Have torts scholars put forth non-experimental, statistical evidence showing that consumers do or do not demand insurance coverage for pain and suffering? This kind of insurance is available through tort law, but is hard to find in private insurance markets. Generations of scholars have debated the sense (or nonsense) of this feature of the law. Some have pointed to the rarity of pain-and-suffering insurance in private markets and argued that consumers probably do not value such coverage (e.g., George Priest; Alan Schwartz; John Calfee and Paul Rubin). Others have pointed to anecdotal evidence consistent with a demand for insurance against pain and suffering (e.g., Steven Croley and Jon Hanson). And others have pointed to experimental evidence consistent with a demand for this kind of insurance (e.g., Ronen Avraham).
None of these papers, as far as I know, applies the kind of methodology usually employed when the effect of state law is uncertain: a comparison of (i) states with the law and (ii) states without it (or with less generous versions of it). The comparison usually exploits variation over time, across states, and (possibly) within states. Think, for example, of the many studies evaluating the effect of medical malpractice reform on damage awards (Ronen Avraham; Janet Currie and Bentley MacLeod; Catherine Sharkey and Jonathan Klick), physician supply (David Matsa, Jonathan Klick and Thomas Stratmann), defensive medicine (Daniel Kessler and Mark McClellan), choice of medical procedures (Janet Currie and Bentley MacLeod), …
Can something similar be done in studies of pain-and-suffering damages? Can a before-after or difference-in-difference methodology be used to test the demand for this kind of insurance?
Here's one idea ...
In November 1996, California modified state tort law to prevent uninsured motorists from recovering damages for pain and suffering when they are victims in non-fatal automotive accidents. The legislation was enacted by referendum (Proposition 213). It is codified in Section 3333.4 of the California Civil Code.
Has anyone studied the impact of this law on the number of uninsured motorists? There are many such motorists in California. In nearly every county, over 15% of vehicles are uninsured; in some zip codes of Los Angeles, the percentage exceeds 70%. If consumers value insurance coverage for pain and suffering, we might expect the percentage of uninsured motorists to fall after enactment of Proposition 213. Consider the “marginal motorist,” for whom the cost of purchasing auto insurance is equal to the expected harm from driving without it. If this motorist values the pain-and-suffering insurance provided by our tort system, Proposition 213 is bad news. It increases the expected harm from driving uninsured. Prior to Proposition 213, the motorist could expect compensation for economic and noneconomic harms if she suffered harm at the hands of a (insured) driver. Now she can expect compensation for only economic harms. If this is perceived as a loss, we might see her purchase auto insurance. She can "purchase" pain-and-suffering insurance by becoming an insured motorist.
Has anyone tested this or a similar hypothesis? I’m beginning to look into it. If we perform a simple before-after comparison, we do indeed see that the proportion of uninsured motorists fell after Proposition 213 went into effect. This could, of course, reflect many other factors. Proposition 213 probably reduced auto insurance premiums, because insurers could avoid paying pain-and-suffering damages in a significant number of accidents. Rand predicted a 5% decline. As insurance became cheaper, some "marginal motorists" probably decided to become insured motorists. Also, California, and every other state, became wealthier during the economic expansion of the late 1990s. This too could explain the fall in the number of uninsured motorists.
Is anyone aware of other experiments in which states have varied the compensation available for pain and suffering?