Courts, Caps, and Medical Malpractice Insurance

Abstract: We assess the impact of introducing a tiered caps system (i.e. schedules) of non-economic damages on commercial insurers' decisions related to the medical liability market. The novelty of our approach is twofold: we provide an evaluation of tiered caps, which differ from flat caps, usually adopted in the U.S. institutional system, and we control for the performance of the judiciary system, measured as the level of backlog of Courthouses. We use the Italian case study to assess the policy impact, because in Italy schedules of tiered caps were adopted by different Courts in different years and Courts differ in performance terms. The institutional framework allows to implement a Difference-in-Differences strategy to estimate the effect of caps' adoption on premiums and number of insures in the reference market. Using a unique dataset on claims, we test the channels of the treatment effect. To cope with omitted variables problems we exploit the partial overlapping between Courts districts and healthcare providers districts.