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Mass Torts and the Incentives for Suit, Settlement, and Trial

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  • Andrew F. Daughety

    ()
    (Department of Economics, Vanderbilt University)

  • Jennifer F. Reinganum

    ()
    (Department of Economics, Vanderbilt University)

Abstract

We explore how the incentives of a plaintiff and her attorney, when considering filing suit and bargaining over settlement, can differ between those suits associated with stand-alone torts cases and those suits involving mass torts. We contrast "individual-based liability determination" (IBLD), wherein a clear description of the mechanism by which a defendant's actions translate into a plaintiff's harm is available, with "population-based liability determination" (PBLD), wherein cases rely upon the prevalence of harms in the population to persuade a judge or jury to draw an inference of causation or fault. We show that PBLD creates a positive externality for the plaintiff's side that is inherent in many mass tort settings; this externality induces an increased propensity to file suit, higher settlement demands and greater joint payoffs for plaintiffs and their attorneys. Consequently, the defendant in a PBLD case faces an increased ex ante expected cost compared with the IBLD regime, thereby increasing incentives to take care. However, PBLD need not always imply an increased likelihood of trial relative to IBLD for any filed case (though it may lead to more cases being filed); the heightened aggressiveness of the plaintiff and her attorney can actually lead to a reduction in the likelihood of trial. Thus, PBLD can be more, or less, efficient than IBLD (in the sense of reducing trial costs), when considering cases that would be filed in both possible regimes.

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File URL: http://www.accessecon.com/pubs/VUECON/vu07-w13.pdf
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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 0713.

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Date of creation: Aug 2007
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Handle: RePEc:van:wpaper:0713

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

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Keywords: Liability determination; settlement bargaining ;

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  1. Steven Shavell, 2003. "Economic Analysis of Accident Law," NBER Working Papers 9694, National Bureau of Economic Research, Inc.
  2. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Imperfect competition and quality signalling," RAND Journal of Economics, RAND Corporation, RAND Corporation, vol. 39(1), pages 163-183.
  3. Raymond Deneckere & James Peck, 1995. "Competition Over Price and Service Rate When Demand is Stochastic: A Strategic Analysis," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 148-162, Spring.
  4. James D. Dana, 2000. "Competition in Price and Availability when Availability is Unobservable," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1450, Econometric Society.
  5. Daughety, Andrew F & Reinganum, Jennifer F, 2000. "On the Economics of Trials: Adversarial Process, Evidence, and Equilibrium Bias," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 16(2), pages 365-94, October.
  6. Che, Yeon-Koo, 1996. "Equilibrium formation of class action suits," Journal of Public Economics, Elsevier, Elsevier, vol. 62(3), pages 339-361, November.
  7. Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Economic Theories of Settlement Bargaining," Vanderbilt University Department of Economics Working Papers, Vanderbilt University Department of Economics 0508, Vanderbilt University Department of Economics.
  8. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers, Michigan - Center for Research on Economic & Social Theory 89-23, Michigan - Center for Research on Economic & Social Theory.
  9. Andrew F. Daughety & Jennifer F. Reinganum, 2000. "Appealing Judgments," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 502-526, Autumn.
  10. Yeon-Koo Che, 2002. "The Economics of Collective Negotiation in Pretrial Bargaining," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(2), pages 549-576, May.
  11. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  12. 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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