Working Paper: NBER ID: w11227
Authors: A. Mitchell Polinsky; Daniel L. Rubinfeld
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.
Keywords: No keywords provided
JEL Codes: D18; D82; D83; H23; K19; K41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| coupon-cash remedy (L42) | better outcomes in terms of firm behavior (L21) |
| coupon-cash remedy (L42) | more accurate reflection of damages incurred (K13) |
| higher harm (I12) | choice of coupons (D15) |
| choice of coupons (D15) | better deterrence (K42) |
| costs borne by defendants (K41) | better ex ante decisions regarding care (I11) |
| sorting of plaintiffs based on level of harm (K13) | firm's cost structure (L11) |
| firm's cost structure (L11) | appropriate levels of care (I18) |
| coupon-cash remedy (L42) | reduces underdeterrence (K40) |
| coupon-cash remedy (L42) | reduces overdeterrence (K40) |
| coupon-cash remedy (L42) | firm's decision-making process regarding level of care (L21) |