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A Damage-Revelation Rationale for Coupon Remedies

Author

Listed:
  • A. Mitchell Polinsky

    (Stanford University & NBER)

  • Daniel L. Rubinfeld

    (University of California, Berkeley)

Abstract

This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between cash and coupons to purchase units of the defendant’s product at a discount — a “coupon-cash remedy” — is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.

Suggested Citation

  • A. Mitchell Polinsky & Daniel L. Rubinfeld, 2005. "A Damage-Revelation Rationale for Coupon Remedies," Discussion Papers 04-009, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:04-009
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    File URL: http://www-siepr.stanford.edu/repec/sip/04-009.pdf
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    References listed on IDEAS

    as
    1. A. Mitchell Polinsky & Daniel Rubinfeld, "undated". "Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts," American Law & Economics Association Annual Meetings 1060, American Law & Economics Association.
    2. Spier, Kathryn E, 1994. "Settlement Bargaining and the Design of Damage Awards," Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(1), pages 84-95, April.
    3. Borenstein, Severin, 1996. "Settling for Coupons: Discount Contracts as Compensation and Punishment in Antitrust Lawsuits," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 379-404, October.
    4. Kaplow, Louis & Shavell, Steven, 1996. "Accuracy in the Assessment of Damages," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 191-210, April.
    5. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2006. "The Deadweight Loss of Coupon Remedies for Price Overcharges," Berkeley Olin Program in Law & Economics, Working Paper Series qt6943s2kd, Berkeley Olin Program in Law & Economics.
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    Cited by:

    1. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2006. "The Deadweight Loss of Coupon Remedies for Price Overcharges," Berkeley Olin Program in Law & Economics, Working Paper Series qt6943s2kd, Berkeley Olin Program in Law & Economics.

    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • K19 - Law and Economics - - Basic Areas of Law - - - Other

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