BARGAINING WITH OPTIMISM: IDENTIFICATION AND ESTIMATION OF A MODEL OF MEDICAL MALPRACTICE LITIGATION

Antonio Merlo; Xun Tang

doi:10.1111/iere.12378

BARGAINING WITH OPTIMISM: IDENTIFICATION AND ESTIMATION OF A MODEL OF MEDICAL MALPRACTICE LITIGATION

Antonio Merlo, Xun Tang

Research output: Contribution to journal › Article › peer-review

Abstract

We study a model of bargaining with optimism where players have heterogeneous beliefs about the final resolution. Beliefs and bargaining surplus are identified from the settlement probability and the distribution of accepted transfers. Using data from medical malpractice lawsuits in Florida, we estimate doctor and patient beliefs and the distribution of potential compensation. We find that patients are more optimistic and doctors more pessimistic when the severity of injury is higher, and the joint optimism diminishes as severity increases. We quantify the increase in settlement probability and the reduction in accepted settlement offers under counterfactual caps on the total compensation.

Original language	English (US)
Pages (from-to)	1029-1061
Number of pages	33
Journal	International Economic Review
Volume	60
Issue number	3
DOIs	https://doi.org/10.1111/iere.12378
State	Published - 2019

ASJC Scopus subject areas

Economics and Econometrics

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10.1111/iere.12378

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abstract = "We study a model of bargaining with optimism where players have heterogeneous beliefs about the final resolution. Beliefs and bargaining surplus are identified from the settlement probability and the distribution of accepted transfers. Using data from medical malpractice lawsuits in Florida, we estimate doctor and patient beliefs and the distribution of potential compensation. We find that patients are more optimistic and doctors more pessimistic when the severity of injury is higher, and the joint optimism diminishes as severity increases. We quantify the increase in settlement probability and the reduction in accepted settlement offers under counterfactual caps on the total compensation.",

author = "Antonio Merlo and Xun Tang",

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AB - We study a model of bargaining with optimism where players have heterogeneous beliefs about the final resolution. Beliefs and bargaining surplus are identified from the settlement probability and the distribution of accepted transfers. Using data from medical malpractice lawsuits in Florida, we estimate doctor and patient beliefs and the distribution of potential compensation. We find that patients are more optimistic and doctors more pessimistic when the severity of injury is higher, and the joint optimism diminishes as severity increases. We quantify the increase in settlement probability and the reduction in accepted settlement offers under counterfactual caps on the total compensation.

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BARGAINING WITH OPTIMISM: IDENTIFICATION AND ESTIMATION OF A MODEL OF MEDICAL MALPRACTICE LITIGATION

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