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When to Start a Fight and When to Fight Back: Liability Disputes in the Workers' Compensation System

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  • David Card
  • Brian P. McCall

Abstract

Despite the adoption of no-fault Workers' Compensation legislation in most states, there is substantial litigation over the issue of employer liability for injury claims. We develop a sequential asymmetric information model of liability disputes and estimate the model using data on injury claims from the state of Minnesota. The key insight of our model is that when workers differ in their costs of pursuing a injury claim, employers have an incentive to deny liability and force those with higher costs to abandon their claim. Likewise, workers who expect a bigger return from pursuing their claim are more likely to fight back when liability is denied. Estimates of the structural model confirm that the decision rules of both parties depend on the expected costs and benefits of continuing the dispute. The model provides a parsimonious but relatively successful explanation for the distribution of liability disputes across different workers and types of injuries.

Suggested Citation

  • David Card & Brian P. McCall, 2006. "When to Start a Fight and When to Fight Back: Liability Disputes in the Workers' Compensation System," NBER Working Papers 11918, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11918
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    References listed on IDEAS

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    1. Peter S. Barth & H. Allan Hunt, 1980. "Workers' Compensation and Work-Related Illnesses and Diseases," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number psbhah1980, November.
    2. Meyer, Bruce D & Viscusi, W Kip & Durbin, David L, 1995. "Workers' Compensation and Injury Duration: Evidence from a Natural Experiment," American Economic Review, American Economic Association, vol. 85(3), pages 322-340, June.
    3. Barry Nalebuff, 1987. "Credible Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 198-210, Summer.
    4. Kreider, Brent, 1999. "Social Security Disability Insurance: Applications, Awards, and Lifetime Income Flows," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 784-827, October.
    5. Krueger, Alan B., 1990. "Incentive effects of workers' compensation insurance," Journal of Public Economics, Elsevier, vol. 41(1), pages 73-99, February.
    6. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
    7. Gourieroux, Christian & Monfort, Alain & Renault, Eric & Trognon, Alain, 1987. "Generalised residuals," Journal of Econometrics, Elsevier, vol. 34(1-2), pages 5-32.
    8. Evangelos M. Falaris & Charles R. Link & Michael E. Staten, 1995. "Causes of Litigation in Workers' Compensation Programs," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number clwc, November.
    9. Cooter, Robert D & Rubinfeld, Daniel L, 1989. "Economic Analysis of Legal Disputes and Their Resolution," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1067-1097, September.
    10. Price V. Fishback & Shawn Everett Kantor, 2000. "A Prelude to the Welfare State: The Origins of Workers' Compensation," NBER Books, National Bureau of Economic Research, Inc, number fish00-1, January.
    11. Manski, Charles F & Lerman, Steven R, 1977. "The Estimation of Choice Probabilities from Choice Based Samples," Econometrica, Econometric Society, vol. 45(8), pages 1977-1988, November.
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    Cited by:

    1. Fraisse, H. & Kramarz, F. & Prost, C., 2009. "Labor Court Inputs, Judicial Cases Outcomes and Labor Flows: Identifying Real EPL," Working papers 256, Banque de France.

    More about this item

    JEL classification:

    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • J28 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Safety; Job Satisfaction; Related Public Policy

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