Abstract
I. Introduction In this paper, we briefly review how punitive damages have been used to punish and deter. 1 We then argue that to the extent the recent Supreme Court rulings limit punitive damages to an award "reasonably related" to actual damages, the Supreme Court has eliminated the economic foundations of deterrence. We make the case that the reasonable relationship test ignores the fundamentals of economic theory that drive the perfect competitive model. Fundamental economic theory recognizes the individually specific nature of budget and/or isocost constraint functions and utility and/or isoquant functions upon, which economic agents make rational choices. To the extent that tort reform ignores such economic theory and constructs, it obstructs the rational choice model, which is the cornerstone of western political and economic thought. With respect to the issue of punitive damages, we argue that the Supreme Court's "reasonably related" test ignores the rational choice models prevalent in economic policy. Finally, we discuss how this ignorance of economic theory is arguably at the center of tort reform in general; thus the arguments of this paper are applicable to other tort reforms, including caps on non-economic damages. II. Tort Reform and Punitive Damages The tort reform movement has influenced a number of procedural and substantive legislative changes addressing such issues as standing, standards of proof, and damage limits or caps, all of which have placed constraints on the judicial administration of tort claims. 2 Reformation implies "an improvement by alteration, a correction of error, ...