TY  - JOUR
AU  - Polinsky,A. Mitchell
AU  - Che,Yeon-Koo
TI  - Decoupling Liability: Optimal Incentives for Care and Litigation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3634
PY  - 1993
Y2  - December 1993
UR  - http://www.nber.org/papers/w3634
L1  - http://www.nber.org/papers/w3634.pdf
N1  - Author contact info:
A. Mitchell Polinsky
Stanford Law School
Stanford University
Stanford, CA  94305
Tel: 650/723-0886
Fax: 650/723-3557
E-Mail: polinsky@stanford.edu

Yeon-Koo Che
Columbia University
420 W. 118th Street, 1029 IAB
New York, NY  10027
Tel: 212-854-8276
Fax: 212-854-8059
E-Mail: yc2271@columbia.edu
AB  - 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.
ER  -