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Journal of Law, Economics, and Organization Advance Access published online on February 5, 2009
Journal of Law, Economics, and Organization, doi:10.1093/jleo/ewn028
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© The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Population-Based Liability Determination, Mass Torts, and the Incentives for Suit, Settlement, and Trial

Andrew F. Daughety*

Vanderbilt University

Jennifer F. Reinganum**

Vanderbilt University

* Department of Economics and Law School, Vanderbilt University, Nashville, Tennessee, USA. Email: andrew.f.daughety{at}vanderbilt.edu.

** Department of Economics and Law School, Vanderbilt University, Nashville, Tennessee, USA. Email: jennifer.f.reinganum{at}vanderbilt.edu.

We explore how the incentives of a plaintiff, when considering filing suit and bargaining over settlement, differ between suits associated with stand-alone torts cases and suits involving mass torts. We contrast "individual-based liability determination" (IBLD), wherein a clear description of the mechanism by which a defendant's actions translate into a plaintiff's harm is available, with "population-based liability determination" (PBLD), wherein cases rely on the prevalence of harm in the population to persuade a judge or jury to draw an inference of causation or fault. PBLD creates a "rational optimism effect" on the plaintiff's part that is inherent in many mass tort settings. This effect creates incentives for higher settlement demands and results in greater interim expected payoffs for plaintiffs and, thus, an increased propensity to file suit. Consequently, defendants in PBLD cases face increased ex ante expected costs compared with the IBLD regime, thereby increasing incentives to take care. (JEL K13, K41, D82)


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