NCPA - National Center for Policy Analysis


April 29, 2005

Asbestos litigation has cost the U.S. economy $343 billion to date and been nearly 10 times as great as the compensation paid to claimants historically. However, proposed trust fund legislation would save $71 billion in future administrative and legal costs, say the authors of a new study by NERA Economic Consulting.

The U.S. Senate is currently considering a bill that would remove claims from the court system and establish a $140 billion asbestos trust fund, financed by defendants and insurers.

The authors found that U.S. manufacturing productivity would be improved by eliminating the uncertainty and inefficiency of asbestos litigation:

  • Industries heavily affected by asbestos litigation represent 13 percent of GDP and included about half the manufacturing sector in 2000.
  • Their productivity losses due to asbestos litigation have cost the US economy $303 billion.

They also found:

  • The administrative and legal cost savings represent 'deadweight losses' -- monies siphoned away from both defendants and plaintiffs; of total past payments, the authors concluded that less than half has gone to claimants.
  • A trust fund could save an additional $13.7 billion in bankruptcy costs, for a total cost savings of $85 billion.
  • The reduction in costs will also benefit claimants; with up to $140 billion in funding available for compensation, NERA estimates that claimants would receive as much as $65 billion more than if the status quo continued.
  • Asbestos legislation will improve cash flows, reduce uncertainty and lower the cost of capital; as a lower bound estimate, the stock market valuation of reform to defendant companies is between $60 and $137 billion.

The authors conclude that asbestos legislation will benefit claimants, companies (as seen by the stock market response), workers (because of avoided job losses) and consumers who are likely to gain from lower prices caused by improvements in productivity.

Source: Source: Denise Martin et al., "Costs of Asbestos Litigation and Benefits of Reform," NERA Economic Consulting, April 25, 2005.


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