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Journal of Law, Economics, and Organization Advance Access published online on September 18, 2006
Journal of Law, Economics, and Organization, doi:10.1093/jleo/ewm016
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© The Author 2006. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Article

A Damage-Revelation Rationale for Coupon Remedies

A. Mitchell Polinsky 1 * and Daniel L. Rubinfeld 2

1 Stanford University and NBER
2 University of California, Berkeley, and NBER

* To whom correspondence should be addressed.
A. Mitchell Polinsky, E-mail: polinsky{at}stanford.edu


  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 coupons to purchase units of the defendant's product at a discount and cash--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.


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