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Reply to the Effects of 'Early Offers' in Medical Malpractice Cases: Evidence from Texas


Joni Hersch


Vanderbilt University - Law School; Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - College of Arts and Science - Department of Economics

Jeffrey O'Connell


University of Virginia School of Law

W. Kip Viscusi


Vanderbilt University - Law School; National Bureau of Economic Research (NBER); Vanderbilt University - Department of Economics; Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Strategy and Business Economics


Journal of Empirical Legal Studies, Forthcoming
Vanderbilt Law and Economics Research Paper No. 09-27
Virginia Public Law and Legal Theory Research Paper No. 2010-24

Abstract:     
This article is a Reply to the critique by Black, Hyman, and Silver (BHS) of our 2007 Journal of Legal Studies article, “An Empirical Assessment of Early Offer Reform for Medical Malpractice.” The early offer reform gives insurers the option of making an early offer that will expedite payment of claimants’ economic losses and reasonable attorney fees. Using data on closed medical malpractice claims from the Texas Department of Insurance (TDI), our 2007 article estimates the financial impact of this proposal by comparing the expected payments to claimants under the early offer reform to the payments under current tort rules. A central component of our calculation of expected payments is unique information on insurers’ reserves associated with the claim; actual payments are reported in the TDI data for all litigated and settled cases involving payments of at least $10,000. The BHS article misrepresents fundamental aspects of our empirical analysis, including the following. BHS set out to correct our purported “false assumption” that all claims have a 1.0 probability of success, which is a problem that arises because BHS omit the probability of claimant success from the formula that is presented in our paper. BHS’s error is compounded as their discussion of our paper fails to recognize that our use of reserve amounts in the analysis incorporates the insurers’ estimates of the likelihood of claimant success, Indeed, they neither acknowledge our use of the insurer reserve data, nor do they use the insurer reserve information in their paper. BHS claim incorrectly that our analysis does not discount deferred payments whereas in fact it does. Our early offer analysis uses data for both litigated and settled claims, avoiding the selection bias and measurement error problems associated with BHS’s extrapolation from the 2% of paid claims that are litigated to the universe of all settled and litigated claims. In addition to these and other errors in their characterization of our empirical analysis, the BHS article reflects a misunderstanding of the operation of the early offer reform, which leads them to erroneous statements regarding how the parties would behave if the early offer reform were implemented. We also provide a brief critique of the BHS two-sided version of the early offer proposal, which would not be workable and would not reduce litigation costs significantly.

Number of Pages in PDF File: 16

Keywords: early offer reform, medical malpractice, insurance, Texas Department of Insurance

JEL Classification: K13, K41, G22, I18

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Date posted: October 13, 2009 ; Last revised: November 27, 2012

Suggested Citation

Hersch, Joni and O'Connell, Jeffrey and Viscusi, W. Kip, Reply to the Effects of 'Early Offers' in Medical Malpractice Cases: Evidence from Texas. Journal of Empirical Legal Studies, Forthcoming; Vanderbilt Law and Economics Research Paper No. 09-27; Virginia Public Law and Legal Theory Research Paper No. 2010-24. Available at SSRN: http://ssrn.com/abstract=1487681

Contact Information

Joni Hersch
Vanderbilt University - Law School ( email )
131 21st Avenue South
Nashville, TN 37203-1181
United States
615-343-7717 (Phone)
615-322-6631 (Fax)
HOME PAGE: http://law.vanderbilt.edu/go/phdlawecon
Vanderbilt University - Owen Graduate School of Management
401 21st Avenue South
Nashville, TN 37203
United States
Vanderbilt University - College of Arts and Science - Department of Economics
Box 1819 Station B
Nashville, TN 37235
United States
Jeffrey O'Connell
University of Virginia School of Law ( email )
580 Massie Road
Charlottesville, VA 22903
United States
804-924-7809 (Phone)
804-924-7536 (Fax)

W. Kip Viscusi (Contact Author)
Vanderbilt University - Law School ( email )
131 21st Avenue South
Nashville, TN 37203-1181
United States
615-343-7715 (Phone)
615-322-5953 (Fax)
HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Vanderbilt University - Department of Economics
Box 1819 Station B
Nashville, TN 37235
United States
(615) 343-7715 (Phone)
(615) 343-5953 (Fax)
HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm
Vanderbilt University - Owen Graduate School of Management
401 21st Avenue South
Nashville, TN 37203
United States
(615) 343-7715 (Phone)
(615) 343-5953 (Fax)
HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm
Vanderbilt University - Strategy and Business Economics ( email )
Nashville, TN 37203
United States

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