Found Money? Split-Award Statutes and Settlement of Punitive Damages Cases
AbstractWe examine the effect of "split-award" statutes (wherein the State takes a share of a punitive damages award) on equilibrium settlements and the incentives to go to trial. We find that split-award statutes simultaneously lower settlement amounts and the likelihood of trial, as both parties act to cut out the State. We develop an analysis of the revenue that split-award statutes could generate, conditioned on the allocation of punitive damages between the plaintiff, his lawyer and the State. We determine the revenue-maximizing share and find that it 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. One surprising result is that these statutes need not deter filings and that their use can encourage plaintiffs' attorneys to pursue weaker cases than would otherwise be brought. We discuss possible objectives for the states currently employing split-award procedures.
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Bibliographic InfoPaper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0001.
Date of creation: Jan 2000
Date of revision: Mar 2001
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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html
Incomplete information; litigation; punitive damages; settlement; split-award;
Other versions of this item:
- Andrew F. Daughety & Jennifer F. Reinganum, 2003. "Found Money? Split-Award Statutes and Settlement of Punitive Damages Cases," American Law and Economics Review, Oxford University Press, vol. 5(1), pages 134-164.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
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