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

Author

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  • Andrew F. Daughety

    (Department of Economics, Vanderbilt University)

  • Jennifer F. Reinganum

    (Department of Economics, Vanderbilt University)

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.

Suggested Citation

  • Andrew F. Daughety & Jennifer F. Reinganum, 2000. "Found Money? Split-Award Statutes and Settlement of Punitive Damages Cases," Vanderbilt University Department of Economics Working Papers 0001, Vanderbilt University Department of Economics, revised Mar 2001.
    • Handle: RePEc:van:wpaper:0001
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Albert Choi & Chris William Sanchirico, 2004. "Should Plaintiffs Win What Defendants Lose? Litigation Stakes, Litigation Effort, and the Benefits of Decoupling," The Journal of Legal Studies, University of Chicago Press, vol. 33(2), pages 323-354, June.
    2. Landeo, Claudia M., 2009. "Cognitive coherence and tort reform," Journal of Economic Psychology, Elsevier, vol. 30(6), pages 898-912, December.
    3. Claudia M. Landeo & Maxim Nikitin, 2006. "Split-Award Tort Reform, Firm's Level of Care, and Litigation Outcomes," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(4), pages 571-600, December.
    4. Landeo, Claudia M., 2009. "Tort Reform, Disputes and Belief Formation," MPRA Paper 13453, University Library of Munich, Germany.
    5. Guerra Alice & Luppi Barbara & Parisi Francesco, 2019. "Standards of Proof and Civil Litigation: A Game-Theoretic Analysis," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(1), pages 1-19, January.
    6. Gilbert, Richard J. & Katz, Michael L., 2011. "Efficient division of profits from complementary innovations," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 443-454, July.
    7. Roland Kirstein & Neil Rickman, 2004. ""Third Party Contingency" Contracts in Settlement and Litigation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(4), pages 555-575, December.
    8. Marie‐Cécile Fagart & Claude Fluet, 2009. "Liability insurance under the negligence rule," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 486-508, September.
    9. Amy Fanner & Paul Pecorino, 2005. "Dispute Rates and Contingency Fees: An Analysis from the Signaling Model," Southern Economic Journal, John Wiley & Sons, vol. 71(3), pages 566-581, January.
    10. Doornik, Katherine, 2014. "A rationale for mediation and its optimal use," International Review of Law and Economics, Elsevier, vol. 38(C), pages 1-10.
    11. Ikeda Yasuhiro & Mori Daisuke, 2015. "Can Decoupling Punitive Damages Deter an Injurer’s Harmful Activity?," Review of Law & Economics, De Gruyter, vol. 11(3), pages 513-528, November.
    12. Chu, C.Y. Cyrus & Chien, Hung-Ken, 2007. "Asymmetric information, pretrial negotiation and optimal decoupling," International Review of Law and Economics, Elsevier, vol. 27(3), pages 312-329, September.
    13. Philippe Choné & Saïd Souam & Arnold Vialfont, 2012. "Commitments in Antitrust," EconomiX Working Papers 2012-9, University of Paris Nanterre, EconomiX.
    14. Landeo, Claudia M. & Nikitin, Maxim & Babcock, Linda, 2007. "Split-awards and disputes: An experimental study of a strategic model of litigation," Journal of Economic Behavior & Organization, Elsevier, vol. 63(3), pages 553-572, July.
    15. Philippe Choné & Saïd Souam & Arnold Vialfont, 2012. "Commitments in Antitrust," Working Papers hal-04141127, HAL.
    16. Nuno Garoupa & Chris William Sanchirico, 2010. "Decoupling as Transactions Tax," The Journal of Legal Studies, University of Chicago Press, vol. 39(2), pages 469-496.

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    More about this item

    Keywords

    Incomplete information; litigation; punitive damages; settlement; split-award;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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