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

Andrew Daughety and Jennifer Reinganum ()

No 1, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

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.

Keywords: Incomplete information; litigation; punitive damages; settlement; split-award (search for similar items in EconPapers)
JEL-codes: D82 K13 K41 (search for similar items in EconPapers)
Date: 2000-01, Revised 2001-03
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http://www.accessecon.com/pubs/VUECON/vu00-w01R.pdf Revised version, 2001 (application/pdf)

Related works:
Journal Article: Found Money? Split-Award Statutes and Settlement of Punitive Damages Cases (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0001

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