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 Austria, 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 Austrian 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.
Flatscher‐Thöni, Magdalena, Leiter, Andrea M. and Winner, Hannes, Pricing Damages for Pain and Suffering in Court: The Impact of the Valuation Method (March 2013). Journal of Empirical Legal Studies, Vol. 10, Issue 1, pp. 104-119, 2013.