Are Preferences for Structured Settlements Consistent with the Loss†Minimization Objective of Tort Law?

In this paper, we test several hypotheses developed from a theory of structured settlements under the loss†minimization objective of tort law with a large sample of liability insured, closed claim data from the state of Texas. Our findings indicate support for the hypothesis that structured settlements are more likely utilized when longevity risk is higher and the predictability of future needs is more uncertain. We find that higher damages are associated with a higher likelihood of structured settlement payouts, which is supportive of a wealth effect concern. Further, we find that a larger share of economic damages, relative to total damages, are associated with a higher likelihood of a lump†sum settlement, consistent with the prediction of matching risk.