A Damage-Revelation Rationale for Coupon Remedies

16 Pages Posted: 4 May 2005 Last revised: 6 Sep 2010

See all articles by A. Mitchell Polinsky

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

Multiple version iconThere are 3 versions of this paper

Date Written: March 2005

Abstract

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.

Suggested Citation

Polinsky, A. Mitchell and Rubinfeld, Daniel L., A Damage-Revelation Rationale for Coupon Remedies (March 2005). NBER Working Paper No. w11227, Available at SSRN: https://ssrn.com/abstract=693088

A. Mitchell Polinsky

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