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All-or-Nothing versus Proportionate Damages

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  • Shmuel Leshem
  • Geoffrey P. Miller

Abstract

This paper considers the choice between an all-or-nothing (AON) rule and a proportionate-damages (PD) rule in civil litigation. Under AON, a prevailing plaintiff receives a judgment equal to his entire damages. Under PD, damages are reduced to reflect uncertainty. For example, if the trier of fact finds that there is a 75 percent chance that the defendant is liable, the judgment would equal 75 percent of the plaintiff's damages. Using a moral hazard model that takes into account defendants' decisions to comply with legal rules, evidentiary uncertainty, and settlement, we show that AON usually maximizes the rate of compliance, although it may result in a higher level of litigation. This, in turn, provides an efficiency rationale for the ubiquity of AON in the legal system. (c) 2009 by The University of Chicago. All rights reserved.

Suggested Citation

  • Shmuel Leshem & Geoffrey P. Miller, 2009. "All-or-Nothing versus Proportionate Damages," The Journal of Legal Studies, University of Chicago Press, vol. 38(2), pages 345-382, June.
  • Handle: RePEc:ucp:jlstud:v:38:y:2009:i:2:p:345-382
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    File URL: http://dx.doi.org/10.1086/593153
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    References listed on IDEAS

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    1. Polinsky, A Mitchell & Shavell, Steven, 1989. "Legal Error, Litigation, and the Incentive to Obey the Law," Journal of Law, Economics, and Organization, Oxford University Press, vol. 5(1), pages 99-108, Spring.
    2. Henrik Lando, 2002. "When is the Preponderance of the Evidence Standard Optimal?," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 27(4), pages 602-608, October.
    3. Shavell, Steven, 1985. "Uncertainty over Causation and the Determination of Civil Liability," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 587-609, October.
    4. Hylton, Keith N, 1990. "Costly Litigation and Legal Error under Negligence," Journal of Law, Economics, and Organization, Oxford University Press, vol. 6(2), pages 433-452, Fall.
    5. Levmore, Saul, 1990. "Probabilistic Recoveries, Restitution, and Recurring Wrongs," The Journal of Legal Studies, University of Chicago Press, vol. 19(2), pages 691-726, June.
    6. 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, vol. 16(2), pages 365-394, October.
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    Cited by:

    1. Friehe Tim, 2010. "On Avoidance Activities After Accidents," Review of Law & Economics, De Gruyter, vol. 6(2), pages 181-195, September.
    2. Stremitzer Alexander & Tabbach Avraham D., 2014. "The Robustness Case for Proportional Liability," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 1-25, January.
    3. Stremitzer, Alexander & Tabbach, Avraham, 2009. "Insolvency and Biased Standards - The Case for Proportional Liability," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 289, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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