All-or-Nothing versus Proportionate Damages

48 Pages Posted: 1 Apr 2008 Last revised: 13 Nov 2013

See all articles by Shmuel Leshem

Shmuel Leshem

Independent Researcher

Geoffrey P. Miller

New York University School of Law

Date Written: April 1, 2009

Abstract

This paper considers the choice between an all-or-nothing rule (AON) and a proportionate damages rule (PD) in civil litigation. Under AON, a prevailing plaintiff receives a judgment equal to his entire damages. Under PD, damages are reduced to reflect uncertainty. For example, if the trier of fact found that there was a seventy-five percent chance that the defendant is liable, the judgment would equal seventy-five percent of the plaintiff's damages. Using a moral hazard model that takes into account defendants' decisions to comply with legal rules, evidentiary uncertainty, and settlement, we show that AON usually maximizes the rate of compliance, although it may result in a higher level of litigation. This, in turn, provides an efficiency rationale for the ubiquity of AON in the legal system.

Suggested Citation

Leshem, Shmuel and Miller, Geoffrey P., All-or-Nothing versus Proportionate Damages (April 1, 2009). Journal of Legal Studies, Vol. 38, pp. 345-382, 2009, NYU Law and Economics Research Paper No. 08-14, USC Legal Studies Research Paper Series No. 09-4, USC CLEO Research Paper No. C09-4, Available at SSRN: https://ssrn.com/abstract=1114811

Shmuel Leshem (Contact Author)

Independent Researcher ( email )

Los Angeles, CA

Geoffrey P. Miller

New York University School of Law ( email )

Center for the Study of Central Banks
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