Statutes of limitations for accident cases: Theory and evidence

Published date06 September 2000
Date06 September 2000
AuthorMatthew Baker,Thomas J Miceli
Matthew Baker and Thomas J. Miceli
This paper provides a theoretical and empirical analysis of statutes of
limitations for accident cases. The theoretical model formalizes the trade-
off underlying a finite statute of limitations: while a shorter statute limits
injurers' exposure to liability, thereby curbing incentives for care, it also
limits costly litigation associated with legal error. The model yields
several comparative static results that are tested using cross-state
variation in statutes of limitations for personal injury cases and accidental
damages to property. In order to minimize the impact of historical inertia
in the statutes, we used census data from 1910 and statute lengths from
1916. This represents the earliest period when there were both adequate
census data to construct the explanatory variables, and a convenient
survey of the statutes for the forty-seven states. Despite difficulties in
constructing the data, the empirical model performs reasonably well in
explaining variation in the statute lengths.
This paper provides a theoretical and empirical analysis of statutes of
limitations for accidental damage cases. From an economic perspective, the
Research in Law and Economics, Volume 19, pages 47-67.
Copyright © 2000 by JAI/Elsevier Inc.
AH rights of reproduction in any form reserved.
ISBN: 0-7623-0308-5
trade-off underlying a statute of limitations in general is well-known. 1 On the
one hand, a statute limits injurers' exposure to liability, thereby reducing
incentives for care, but on the other hand, it reduces legal error resulting from
stale evidence and saves on litigation costs. The optimal period of limitation
balances these two effects. The theoretical contribution of this paper is to
formalize this trade-off in the context of a simple accident model with legal
error and litigation costs. 2 The benefit from developing a formal model is that
it yields specific comparative static results that can form the basis for empirical
To our knowledge, the only existing empirical analysis of statutes of
limitations is by Netter, Hersch & Manson (1986), in the context of claims for
title under adverse possession law. As in their analysis, we examine the
determinants of cross-sectional variation in statute lengths across states, but we
apply the analysis to statutes of limitations for property damage cases and
personal injury cases. The empirical model performs reasonably well given that
data and practical limitations prevented us from keying the analysis to the years
when individual statutes were passed. In general, the model performed better
for the property damage statutes than for the personal injury statutes. This may
reflect greater ease in measuring property losses in economic terms.
This paper is organized as follows. Section II develops the basic accident
model and shows that, in the absence of legal error, there is no basis for setting
a finite statute length. Section HI, therefore, introduces legal error and derives
the optimal statute length based on the trade-off described above. It goes on to
derive several comparative static results that form the basis for the empirical
analysis. Section IV describes the data and presents the results of the empirical
tests of the model. Finally, Section V concludes.
To examine the impact of a statute of limitations, it is necessary to assume that
not all victims file suit immediately following an injury. One reason for delay
by victims in filing suit may be that the injury is not immediately evident.
Another is that the injurer might avoid immediate detection. (Although we will
not explicitly model the latter factor, we will take it into account in specifying
the empirical model in Section IV.) For purposes of the model, we abstract
from the specific reason for delay and simply treat the length of time after an
accident that a plaintiff files suit, denoted t, as a random variable with
distribution function G(t), where G'------g>0, G(0)=0, and G(oo)= 1. Thus,
under a statute of limitations of length L, a fraction G(L)< 1 of all possible
suits will have been filed by time L.

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