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Found Money? Split-Award Statutes and Settlement of Punitive Damages Cases

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  • Andrew F. Daughety
  • Jennifer F. Reinganum

Abstract

We examine the effect of "split-award" statutes (wherein the state shares a punitive damages award) on equilibrium settlements and the incentives to go to trial. Splitaward statutes lower settlement amounts and the likelihood of trial, as both parties act to cut out the state. We analyze the revenue that split-award statutes generate; the revenue-maximizing share is robust to variations in economic parameters and to whether the state's share is gross or net of the plaintiff's attorney's fee. Moreover, these statutes need not deter filings, and their use can encourage plaintiffs' attorneys to pursue weaker cases than would otherwise be brought. Copyright 2003, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal American Law and Economics Review.

Volume (Year): 5 (2003)
Issue (Month): 1 ()
Pages: 134-164

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Handle: RePEc:oup:amlawe:v:5:y:2003:i:1:p:134-164

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References

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  1. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
  2. Wang, Gyu Ho & Kim, Jeong-Yoo & Yi, Jong-Goo, 1994. "Litigation and Pretrial Negotiation under Incomplete Information," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(1), pages 187-200, April.
  3. Wolinsky, Asher, 1987. "Matching, search, and bargaining," Journal of Economic Theory, Elsevier, vol. 42(2), pages 311-333, August.
  4. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  5. Sanchirico, Chris William, 2000. "Taxes versus Legal Rules as Instruments for Equity: A More Equitable View," The Journal of Legal Studies, University of Chicago Press, vol. 29(2), pages 797-820, June.
  6. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter.
  7. Polinsky, A Mitchell, 1997. "Are Punitive Damages Really Insignificant, Predictable, and Rational? A Comment on Eisenberg et al," The Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 663-77, June.
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Cited by:
  1. Landeo, Claudia, 2009. "Tort Reform, Disputes and Belief Formation," Working Papers 2009-12, University of Alberta, Department of Economics.
  2. Claudia M. Landeo & Maxim Nikitin, 2006. "Split-Award Tort Reform, Firm's Level of Care, and Litigation Outcomes," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(4), pages 571-600, December.
  3. Doornik, Katherine, 2014. "A rationale for mediation and its optimal use," International Review of Law and Economics, Elsevier, vol. 38(C), pages 1-10.
  4. Kirstein, Roland & Rickman, Neil, 2002. ""Third Party Contingency" contracts in settlement and litigation," Berkeley Olin Program in Law & Economics, Working Paper Series qt6vn9877z, Berkeley Olin Program in Law & Economics.
  5. Landeo, Claudia M. & Nikitin, Maxim & Babcock, Linda, 2007. "Split-awards and disputes: An experimental study of a strategic model of litigation," Journal of Economic Behavior & Organization, Elsevier, vol. 63(3), pages 553-572, July.
  6. Landeo, Claudia M., 2009. "Cognitive coherence and tort reform," Journal of Economic Psychology, Elsevier, vol. 30(6), pages 898-912, December.
  7. Chu, C.Y. Cyrus & Chien, Hung-Ken, 2007. "Asymmetric information, pretrial negotiation and optimal decoupling," International Review of Law and Economics, Elsevier, vol. 27(3), pages 312-329, September.
  8. Philippe Choné & Saïd Souam & Arnold Vialfont, 2012. "Commitments in Antitrust," EconomiX Working Papers 2012-9, University of Paris West - Nanterre la Défense, EconomiX.

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