On May 2, 2007, PointofLaw contributor Ted Frank posted comments regarding our most recent PRI study Jackpot Justice. The following is our point-by-point response to Mr. Frank's comments.

Response to Ted Frank on Jackpot Justice

By Lawrence J. McQuillan, Ph.D., and Hovannes Abramyan

[PRI’s responses are in bold and in brackets.]
 

May 2, 2007

PRI responds to Posner

Lawrence J. McQuillan and Hovannes Abramyan respond in detail point-by-point to Richard Posner's critique of the PRI "Jackpot Justice" study.

Their main objection is that Posner repeatedly characterized their report as a measure of the costs of the liability system, rather than that of the costs of excessive liability, but the original study can be at least partially blamed for that confusion given that some elements of the $865 billion figure in press release headlines were obtained by measuring total costs.

[Our study measures the total costs of the U.S. tort liability system, but some costs only arise when liability burdens are excessive, and they currently are excessive. By definition these excessive-liability costs fall to zero when liability burdens are optimal. The benefits, however, do not necessary fall to zero, but our study does not measure benefits directly. Whether you label these excessive-liability cost components “marginal” or “total” is immaterial to us, but they logically belong in the overall cost estimate.
 

Our main objection to Posner was not that he characterized our report as a measure of total costs, which it is, but rather his two dozen misrepresentations of the study’s construction and findings.]
 

But McQuillan and Abramyan do take down a number of Posner statements that misrepresent study findings.

I still take issue with PRI's use of Rubin & Shepherd. Some tort reforms, such as noneconomic damages caps, improve social welfare by reducing randomness and increasing accuracy in the litigation system. Other reforms, such as collateral source offsets or economic damages caps, operate as wealth-transfers to tortfeasors, and can be expected to decrease deterrence arbitrarily.

[We generally agree with this assessment although in practice, to our knowledge, no state has singled out economic damages for direct caps.]
 

And indeed, that is what Rubin & Shepherd (and several other studies, like Klick & Stratmann's work on infant mortality) find.

[We applied accurately the Rubin & Shepherd methodology and accounted for the increase in deaths due to collateral source offsets.]
 

All in all, the early version of the Rubin/Shepherd study found a loss of 2700 lives in 2004 vis-à-vis a baseline of a tort system without legislative constraints.

[This is incorrect. The Rubin & Shepherd study measured net lives saved from tort reforms, not net lives lost. We calculated the 2,700 net lives lost, not Rubin & Shepherd, by using the Rubin & Shepherd methodology to project the number of lives that would have been saved if reforms had been in place in a particular year (see page 18 of the study).]
 

But the total loss of lives attributable to "excess liability" is higher than that number, because the Rubin/Shepherd number is dampened by the number of lives cost by inefficient liability reductions. If every state adopted collateral-source reform, that wouldn't be an argument against the benefits of non-economic damages caps just because the Rubin-Shepherd number dipped below 2700 or even if it dipped below zero. (For example, imagine a highly inefficient reform that made it a felony to bring an unsuccessful malpractice suit. There's little question that such a law would cost lives; the numbers might even swamp the 2700-life figure in Rubin/Shepherd.

[Again, we calculated the 2,700 figure, not Rubin & Shepherd.]
 

But that the Rubin/Shepherd methodology would then conclude that the combination of efficient and inefficient reforms cost lives on balance would not be an argument against the efficient reforms.)

[We agree, however, we did not inject our own personal reform preferences into the calculations; we looked at the effect of all statistically-significant reforms whether “efficient” or “inefficient” since our objective was to measure costs, not advocate for or against specific reforms.]
 

On the other hand, however, the PRI study measures the cumulative effect on the workforce of deaths over the last 24 years. This is another place where their study's measurements are inconsistent with measurements elsewhere in the study. Why measure cumulative loss of workforce when one is not measuring cumulative loss of innovation? In some places, the study is measuring the marginal cost of a broken liability system; in other places, the study is measuring the cumulative cost of decades of damage caused by the liability system. One measure or the other is alright, as long as it is made clear that this is what is being estimated, but it is problematic to add the two calculations in the same number.

[This description is mistaken. All estimates are for one calendar year and do not aggregate costs across years for a “cumulative effect” or across “decades” for a “cumulative cost.” Perhaps our description in the report could have been clearer, but our approach measures the total value of output for one year that would have been produced by people who would have been alive, on net, and working that year, but are dead and not in the workforce due to excessive liability. It is a measure of the lost output from these net-lost workers for one calendar year.
 

We chose to allocate the lost output from these net deaths on an annual basis as a flow, rather than, for example, registering the present value of the excess deaths at the time the deaths occurred. Our approach is consistent with the “flows approach” used throughout the study since we are measuring the annual cost. An alternative present-value “stocks approach” would have truly aggregated costs over many years; therefore, we rejected this approach.]