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BARGAINING WITH OPTIMISM: IDENTIFICATION AND ESTIMATION OF A MODEL OF MEDICAL MALPRACTICE LITIGATION
Author(s) -
Merlo Antonio,
Tang Xun
Publication year - 2019
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12378
Subject(s) - optimism , settlement (finance) , counterfactual thinking , pessimism , compensation (psychology) , medical malpractice , economics , actuarial science , malpractice , identification (biology) , distribution (mathematics) , econometrics , psychology , social psychology , political science , law , philosophy , botany , finance , epistemology , payment , biology , mathematical analysis , mathematics
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.