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A Damage-Revelation Rationale for Coupon Remedies

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  • A. Mitchell Polinsky
  • Daniel L. Rubinfeld

Abstract

This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between cash and coupons to purchase units of the defendant's product at a discount -- a "coupon-cash remedy" -- is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11227.

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Date of creation: Mar 2005
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Publication status: published as Polinsky, A. Mitchell and Daniel L. Rubinfeld. "A Damage-Revelation Rationale for Coupon Remedies." Journal of Law, Economics, and Organization 3, 3 (October 2007): 653-61.
Handle: RePEc:nbr:nberwo:11227

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  1. A. Mitchell Polinsky & Daniel Rubinfeld, . "Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts," American Law & Economics Association Annual Meetings 1060, American Law & Economics Association.
  2. Spier, Kathryn E, 1994. "Settlement Bargaining and the Design of Damage Awards," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(1), pages 84-95, April.
  3. Borenstein, Severin, 1996. "Settling for Coupons: Discount Contracts as Compensation and Punishment in Antitrust Lawsuits," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 379-404, October.
  4. Louis Kaplow & Steven Shavell, 1996. "Accuracy in the Assessment of Damages," NBER Working Papers 4287, National Bureau of Economic Research, Inc.
  5. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2003. "Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts," Competition Policy Center, Working Paper Series qt92m0w4px, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  6. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2003. "Remedies For Price Overcharges: The Deadweight Loss Of Coupons And Discounts," Berkeley Olin Program in Law & Economics, Working Paper Series qt1gs1g2g2, Berkeley Olin Program in Law & Economics.
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