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Found Money? Split-Award Statutes and Settlement of Punitive Damages Cases

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Author Info
Andrew F. Daughety () (Department of Economics, Vanderbilt University)
Jennifer F. Reinganum () (Department of Economics, Vanderbilt University)

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Abstract

We examine the effect of "split-award" statutes (wherein the State takes a share of a punitive damages award) on equilibrium settlements and the incentives to go to trial. We find that split-award statutes simultaneously lower settlement amounts and the likelihood of trial, as both parties act to cut out the State. We develop an analysis of the revenue that split-award statutes could generate, conditioned on the allocation of punitive damages between the plaintiff, his lawyer and the State. We determine the revenue-maximizing share and find that it is robust to variations in economic parameters and to whether the State's share is gross or net of the plaintiff's attorney's fee. One surprising result is that these statutes need not deter filings and that their use can encourage plaintiffs' attorneys to pursue weaker cases than would otherwise be brought. We discuss possible objectives for the states currently employing split-award procedures.

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File URL: http://www.vanderbilt.edu/econ/wparchive/workpaper/vu00-w01R.pdf
File Format: application/pdf
File Function: Revised version, 2001
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0001.

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Date of creation: Jan 2000
Date of revision: Mar 2001
Handle: RePEc:van:wpaper:0001

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Related research
Keywords: Incomplete information; litigation; punitive damages; settlement; split-award;

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability
K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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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, 1997. "Are Punitive Damages Really Insignificant, Predictable, and Rational? A Comment on Eisenberg et al," Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 663-77, June.
  2. Wolinsky, Asher, 1987. "Matching, search, and bargaining," Journal of Economic Theory, Elsevier, vol. 42(2), pages 311-333, August. [Downloadable!] (restricted)
  3. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn. [Downloadable!] (restricted)
  4. Rubinstein, Ariel & Wolinsky, Asher, 1985. "Equilibrium in a Market with Sequential Bargaining," Econometrica, Econometric Society, vol. 53(5), pages 1133-50, September. [Downloadable!] (restricted)
  5. Wang, Gyu Ho & Kim, Jeong-Yoo & Yi, Jong-Goo, 1994. "Litigation and Pretrial Negotiation under Incomplete Information," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(1), pages 187-200, April.
  6. Sanchirico, Chris William, 2000. "Taxes versus Legal Rules as Instruments for Equity: A More Equitable View," Journal of Legal Studies, University of Chicago Press, vol. 29(2), pages 797-820, June.
  7. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter. [Downloadable!] (restricted)
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(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. 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!]
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