A Damage-Revelation Rationale for Coupon Remedies
NBER Working Paper No. 11227
This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between cash and coupons to purchase units of the defendant's product at a discount -- a "coupon-cash remedy" -- is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.
Published: Polinsky, A. Mitchell and Daniel L. Rubinfeld. "A Damage-Revelation Rationale for Coupon Remedies." Journal of Law, Economics, and Organization 3, 3 (October 2007): 653-61.