The Resolution of Medical Malpractice Claims

Modeling the Bargaining Process

by Patricia Munch Danzon, Lee A. Lillard


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This report makes two contributions to the area of legal studies. First, it develops a methodology that permits estimation of a model of the process of dispute resolution, including outcomes in court and in out-of-court settlements. This methodology, including issues of statistical estimation and identification, is carefully detailed. Second, the report applies the model to data on medical malpractice claims. The model of dispute resolution is presented in Sec. II. Section III discusses statistical issues of estimation, parameter identification, and prediction. Section IV describes the malpractice data for 1974 and 1976 and briefly presents parameter estimates. The parameter estimates and their interpretation are discussed in detail in Sec. V. Section VI presents further implications of the estimates for tort reform, accounting for the distribution of dollar payments and the probability of winning in court. Concluding remarks appear in Sec. VII.

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