NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Decoupling Liability: Optimal Incentives for Care and Litigation

A. Mitchell Polinsky, Yeon-Koo Che

NBER Working Paper No. 3634 (Also Reprint No. r1827)
Issued in February 1991
NBER Program(s):   LE

A "decoupled" liability system is one in which the award to the plaintiff differs from the payment by the defendant. The optimal system of decoupling makes the defendant's payment as high as possible. Such a policy allows the award to the plaintiff to be lowered, thereby reducing the plaintiff's incentive to sue -- and hence litigation costs -- without sacrificing the defendant's incentive to exercise care. The optimal award to the plaintiff may be less than or greater than the optimal payment by the defendant. The possibility of an out-of-court settlement does not qualitatively affect these results. If the settlement can be monitored, it may be desirable to decouple it as well.

download in pdf format
   (208 K)

email paper

This paper is available as PDF (208 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3634

Published: Rand Journal of Economics, Vol 44, No. 4, pp. 562-570, (Winter 1991). citation courtesy of

Users who downloaded this paper also downloaded these:
Polinsky w0420 Strict Liability versus Negligence in a Market Setting
Polinsky and Rogerson w0937 Products Liability, Consumer Misperceptions, and Market Power
Polinsky and Rubinfeld w1834 The Welfare Implications of Costly Litigation in the Theory of Liability
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us