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Found Money? Split-Award Statutes and Settlement of Punitive Damages Cases

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  • Andrew F. Daughety

    ()
    (Department of Economics, Vanderbilt University)

  • Jennifer F. Reinganum

    ()
    (Department of Economics, Vanderbilt University)

Abstract

We 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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File URL: http://www.accessecon.com/pubs/VUECON/vu00-w01R.pdf
File Function: Revised version, 2001
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0001.

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Date of creation: Jan 2000
Date of revision: Mar 2001
Handle: RePEc:van:wpaper:0001

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

Related research

Keywords: Incomplete information; litigation; punitive damages; settlement; split-award;

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References

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  1. Polinsky, A Mitchell, 1997. "Are Punitive Damages Really Insignificant, Predictable, and Rational? A Comment on Eisenberg et al," The Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 663-77, June.
  2. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September.
  3. Wang, Gyu Ho & Kim, Jeong-Yoo & Yi, Jong-Goo, 1994. "Litigation and Pretrial Negotiation under Incomplete Information," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(1), pages 187-200, April.
  4. Wolinsky, Asher, 1987. "Matching, search, and bargaining," Journal of Economic Theory, Elsevier, vol. 42(2), pages 311-333, August.
  5. Sanchirico, Chris William, 2000. "Taxes versus Legal Rules as Instruments for Equity: A More Equitable View," The Journal of Legal Studies, University of Chicago Press, vol. 29(2), pages 797-820, June.
  6. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  7. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter.
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Citations

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Cited by:
  1. Doornik, Katherine, 2014. "A rationale for mediation and its optimal use," International Review of Law and Economics, Elsevier, vol. 38(C), pages 1-10.
  2. Claudia M. Landeo & Maxim Nikitin, 2006. "Split-Award Tort Reform, Firm's Level of Care, and Litigation Outcomes," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(4), pages 571-600, December.
  3. Landeo, Claudia M., 2009. "Cognitive coherence and tort reform," Journal of Economic Psychology, Elsevier, vol. 30(6), pages 898-912, December.
  4. Kirstein, Roland & Rickman, Neil, 2003. ""Third Party Contingency" contracts in settlement and litigation," CSLE Discussion Paper Series 2003-09, Saarland University, CSLE - Center for the Study of Law and Economics.
  5. Landeo, Claudia M. & Nikitin, Maxim & Babcock, Linda, 2007. "Split-awards and disputes: An experimental study of a strategic model of litigation," Journal of Economic Behavior & Organization, Elsevier, vol. 63(3), pages 553-572, July.
  6. Landeo, Claudia, 2009. "Tort Reform, Disputes and Belief Formation," Working Papers 2009-12, University of Alberta, Department of Economics.
  7. Philippe Choné & Saïd Souam & Arnold Vialfont, 2012. "Commitments in Antitrust," EconomiX Working Papers 2012-9, University of Paris West - Nanterre la Défense, EconomiX.
  8. Chu, C.Y. Cyrus & Chien, Hung-Ken, 2007. "Asymmetric information, pretrial negotiation and optimal decoupling," International Review of Law and Economics, Elsevier, vol. 27(3), pages 312-329, September.

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