TORT COSTS AND THE ECONOMY

The legal system for adjudicating tort claims in the United States delivers important benefi ts to the Ameri-can people. Most notably, these benefi ts include the compensation of injured persons (including people harmed by giant corporations and other powerful interests), the deterrence of wrongdoing, greater invest-ments in product innovation and safety, and the civilized, non-violent settlement of disputes. Th ese benefi ts are rarely quantifi ed, and critics generally focus exclusively on the system’s costs, whose magnitude and impact they tend to exaggerate, claiming that job growth, productivity, health care, and corporate profi ts suff er under the current system. Although a full review requires an examination of both the costs and benefi ts of the system, this briefi ng paper reviews only the tort system’s most commonly alleged economic costs and impacts and shows that most have little or no basis in reality. Despite evidence that the cost of tort insurance, litigation, and damage claims is lower now as a share of the economy than it was 20 years ago, various interest groups continue to claim there is a tort crisis and that the econ-omy would benefi t if the rights of tort plaintiff s were limited. According to insurance industry consultant Towers Perrin,1 tort costs as a percent of GDP fell from 2.28 % in 1986 to 2.22 % in 2004, the most recent year for which there are data (Tillinghast-Towers Perrin 2006, 15). Towers Perrin predicts tort costs will remain below 2.28% of GDP at least through 2007 (Tillinghast-Towers Perrin 2006, 15). Yet business groups and others advocating changes in U.S. tort laws often claim that our tort system hurts U.S. competitiveness and employment. Th e 2004 Economic Report of the President, for example, claimed that, “Tort liability leads to lower spending on research an