November 2007

IZA DP No. 3159: Death, Happiness, and the Calculation of Compensatory Damages

published in: Journal of Legal Studies, 2008, 37(S2), S217-S252

This paper studies the mental distress caused by bereavement. The largest emotional losses are from the death of a spouse; the second-worst in severity are the losses from the death of a child; the third-worst is the death of a parent. The paper explores how happiness regression equations might be used in tort cases to calculate compensatory damages for emotional harm and pain-and-suffering. We examine alternative well-being variables, discuss adaptation, consider the possibility that bereavement affects someone’s marginal utility of income, and suggest a procedure for correcting for the endogeneity of income. Although the paper’s contribution is methodological, and further research is needed, some illustrative compensation amounts are discussed.