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Decoupling Liability: Optimal Incentives for Care and Litigation

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Author Info
A. Mitchell Polinsky
Yeon-Koo Che

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Abstract

A "decoupled" liability system is one in which the award to the plaintiff differs from the payment by the defendant. The optimal system of decoupling makes the defendant's payment as high as possible. Such a policy allows the award to the plaintiff to be lowered, thereby reducing the plaintiff's incentive to sue -- and hence litigation costs -- without sacrificing the defendant's incentive to exercise care. The optimal award to the plaintiff may be less than or greater than the optimal payment by the defendant. The possibility of an out-of-court settlement does not qualitatively affect these results. If the settlement can be monitored, it may be desirable to decouple it as well.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 22 (1991)
Issue (Month): 4 (Winter)
Pages: 562-570
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Handle: RePEc:rje:randje:v:22:y:1991:i:winter:p:562-570

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Polinsky, A Mitchell & Shavell, Steven, 1989. "Legal Error, Litigation, and the Incentive to Obey the Law," Journal of Law, Economics and Organization, Oxford University Press, vol. 5(1), pages 99-108, Spring.
  2. Katz, Avery, 1990. "The effect of frivolous lawsuits on the settlement of litigation," International Review of Law and Economics, Elsevier, vol. 10(1), pages 3-27, May. [Downloadable!] (restricted)
  3. William M. Landes & Richard A. Posner, 1974. "The Private Enforcement of Law," NBER Working Papers 0062, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. A. Mitchell Polinsky, 1981. "Private versus Public Enforcement of Fines," NBER Working Papers 0338, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Robert Cooter, 1997. "Commodifying Liability," Berkeley Olin Program in Law & Economics, Working Paper Series 1136, Berkeley Olin Program in Law & Economics. [Downloadable!]
  2. Kathryn Spier & Xinyu Hua, . "Information and Externalities in Sequential Litigation," American Law & Economics Association Annual Meetings 1081, American Law & Economics Association. [Downloadable!]
  3. Maxim Nikitin & Claudia M. Landeo, 2004. "Split-Award Tort Reform, Firm's Level of Care and Litigation Outcomes," Econometric Society 2004 Latin American Meetings 4, Econometric Society. [Downloadable!]
    Other versions:
  4. Francesco Parisi & Giuseppe Dari-Mattiacci, 2003. "The Economics of Tort Law: A Précis," Working Papers 03-13, Utrecht School of Economics. [Downloadable!]
  5. Thomas J. Miceli, 2008. "The Social versus Private Incentive to Sue," Working papers 2008-12, University of Connecticut, Department of Economics. [Downloadable!]
  6. Xinyu Hua & Kathryn E. Spier, 2004. "Information and Externalities in Sequential Litigation," NBER Working Papers 10943, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Darius Lakdawalla & Eric Talley, 2006. "Optimal Liability for Terrorism," NBER Working Papers 12578, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Jesse Bull, 2006. "Costly Evidence and Systems of Fact Finding," Working Papers 0612, Florida International University, Department of Economics. [Downloadable!]
    Other versions:
  9. Giuseppe Dari-Mattiacci, . "Negative Liability," American Law & Economics Association Annual Meetings 1030, American Law & Economics Association. [Downloadable!]
  10. Steven Shavell, 2005. "Liability for Accidents," NBER Working Papers 11781, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Mathew Manweller, 2003. "Understanding Tort Reform: Strategic Actors, Public Policy, and Feedback Loops," Business and Politics, Berkeley Electronic Press, vol. 5(1), pages 1050-1050. [Downloadable!] (restricted)
  12. Eric Rasmusen, 1995. "``Predictable and Unpredictable Error in Tort Awards: The Effect of Plaintiff Self Selection and Signalling,''," Law and Economics 9506003, EconWPA. [Downloadable!]
  13. Thomas J. Miceli, 2008. "A Note on the Social versus Private Value of Suits when Care is Bilateral," Working papers 2008-13, University of Connecticut, Department of Economics. [Downloadable!]
    Other versions:
  14. BOURJADE, Sylvain & REY, Patrick & SEABRIGHT, Paul, 2009. "Private Antitrust Enforcement in the Presence of Pre-Trial Bargaining," IDEI Working Papers 499, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  15. Tim Friehe, . "Screening Accident Victims," German Working Papers in Law and Economics 2006-1-1140, Berkeley Electronic Press. [Downloadable!]
  16. Louis Kaplow, 1994. "Shifting Plaintiffs' Fees versus Increasing Damage Awards," NBER Working Papers 4263, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Giuseppe Dari-Mattiacci & Gerrit de Geest & Jacques Siegers, 2004. "The Intrinsic Inferiority of Efficiency Wages to Damages and Conditional Bonuses," Working Papers 04-15, Utrecht School of Economics. [Downloadable!]
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