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A Damage-Revelation Rationale for Coupon Remedies

  • A. Mitchell Polinsky

    (Stanford University & NBER)

  • Daniel L. Rubinfeld

    (University of California, Berkeley)

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.

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File URL: http://www-siepr.stanford.edu/repec/sip/04-009.pdf
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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 04-009.

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Date of creation: Mar 2005
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Handle: RePEc:sip:dpaper:04-009
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  1. 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.
  2. A. Mitchell Polinsky & Daniel L. Rubinfeld, 2004. "Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts," Microeconomics 0401001, EconWPA.
  3. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2003. "Remedies For Price Overcharges: The Deadweight Loss Of Coupons And Discounts," Berkeley Olin Program in Law & Economics, Working Paper Series qt1gs1g2g2, Berkeley Olin Program in Law & Economics.
  4. 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.
  5. Louis Kaplow & Steven Shavell, 1993. "Accuracy in the Assessment of Damages," NBER Working Papers 4287, National Bureau of Economic Research, Inc.
  6. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 2003. "Remedies for Price Overcharges: The Deadweight Loss of Coupons and Discounts," Competition Policy Center, Working Paper Series qt92m0w4px, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
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