A Damage-Revelation Rationale for Coupon Remedies
16 Pages Posted: 17 Mar 2005
Date Written: March 2005
This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between cash and coupons to purchase units of the defendant's product at a discount - a "coupon-cash remedy" - is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.
Keywords: class action remedies, coupons, damage revelation, accuracy
JEL Classification: D18, D82, D83, H23, K19, K41
Suggested Citation: Suggested Citation