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Heterogeneous physicians, lawsuit costs, and the negligence rule

  • Olbrich, Anja
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    Real-world observations of negligent and defensive medicine challenge malpractice liability. Based on a principal-agent model with two types of physicians I show that lawsuit costs affect the patients' decision to sue and the physicians' level of care under the negligence rule, leading to a separated equilibrium in care. Given these conditions, punitive damages allow for a pooled equilibrium where all physicians exert first-best care. If courts cannot use punitive damages, a second-best solution arises with an optimal negligence standard that deviates from first-best care.

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    File URL: http://www.sciencedirect.com/science/article/B6V7M-4RDS1R2-1/1/eb28f666ff006dda65d7009260ea641b
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    Article provided by Elsevier in its journal International Review of Law and Economics.

    Volume (Year): 28 (2008)
    Issue (Month): 1 (March)
    Pages: 78-88

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    Handle: RePEc:eee:irlaec:v:28:y:2008:i:1:p:78-88
    Contact details of provider: Web page: http://www.elsevier.com/locate/irle

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