We develop an analysis of the revenues that split-award statutes could generate, conditional on the allocation of damages between the plaintiff, his attorney, and the state. We determine the revenue-maximizing share and find that it is robust to variations in economic parameters and to whether the state's share is gross or net of the plaintiff's attorney's fees. Split-award statutes allocate a portion of punitive damages won by successful plaintiffs to the state.
Our analysis extends standard bargaining models to account for contingent compensation for plaintiff attorneys, the portion of the award collected by the state, and the alternative ways in which statutes award them. We find that the state's revenue maximization rate is very robust to different parameter values and schedules for allocating damages among the plaintiff, the plaintiff's attorney, and the state, although it is somewhat sensitive to the form of the bargaining process itself. In the first case, a case is settled on the basis of the joint payment of the claimant and his lawyer, in the second case.
We begin by examining the apportionment rule that splits the award of punitive damages between P and the state (as in Indiana and Oregon, listed as “gross” in the table), requiring P to pay his attorney out of his share; we will show that the other most commonly used allocation rule, which divides the award of punitive damages, after deducting the plaintiff's attorney's fee. As before, under the Net scheme, P would receive the share f of since the amount ") represents P's attorney's fee for the part of the trial punishable by punitive damages). of the lawyer pays for the punitive damages portion of the dispute ("B2); see Table 2) when a case goes to trial.
Put another way, an increase in the state's share (1 - f) of punitive damages results in more settlements with lower amounts.
THE STATE’S CHOICE OF THE SPLIT-AWARD RATE
Of particular interest is the impact of P's share of punitive damages f on the equilibrium amount and probability of settlement. Thus, an increase in the state's share provides greater incentives for the parties to settle (and cut out the state) and provides a two-fold benefit to D, who goes to trial less often and settles for a lower amount. Unless punitive damages rise to restore deterrence, D's expected loss (presumably motivating his investment in care to avoid the initial harm) is reduced by both effects.
However, from a positive (or second-best) perspective, punitive damages are a particularly attractive target for a legislator, since the defendant has been found to be grossly negligent and thus deserves to pay, while the plaintiff has already received compensatory damages, deserves without Do not hesitate to receive an unexpected injury. On the other hand, the state is entitled to collect compensation on its behalf in the form of damages, to the extent that society has been harmed. This view is consistent with the state not claiming a share of
As our main focus, we consider the determination of f to maximize the state's profit from raising revenue through a split allocation statute. If the Gross punitive damages award scheme is used (see Table 2) in which P's attorney is paid out of P's award (as in Indiana and Oregon), the State's Expected Profit is implied as the settlement bargaining subgame signal, given by SEG( f) / I0. The corresponding expected profit for the State if the settlement bargaining game involves screening is given by seg(f) / IB2(1 - f))h(2)d2, where the integral is on [0,2*(f)] .
The (non-Iowa) Net Allocation Scheme, which pays P's attorney in full and then shares the remaining punitive damages (as in Alaska, Georgia, Missouri, and Utah), results in expected profits for the state of SEG(f) and seg (f), under signaling and screening respectively. Due to the mathematical complexity (of the signaling subcase), the share f that maximizes the state's expected profit can only be found by assuming a specific distribution for 2 and using computational methods. If f = 0, the state receives all damages awarded at trial; However, if f = 0, all cases are settled and no damages are awarded at trial.
Finally, the state's expected profit from the random proposer model is given by 8SEG(f) + (1 - 8)seg(f). Thus, taking a large share of P's punitive damages award is consistent with revenue maximization only if there is strong reason to believe that actual bargaining overwhelmingly resembles the screening model (rather than the signaling model). Since Iowa's statute subsidizes trial relative to settlement, the state can take a larger share of punitive damages without unduly encouraging settlement.
IMPLICATIONS OF THE ANALYSIS
Note that this is exactly the same shape as the previous model used for the net allocation states. While it is easy to show that a gross plan produces a lower equilibrium payout for PA than a (non-Iowa) net plan (for fixed f), it is not clear that the PA payout is always lower under a split grant status than without one. A split-award statute can thus better align the incentives of P and PA, especially where they conflict most, in low-value cases.
At their respective state revenue-maximizing f values (ie, 0.5 for non-Iowa states and 0.33 for Iowa), both net allocation schemes give PA the same expected payoff that is higher than the gross allocation scheme. Furthermore, while there is a range of (low) z-values for which the PA would reject the case without the split allocation statute, this range is reduced under the gross allocation scheme and eliminated under the net allocation scheme. Simply put, under the above assumptions, we find the surprising result that split award statutes do not discourage applications; they actually encourage the filing of some additional low-z cases.
The curve labeled "No Statute" indicates the expected PA penalty payoff in the absence of a split-reward statute (ie, for f = 1). Thus, the PA will reject a much smaller set of cases under the gross allocation scheme and has no reason to reject cases under the net scheme. That is, a split-assignment statute operating at f = 0.5 does little or nothing to discourage the filing of cases, and even encourages the filing of weak cases that might not have been filed without the statute.
Again, we find that an award sharing statute using a gross apportionment scheme does not deter filings, but actually encourages the filing of low-z cases that would not be filed in the absence of an award sharing statute. Since the net distribution scheme always provides a higher expected profit for the plaintiff's attorney, this result is true a fortiori for a price-sharing statute using a net distribution scheme with f = 0.25, such as Georgia's . As we have seen, in the symmetric random proposer model, awarding statutes should not deter submissions and therefore should not contribute to deterrence reduction, except by promoting settlement.
For the same reasons, split award statutes need not reduce litigation costs (which is one possible idea of how to "improve the business climate," a goal Georgia has articulated). However, 0.25 is quite close to the calculated optimal range, and the Iowa claimant's share should be lower than that of the other net allocation states according to the theory above, so it is in the predicted direction. Thus, reducing deterrence does not appear to be the primary goal for Alaska, Iowa, Missouri, and Utah (although deterrence will be somewhat reduced when f < 1). was income producing (see McBride v.
SUMMARY AND CONCLUSIONS
Oregon appears to fit somewhere between these two groups: it uses a Gross procedure and limits attorney's fees with respect to an award of damages, but does not have caps. Furthermore, these cases are best characterized as weak, in terms of the magnitude of likely damages relative to the costs of litigation, or in terms of the likelihood that the defendant will be found liable. Of course, most states have not implemented such split-award statutes, even though sharing punitive damages seems like an easy source of revenue and can be justified as social compensation.
In particular, Rustad argues that there is a widespread (but incorrect) perception among policymakers and the public that punitive damages are excessive and harm competition. at 1641: “Punitive damages are generally viewed as a windfall for plaintiffs who are entitled to full compensation for their injuries -- but nothing more. In Iowa, for example, the attorney general's office staff files filings to protect the state's interests in punitive damages cases.
Given that the state receives a portion of the punitive damages under a shared award statute, there are some. 1225 (S.D. Iowa 1991), plaintiff's counsel informed the jury of the split award statute and urged it to increase the punitive damages award; this was instrumental in the Eighth Circuit throwing out the award. This is a fairly direct extension of the signaling model in Reinganum and Wilde (1986), although it is an extension due to the use of contingent fees and the partitioning statute.
Sloane (1993), footnote 92, notes that the legislative history of the Florida statute clearly expressed the intent to deter plaintiffs from pursuing punitive damages cases. Everybody Outside the Group: Products Liability, Punitive Damages and Competition,” 13 Journal of Law, Economics and Organization 410- 32. A Note on Multiple Equilibrium and Punitive Damages Rules in ``Everybody Outside the Group,'” 14 Journal of Law , Economics and Organization 379-87.
Note: Evaluating the Practicality and Constitutionality of Alaska's Severance-Recovery Punitive Damages Statute', 49 Duke Law Journal 1335-69. Special Taxes for Punitive Damages: Decoupling, Agency Problems, and Litigation Costs," 15 International Review of Law and Economics 175-85. In Punitive Damages Defense in Products Liability: Testing Tort Anecdotes with Empirical Data," 78 Review of Iowa Law 1-88.
The Split Award Statute: A Move Toward Effectuating the True Purpose of Punitive Damages,” 28 Valparaiso University Law Review 473-512. The Social Costs of Punitive Damages Against Corporations in Environmental and Safety Prosecutions,” 87 Georgetown Law Journal 285-346.
