Journal article
Information transmission during the trial: The role of punitive damages and legal costs
Journal of public economic theory, Vol.20(2), pp.136-155
04/2018
Abstract
This paper studies an incomplete information model in which a preventable accident occurred. The judge determining punitive damages observes the firm's (defendant) investment decisions, but is uninformed about the firm's experience adopting safety measures. Our model allows firms to file an appeal if the judge's verdict is incorrect, which the judge may accept or reject. We identify under which conditions a separating equilibrium exists where the firm's investment decisions signal its type to the judge, who responds with a correct verdict, thus avoiding future appeals. Our paper also finds conditions under which a pooling equilibrium exists whereby the firm's investment in precaution conceals its type from the judge, who can respond with an incorrect verdict thus giving rise to appeals. Furthermore, we show that the separating equilibrium is more likely to arise if the percentage of revenue that defendants are required to pay in punitive damages decreases, if the punitive-to-compensatory ratio increases, and if the legal cost of filing an appeal increases.
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Details
- Title
- Information transmission during the trial
- Creators
- Ana Espinola-Arredondo - Washington State UniversityFelix Munoz-Garcia - Washington State UniversityPitchayaporn Tantihkarnchana - Pennsylvania State University
- Publication Details
- Journal of public economic theory, Vol.20(2), pp.136-155
- Academic Unit
- Economic Sciences, School of
- Publisher
- Wiley
- Number of pages
- 20
- Identifiers
- 99900971337501842
- Language
- English
- Resource Type
- Journal article