Analysis Of Punitive Damages From Perspective Of Law And Economics

The earliest history of punitive damages can be traced back to“Code ofHammurabi" in eighteenth Century BC, however, it is in the Anglo-American legalsystem that punitive damages is acknowledged in theory and widely promoted andapplied in judicial practice. In the Anglo American countries, punitivecompensation is essentially considered as a social exemplary damages, ratherthan purely private compensatory damages. Chinese scholars debate on three point sof view about the nature of the liability of punitive damages: administrativeliability, civil liability, economic law liabilities etc.Punitive damages has many functions, some scholars even summarize outseven functions. However, the functions should be divided into primary andsecondary, its primary functions only include punishment, deterrenceand compensation. Whether in the continent law system or in the Anglo-Americanlegal system, the application of punitive damages is very controversial. It is verydifficult to make a convincing explanation on justification of application of punitivedamages by using the principle of compensatory damages in the civil law tradition.We can well explain the grounds of application of punitive damages by using methodof economic analysis: we can achieve the outcome of the best deterrence towardsto injurers and potential injurers by increasing the amount of compensations; Theoptimal damages which lead to the optimal deterrence level are equivalent to thedamage. Injurers have some probability of escaping responsibilities.The scope of application of punitive damages should be mainly confined to thefield of civil tort and breach of contract. As far as applicable conditions of punitivedamages, In addition to consistence with the general constitutive requirements of civilliability,we should emphasize subjective malignancy of the illegal behavior. Inaddition to probability of escaping responsibility, we still should consider otherrelevant factors in determining the amount of punitive damages. Judges often adoptapproaches of fixed multiples、 the fixed penalty、 setting the maximum andminimum of penalty in the judicial practice of Anglo-American countries.Although several laws in china also provides punitive damages, there are somedefects which need to be remedied,such as limited applicable scope, severe applicable conditions, unreasonable compensation standards,unclearcompensation amount.The setting of public fund of punitive damages is logical inevitability ofjustification on which punitive damages rely. The loss of publicinterest, encouragement of law enforcement by private and not sharing solely thewhole punitive damages by plaintiffs are the theoretical basis to support the setting ofpublic welfare fund.The construction of the system for public fund of punitive damages should focuson the following aspects: raising of funds, settings of institutions, selection ofmanagers and their responsibilities, management and operation of fund, etc.