Deterrence, litigation costs, and the statute of limitations for tort suits

The conventional justification for a statute of limitations on tort suits (or any other legal claim) is that evidence deteriorates over time, thereby increasing the likelihood of legal error. The optimal statute balances this cost of a longer statute length against the dilution in deterrence that results from a shorter length. In this paper I develop a formal model to show that a finite statute length is optimal even in a world without the possibility of legal error. The trade-off involves only litigation costs and deterrence: while a shorter statute reduces deterrence, it also saves on litigation costs by limiting the number of suits that can be filed. I examine this trade-off under both strict liability and under negligence, and show that the optimal statute length is (probably) shorter under strict liability than under negligence. Intuitively, the marginal benefit of lengthening the statute is higher under a negligence rule because, by increasing the length of time over which victims can file suit, deterrence is enhanced, which in turn reduces the likelihood that a given injurer will be found negligent. Thus, fewer victims file suits at each point in time because their chances of winning are reduced. As a result, litigation costs fall, which partially offsets the extra litigation costs when the statute is lengthened. The paper is organized as follows. Section 2 sets up the basic model, Section 3 derives the