A Smart Use of Punitive Damages as a Stick for Regulation Violators

Abstract: Given the substantial enforcement costs of public authorities and the possible failure of liability, the joint use of regulation and liability is advanced. In case of a regulation violation, the imposition of punitive damages under a strict liability regime will give potential violators a strong incentive to comply with the law and save the enforcement costs as well by creating a discontinuous costs-function for potential violators. Under a negligence rule, the effect of imposing such punitive damages might not be as strong as under a strict liability rule, and it may exert stronger impact in one situation where the probability of escaping liability is high enough. For the amount of damages, in principle, it should be based upon the reciprocal to the probability of escaping liability