYYYYY
Year DummiesYYYYYYYYYYYYYYYY

  1. Robust standard errors in parentheses. All control variables included in columns 1–8. Total tax burden and unified government excluded in columns 9–16.

  2. *** p < 0.01, ** p < 0.05, * p < 0.1.

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Published Online: 2020-03-03

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  5. Fairness Vs. Economic Efficiency: Lessons from an Interdisciplinary Analysis of Talmudic Bankruptcy Law
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  7. US State Tort Liability Reform and Entrepreneurship
https://doi.org/10.1515/rle-2018-0067
Keywords for this article
entrepreneurship; tort reform; liability; Kauffman; economic growth

Articles in the same Issue

  1. Articles
  2. Two Advantages of the Negligence Rule Over Strict Liability when the Parties are Risk Averse
  3. Is a ‘Bad Individual’ more Condemnable than Several ‘Bad Individuals’? Examining the Scope-severity Paradox
  4. Leniency Programs and Cartel Organization of Multiproduct Firms
  5. Fairness Vs. Economic Efficiency: Lessons from an Interdisciplinary Analysis of Talmudic Bankruptcy Law
  6. Individual or Enterprise Liability? The Roles of Sanctions and Liability Under Contractible and Non-contractible Safety Efforts
  7. US State Tort Liability Reform and Entrepreneurship
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