Mass Torts and the Incentives for Suit, Settlement, and Trial

Andrew Daughety and Jennifer Reinganum ()

No 713, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: We explore how the incentives of a plaintiff and her attorney, when considering filing suit and bargaining over settlement, can differ between those suits associated with stand-alone torts cases and those suits involving mass torts. We contrast "individual-based liability determination" (IBLD), wherein a clear description of the mechanism by which a defendant's actions translate into a plaintiff's harm is available, with "population-based liability determination" (PBLD), wherein cases rely upon the prevalence of harms in the population to persuade a judge or jury to draw an inference of causation or fault. We show that PBLD creates a positive externality for the plaintiff's side that is inherent in many mass tort settings; this externality induces an increased propensity to file suit, higher settlement demands and greater joint payoffs for plaintiffs and their attorneys. Consequently, the defendant in a PBLD case faces an increased ex ante expected cost compared with the IBLD regime, thereby increasing incentives to take care. However, PBLD need not always imply an increased likelihood of trial relative to IBLD for any filed case (though it may lead to more cases being filed); the heightened aggressiveness of the plaintiff and her attorney can actually lead to a reduction in the likelihood of trial. Thus, PBLD can be more, or less, efficient than IBLD (in the sense of reducing trial costs), when considering cases that would be filed in both possible regimes.

Keywords: Liability determination; settlement bargaining (search for similar items in EconPapers)
JEL-codes: D82 K13 K41 (search for similar items in EconPapers)
Date: 2007-08
New Economics Papers: this item is included in nep-law
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0713

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