The Deterrent Effect of Tort Law:  Evidence from Medical Malpractice Reform (working paper 2015) (http://ssrn.com/abstract=2161362)
Bernard Black, Chabraja Professor, Northwestern University Law School and Kellogg School of Management, and Zenon Zabinski, Northwestern University Department of Economics

Abstract.  A principal goal of tort law is to deter negligent behavior, but there is little empirical evidence on whether it does so.  We study that question for medical malpractice liability, where prior studies have found weak, often null results.  We examine whether state adoption of caps on non-economic damages – a central legal reform that reduces liability risk for providers -- affects in-hospital patient safety.  We use Patient Safety Indicators (PSIs) – measures of adverse events developed by the Agency for Healthcare Research and Quality – as proxies for overall safety.  In difference-in-differences analyses of five states that adopt caps on non-economic damages during 2003-2005, we find strong evidence that patient safety gradually falls after the reforms, relative to control states.  We also innovate in methodology, using a new, randomization inference-based approach to assess the statistical reliability of our results.