Despite the adoption of no-fault Workers' Compensation legislation in most states, there is substantial litigation over the issue of employer liability for injury claims. We develop a sequential asymmetric information model of liability disputes and estimate the model using data on injury claims from the state of Minnesota. The key insight of our model is that when workers differ in their costs of pursuing a injury claim, employers have an incentive to deny liability and force those with higher costs to abandon their claim. Likewise, workers who expect a bigger return from pursuing their claim are more likely to fight back when liability is denied. Estimates of the structural model confirm that the decision rules of both parties depend on the expected costs and benefits of continuing the dispute. The model provides a parsimonious but relatively successful explanation for the distribution of liability disputes across different workers and types of injuries.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
11918.
Length: Date of creation: Jan 2006 Date of revision: Handle: RePEc:nbr:nberwo:11918
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Find related papers by JEL classification: K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy
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