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O'Connell Early Settlement Offers: Toward Realistic Numbers and Two‐Sided Offers

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  • Bernard Black
  • David A. Hyman
  • Charles Silver

Abstract

In a prior article in this journal, we estimated the effect of an “O'Connell” early settlement offer program on payouts in medical malpractice litigation. Using Texas data and a base set of assumptions, we predicted that early offers would result in a 16 percent (20 percent) decline in payouts in currently tried (settled) cases. The overall decline came almost entirely from a sharp drop in payouts in cases with small economic damages. We compared our results with the estimate by Hersch, O'Connell, and Viscusi (2007) (HOV) of a 70 percent reduction in payouts, reconciled the two estimates, and explained why HOV's estimate reflected the compound effects of a series of unreasonable assumptions. In a reply in this journal, Hersch, O'Connell, and Viscusi (2010) (HOV‐2) complain that we misunderstand both the early offer proposal and their analysis. Remarkably, they do not dispute our estimates, given our assumptions. In this rebuttal, we defend our assumptions and provide an alternate analysis of settled cases based on insurer allocations, which also produces an estimated 20 percent payout decline. We also develop further our proposal for two‐sided early offers. This proposal would reduce the predicted payout decline by about 2 percent in both tried and settled cases. We explain in greater detail the problems with HOV's analysis. If we correct an error they made in understanding the Texas data set, and leave their other assumptions unchanged, their payout decline estimate drops to 30 percent, not far from ours.

Suggested Citation

  • Bernard Black & David A. Hyman & Charles Silver, 2010. "O'Connell Early Settlement Offers: Toward Realistic Numbers and Two‐Sided Offers," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 7(2), pages 379-401, June.
    • Handle: RePEc:wly:empleg:v:7:y:2010:i:2:p:379-401
    DOI: 10.1111/j.1740-1461.2010.01182.x
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    References listed on IDEAS

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    1. Tom Baker, "undated". "Insurance and the Law," University of Connecticut School of Law Working Papers uconn_ucwps-1004, University of Connecticut School of Law.
    2. Joni Hersch & Jeffrey O'Connell & W. Kip Viscusi, 2007. "An Empirical Assessment of Early Offer Reform for Medical Malpractice," The Journal of Legal Studies, University of Chicago Press, vol. 36(S2), pages 231-259, June.
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