Medical Malpractice: An Empirical Examination of the Litigation Process

Henry S. Farber, Michelle J. White

NBER Working Paper No. 3428
Issued in September 1990
NBER Program(s):Labor Studies

New data on medical malpractice claims against a single hospital where a direct measure of the quality of medical care is available are used to address 1) the specific question of the role of the negligence rule in the dispute settlement process in medical malpractice, and 2) the general question of how the process of negotiation and dispute resolution in medical malpractice operates with regard to both the behavior of the parties and the outcome of the process. We find that the quality of medical care is an extremely important determinant of deferdants' medical malpractice liability. More generally, we find that the data are consistent with a model where 1) the plaintiff is not well informed ex ante about the likelinood of negligence and 2) the ex ante expected value to the plaintiff of a suit is high relative to the costs of filing a suit and getting more information. Thus, suits are filed even where there is no concrete reason to believe there has been negligence, and virtually all suits are either dropped or settled based on the information gained after filing. We conclude that the filing of suits that appear, ex post, to be nuisance suits can be rational eguilibrium behavior, ex ante, where there is incomplete information about care quality.

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Document Object Identifier (DOI): 10.3386/w3428

Published: Rand Journal of Economics, Vol. 22, Summer 1991, pp. 199-217.

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