Pricing Damages for Pain and Suffering in Court: The Impact of the Valuation Method

Abstract

We analyze the pricing of pain and suffering and, in particular, whether the corresponding compensation for pain and suffering is affected by a court's approach to valuing such damages. For this purpose, we use data on pain and suffering verdicts in A ustria, where courts are generally free to choose between a per‐diem and a lump‐sum scheme to assess damages for pain and suffering. The per‐diem approach was introduced in 1990 but was not adopted in all A ustrian provincial courts. This enables us to estimate the causal impact of the change in calculation schemes. Applying a difference‐in‐difference framework to estimate this treatment effect, we observe that courts increased their compensation by about 38 percent to 59 percent after the implementation of the per‐diem scheme.