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A theoretical and empirical analysis of the disposition of malpractice claims compares the actual outcomes with the legal standard of payment equal to damages, if, and only if, negligence occurred. An economic model of the settlement process assumes that the litigants attempt to maximize wealth, subject to the legal standards of liability and damage, and the costs of litigating. The model predicts that awards in settlements out of court will reflect the expected verdict, the probability of the plaintiff's winning, and the costs of going to court. The probability of the plaintiff's winning in settlement will also reflect the probability of winning in court, the size of the expected verdict, and the costs of going to court. Evidence from three malpractice claims surveys is consistent with the legal standard but departs in ways predicted by the model. Characteristics of the injury, the plaintiff, and the defense influence the outcome.

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