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Optimal Awards and Penalties When the Probability of Prevailing Varies Among Plaintiffs

30 Pages Posted: 1 Feb 1997  

A. Mitchell Polinsky

Stanford Law School; National Bureau of Economic Research (NBER)

Daniel L. Rubinfeld

University of California at Berkeley - School of Law; National Bureau of Economic Research (NBER); NYU Law School

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Abstract

This article derives the optimal award to a winning plaintiff and the optimal penalty on a losing plaintiff when the probability of prevailing varies among plaintiffs. Optimality is defined in terms of achieving a specified degree of deterrence of potential injurers with the lowest litigation cost. Our main result is that the optimal penalty on a losing plaintiff is positive, in contrast to common practice in the United States. By penalizing losing plaintiffs and raising the award to winning plaintiffs (relative to what it would be if losing plaintiffs were not penalized), it is possible to discourage relatively low-probability-of-prevailing plaintiffs from suing without discouraging relatively high-probability plaintiffs, and thereby to achieve the desired degree of deterrence with lower litigation costs.

JEL Classification: K13

Suggested Citation

Polinsky, A. Mitchell and Rubinfeld, Daniel L., Optimal Awards and Penalties When the Probability of Prevailing Varies Among Plaintiffs. Available at SSRN: https://ssrn.com/abstract=567 or http://dx.doi.org/10.2139/ssrn.567

A. Mitchell Polinsky (Contact Author)

Stanford Law School ( email )

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Daniel L. Rubinfeld

University of California at Berkeley - School of Law ( email )

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National Bureau of Economic Research (NBER)

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NYU Law School ( email )

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