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Contrary to the original intention of no-fault workers' compensation laws, employers deny liability for a substantial fraction of on-the-job injuries. We develop and estimate a simple structural model that explains the high rate of litigation as a consequence of asymmetric information. We estimate the model using data for a large sample of back injuries in Minnesota. Simulations under the counterfactual assumption that all denied workers pursue their claims suggest that the strategic incentive accounts for 30%-40% of observed liability disputes. (c) 2009 by The University of Chicago.

When to Start a Fight and When to Fight Back: Liability Disputes in the Workers’ Compensation System