The Closure Effect: Evidence from Workers Compensation Litigation
25 Pages Posted: 6 Jan 2010 Last revised: 23 Oct 2010
Date Written: January 1, 2010
Abstract
Consideration of the “best interests” of Workers Compensation (WC) claimants often involves the assumption that those who receive benefits in a “lump-sum” behave “too myopically” with respect to labor supply. However, many attorneys argue that lump-sum settlements induce a beneficial “sense of closure.” In this paper, I provide an empirical context for these ideas using a unique set of linked administrative databases owned by the State of California. Upon receipt of a court-approved lump-sum settlement, WC claimants immediately increase labor supply. No such change is found for claimants who receive a court-approved settlement in which the insurer provides benefits over time, suggesting that the method of litigation settlement is a determinant of labor supply.
JEL Classification: K41, J32, H53
Suggested Citation: Suggested Citation