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The Closure Effect: Evidence from Workers Compensation Litigation

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  • Henry Hyatt

Abstract

Consideration of the "best interests" of Workers Compensation (WC) claimants often involves the assumption that those who receive benefits in a "lump-sum" behave "too myopically" with respect to labor supply. However, many attorneys argue that lump-sum settlements induce a beneficial "sense of closure." In this paper, I provide an empirical context for these ideas using a unique set of linked administrative databases owned by the State of California. Upon receipt of a court-approved lump-sum settlement, WC claimants immediately increase labor supply. No such change is found for claimants who receive a court-approved settlement in which the insurer provides benefits over time, suggesting that the method of litigation settlement is a determinant of labor supply.

Suggested Citation

  • Henry Hyatt, 2010. "The Closure Effect: Evidence from Workers Compensation Litigation," Working Papers 10-01, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:10-01
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    File URL: https://www2.census.gov/ces/wp/2010/CES-WP-10-01.pdf
    File Function: First version, 2010
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    More about this item

    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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