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All-or-Nothing versus Proportionate Damages

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  • Shmuel Leshem
  • Geoffrey P. Miller

Abstract

This paper considers the choice between an all-or-nothing (AON) rule and a proportionate-damages (PD) rule in civil litigation. Under AON, a prevailing plaintiff receives a judgment equal to his entire damages. Under PD, damages are reduced to reflect uncertainty. For example, if the trier of fact finds that there is a 75 percent chance that the defendant is liable, the judgment would equal 75 percent of the plaintiff's damages. Using a moral hazard model that takes into account defendants' decisions to comply with legal rules, evidentiary uncertainty, and settlement, we show that AON usually maximizes the rate of compliance, although it may result in a higher level of litigation. This, in turn, provides an efficiency rationale for the ubiquity of AON in the legal system. (c) 2009 by The University of Chicago. All rights reserved.

Suggested Citation

  • Shmuel Leshem & Geoffrey P. Miller, 2009. "All-or-Nothing versus Proportionate Damages," The Journal of Legal Studies, University of Chicago Press, vol. 38(2), pages 345-382, June.
    • Handle: RePEc:ucp:jlstud:v:38:y:2009:i:2:p:345-382
    DOI: 10.1086/593153
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    References listed on IDEAS

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    Cited by:

    1. Friehe Tim, 2010. "On Avoidance Activities After Accidents," Review of Law & Economics, De Gruyter, vol. 6(2), pages 181-195, September.
    2. Stremitzer Alexander & Tabbach Avraham D., 2014. "The Robustness Case for Proportional Liability," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 1-25, January.
    3. Stremitzer, Alexander & Tabbach, Avraham, 2009. "Insolvency and Biased Standards--The Case for Proportional Liability," Working Papers 75r, Yale University, Department of Economics.
    4. Dari-Mattiacci Giuseppe & Hendriks Eva S., 2013. "Relative Fault and Efficient Negligence: Comparative Negligence Explained," Review of Law & Economics, De Gruyter, vol. 9(1), pages 1-40, June.
    5. De Mot Jef & Miceli Thomas J., 2015. "Comparing All-or-Nothing and Proportionate Damages: A Rent-Seeking Approach," Review of Law & Economics, De Gruyter, vol. 11(1), pages 1-17, March.

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