In the classic theory of tort law, the law compels potential injurers to pay the costs of harms caused to others. This creates incentives for injurers to spend resources reducing harms.

This is the theory espoused by the American Trial Lawyers Association and other advocates of the current system. On this view, tort reforms that reduce liability or damage payments would lead to increased risk to consumers. However, this theory depends on several assumptions: that injurers and victims are "strangers," not in a pre-contractual relationship; that most payments go to victims to compensate for economic losses, such as lost wages or medical expenses; and, most importantly, that actions subject to tort law increase risk, which can be reduced by the threat of liability.

None of these assumptions are true in modern product liability and medical malpractice law. First, those injured are often in a pre-contractual relationship with the injurers--as patients and doctors, or as consumers and manufacturers. This means that consumers pay in advance for expected tort damages through higher prices for goods and services. For example, the price of a medical procedure includes money to compensate the physician for his malpractice insurance premiums. Second, only about 22 cents of every $1 going through the system compensates for economic losses, with the rest going to legal fees (54 cents) and compensation for non-economic losses such as "pain and suffering" (24 cents).

Legal fees provide no benefit to consumers. Payments for pain and suffering are worth much less than their actual cost, and no one voluntarily buys insurance against pain and suffering. This means that much of the money consumers pay for expected tort damages is largely wasted. Finally, many actions subject to tort law, such as the practice of medicine and the sale of medicines and protective equipment, are risk reducing, not risk increasing.

One result is that, on net, tort law increases prices paid by consumers and patients for risk-reducing goods and services. These higher prices may lead consumers to choose not to purchase these goods and services in some circumstances where they would actually reduce risk. Theoretically, expansions in tort law might increase risk--and tort reform might reduce risk, by reducing the prices and increasing the consumption of risk-reducing goods and services.

Thus tort reform might lead to either increased or reduced accident rates; theory is ambiguous. To determine which effect is larger, my colleague Joanna Shepherd and I examined the effect of tort reform on non-automotive accident death rates from 1981-2000. [Download the paper.]

During that time, states passed 141 "tort reform" measures, enough to allow us to perform a statistical analysis using the powerful tool of panel data regression analysis. This analysis allowed us to essentially compare death rates in each state before and after each tort reform was passed. It also allowed us to adjust for other factors, such as the age distribution of state's population and the number of hospital beds per capita. We used non-automotive death rates because automobile accident and death rates are influenced by other factors such as passage of no-fault auto insurance laws.

Most individual tort reforms lead to statistically significant reductions in death rates, although some lead to increased rates. Specifically, we found that caps on noneconomic damages, caps on punitive damages, a higher evidence standard for punitive damages, product liability reform, and prejudgment interest reform led to fewer accidental deaths, while reforms of the collateral source rule led to increased deaths. (The collateral source rule says that victims can collect both from their own insurance company and from the injurer; reforms limit this ability to collect twice.)

Overall, we found that the risk-reducing effects of tort reform greatly outweigh the risk-increasing effects. Tort reforms in the states from 1981-2000 have led to an estimated 14,222 fewer accidental deaths.

We also tested the "robustness" of our results by examining 16 additional statistical models and sets of variables; the results were roughly consistent for every specification. For example, if we include automotive death rates, the effects of some reforms become statistically insignificant; but for most reforms the effects remain significant, and the direction of the effects does not change.

Our methods do not allow us to determine the exact source of these reductions in the risk of death. However, there is much evidence that, for example, physicians, and particularly emergency room physicians, are more willing to work in states which have passed tort reform. Greater availability of emergency room doctors following tort reform would mean that many victims of accidents who might otherwise die recover thanks to better and faster medical treatment.

Modern American tort law, it is well known, leads to increased costs of doing business, increased insurance costs, and reduced rates of economic growth. Still, proponents of the current system could always claim that these costs were offset by increased safety. Our results cast doubt on that claim. The current system's costs are not offset by fewer lives lost; and tort reform may save lives.

Our methods only enabled us to examine effects of reforms at the state level. However, it is likely that reforms at the federal level, such as the recent Supreme Court-imposed limitation on punitive damages and the "Class Action Fairness Act of 2005," will also lead to increased safety and reduced accidental death rates. Further tort reform at both the state and the federal level would undoubtedly provide further increases in safety.

Paul H. Rubin is the Samuel Candler Dobbs Professor of Economics and Law at Emory University. He is an AEI adjunct scholar and author of the landmark study Tort Reform by Contract (AEI Press, 1993), which is being reprinted later this year. The study discussed in this essay was presented at an AEI conference on October 12, 2005; a transcript and video of the conference discussion and link to the study are posted at www.aei.org/event1155.