Optimal Awards and Penalties when the Probability of Prevailing Varies Among Plaintiffs

A. Mitchell Polinsky () and Daniel L. Rubinfeld

No 4507, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This article derives the optimal award to a winning plaintiff and the optimal penalty on a losing plaintiff when the probability of prevailing varies among plaintiffs. Optimality is defined in terms of achieving a specified degree of deterrence of potential injurers with the lowest litigation cost. Our main result is that the optimal penalty on a losing plaintiff is positive, in contrast to common practice in the United States. By penalizing losing plaintiffs and raising the award to winning plaintiffs (relative to what it would be if losing plaintiffs were not penalized), it is possible to discourage relatively low-probability-of-prevailing plaintiffs from suing without discouraging relatively high-probability plaintiffs, and thereby to achieve the desired degee of deterrence with lower litigation costs. This result is developed first in a model in which all suits are assumed to go to trial and then in a model in which settlements are possible.

JEL-codes: K41 (search for similar items in EconPapers)
Date: 1993-10
Note: LE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as RAND Journal of Economics, Summer 1996, Vol.27, no.2, pp.269-280.

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Journal Article: Optimal Awards and Penalties When the Probability of Prevailing Varies Among Plaintiffs (1996)
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