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

Antonio Merlo, Xun Tang

    Research output: Contribution to journalArticle

    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 languageEnglish (US)
    Pages (from-to)1029-1061
    Number of pages33
    JournalInternational Economic Review
    Volume60
    Issue number3
    DOIs
    StatePublished - 2019

    ASJC Scopus subject areas

    • Economics and Econometrics

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