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Care Levels, Settlement Outcomes, and the Sophistication of Present-Biased Plaintiffs

Author

Listed:
  • Tim Friehe
  • Christoph Rössler

Abstract

This paper analyzes a framework in which a (potentially) present-biased injurer faces (potentially) present-biased plaintiffs. We focus on the injurer?s care incentives and victims? filing and settlement behavior. Present-biased victims are less likely to file and more moderate in their settlement demand when compared to those without bias. This fact lowers the injurer?s precautions. Plaintiffs may be naive or sophisticated about their present bias. We show that plaintiffs? sophistication about their present bias aggravates the distortion of the equilibrium accident probability. JEL Codes: D91, H23, K41.

Suggested Citation

  • Tim Friehe & Christoph Rössler, 2020. "Care Levels, Settlement Outcomes, and the Sophistication of Present-Biased Plaintiffs," Revue économique, Presses de Sciences-Po, vol. 71(3), pages 459-478.
    • Handle: RePEc:cai:recosp:reco_713_0459
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    More about this item

    Keywords

    litigation; present bias; care;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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