SPECIAL LEVIES ON PUNITIVE DAMAGES - DECOUPLING, AGENCY PROBLEMS, ANDLITIGATION EXPENDITURES

This article extends the economic model of ''decoupling'' the damage a ward payable by a defendant and the award received by a plaintiff in t he context of recently enacted ''special levy'' statutes. These status tes require plaintiffs to hand over portions of their punitive damage awards to the state. The basic model of decoupling is expanded by inco rporating the effect of levies on litigation expenditures and settleme nt and by examining the effect of agency problems between plaintiff an d his attorney. Consistent with the basic model, we find that, in the absence of agency problems, if a case goes to trial, levies reduce the expected award payable by the defendant and the plaintiff's litigatio n expenses. However, the effect of levies on settlement is indetermina te. In the presence of agency problems, certain forms of levies will h ave no effect on the defendant's expected payments, on litigation expe nses, or on settlement; and other forms will either be equally ineffec tive as the former forms or less effective than they are in the absenc e of agency problems.