Statistics/Empirical Work
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February 01, 2008

New Hyman/Black/Silver/Sage paper on med mal caps

As always, they do interesting empirical work:

Using claim-level data, we simulate the effect of Texas's 2003 cap on non-economic damages on jury verdicts, post-verdict payouts, and settlements in medical malpractice cases closed during 1988-2004. For pro-plaintiff jury verdicts, the cap affects 47% of verdicts, and reduces mean allowed non-economic damages, mean allowed verdict, and mean payout by 73%, 37%, and 26%, respectively. In total, the non-econ cap reduces adjusted verdicts by $156M, but predicted payouts by only $60M. The impact on payouts is smaller because a substantial portion of the above-cap damage awards were not being paid to begin with. In cases settled without trial, the non-econ cap affects 18% of cases; and reduces predicted mean payout for non-economic damages (predicted mean total payout) by 38% (18%). The non-econ cap has a smaller impact on settled cases than tried cases because settled cases tend to involve smaller payouts.

The impact of the non-econ cap varies across plaintiff categories. Deceased, unemployed, and elderly plaintiffs suffer a larger percentage reduction in payouts than living, employed, and non-elderly plaintiffs, these differences are statistically significant for the first two comparisons.

We also simulate the effects of different caps, and find substantial differences in cap stringency across states. Different caps reduce aggregate payouts in tried cases (all cases) by between 16% and 65% (7% and 42%). Caps on total damages have especially large effects.

Available at SSRN.

Posted by Ted Frank at 06:58 AM | TrackBack (0)

January 10, 2008

Obama and Behavioral Economics

Professor Bainbridge writes on the extensive publicity and blogosphere commentary relating to Senator Obama's supposed adoption of behavioral economics in policy-making. Behavioral economics makes claims that human irrationality leads to market failures. While it is questionable that Obama's proposed policies really do account for this new field of economics, it is in any event worth noting Josh Wright's paper asking if there's anything to the behaviorial economics claims in the first place:

Modern legal scholars frequently and increasingly base their analyses on the assumption, grounded largely in the extensive experimental literature, that individuals are subject to a number of systematic behavioral biases. Within the legal literature, behavioral economic analysis has been relied upon to generate a significant number of proposals for paternalistic regulation. These proposals are frequently accompanied by claims that neoclassical economics is insufficiently flexible to deal with these empirical observations, and that behavioral law and economics is as a superior guide for policy analysis. These claims must ultimately be resolved empirically and turn on whether incorporating insights from behavioral economics improves our ability to explain the law, understand the behavior of economic agents, or predict the consequences of legal change. This paper focuses on the shared interest of both neoclassical and behavioral economists in empiricism and explanatory power. It asks whether behavioral economic analysis of law has increased our knowledge in an area of “consumer contracts.” Specifically, the paper surveys the available empirical evidence to assess claims from the behavioral law and economics literature involving exploitation of consumer biases with credit cards, standard form contracts, and shelf space contracts. I find that the empirical studies of firm and consumer behavior in these examples do not support the claims that behavioral law and economics generates greater predictive power than conventional price theory.

Posted by Ted Frank at 12:18 AM | TrackBack (0)

October 26, 2007

Long jury trials

A study in which jurors in long (more than 20 days) and short (1 to 6 days) federal trials (albeit civil rather than criminal) were interviewed found a number of disquieting differences. Jurors in the long trials were substantially more likely to be retired or unemployed and substantially less likely to have a college education. Nearly three-fourths of the jurors in the lengthy trials said the evidence was “difficult” or “very difficult” to understand, compared to 30 percent who reported the same in short trials. Of course the length of the trial might be correlated with the complexity of the evidence, and the latter might be the befuddling force. But this would not adequately explain why twice as many jurors in long than in short trials reported their attention wandering during the presentation of evidence either “occasionally” or “quite a lot,” and why more than twice as many (amounting to almost half of all the jurors who were interviewed) found it difficult or very difficult to understand how they were supposed to reach a verdict. Joe S. Cecil et al., Jury Service in Lengthy Civil Trials 1, 9, 11–13, 28 (tab. 7), 33 (tab. 8) (Fed. Judic. Center 1987).

United States v. Warner (Posner, J., dissenting from the denial of rehearing en banc) (7th Cir. Oct. 25, 2007). Howard Bashman has a linkwrap of the coverage of the decision on the George Ryan case.

Posted by Ted Frank at 11:00 AM | TrackBack (0)

October 18, 2007

Public Citizen, "The Arbitration Trap"

I've got some thoughts at Overlawyered about a Public Citizen report assailing credit card arbitration clauses, the centerpiece of which is a "consumer win rate" number that might, if one were being charitable, be termed extremely misleading.

Posted by Walter Olson at 12:14 AM | TrackBack (0)

July 13, 2007

"Gap Seen Between Court-Appointed Lawyers and Public Defenders"

Some poor people accused of federal crimes are represented by full-time federal public defenders who earn salaries, others by court-appointed lawyers who bill by the hour. ...

... [A] study concludes that lawyers paid by the hour are less qualified and let cases drag on even as they achieve worse results for their clients, including sentences that average eight months longer. Appointed lawyers also cost taxpayers $61 million a year more than salaried public defenders would.

(Adam Liptak, NY Times, Jul. 13).

Posted by Ted Frank at 07:54 PM | TrackBack (0)

June 26, 2007

Overestimates and underestimates of hedonic damages

Cass Sunstein has a paper out suggesting that judges and juries consistently overestimate the value of some losses involving so-called hedonic damages, or those that cover foregone gains or opportunities, as opposed to affirmative distress like long-lasting pain. His observations: people who suffer a traumatic event like the loss of fingers or toes or who become paraplegics are able to recover their former degree of happiness relatively quickly, and do not focus on their loss on a day-to-day basis. On the other hand, Sunstein says, consistent low-level pain may be undervalued in that it has a much greater impact on day-to-day happiness. Naturally, however, he concludes that all this supports a greater government emphasis on social welfare and efforts to improve social well-being. The abstract of his paper is available here, and you can easily obtain a copy of the complete text of the paper by e-mail at the same source.

Posted by David Rossmiller at 07:18 PM | TrackBack (0)

June 15, 2007

"Sarbanes-Oxley and Corporate Risk-Taking"

A paper by Kenneth Lehn and colleagues of the University of Pittsburgh:

Many policymakers and corporate executives have argued that the Sarbanes-Oxley Act of 2002 (“SOX”) has had a chilling effect on the risktaking behavior of U.S. corporations. This paper empirically examines this proposition. Using a large sample of U.S. and U.K. companies, we find that compared with their U.K. counterparts U.S. firms have significantly reduced their R&D and capital expenditures and significantly increased their cash holdings since SOX. We also find that the equity of U.S. companies has become significantly less risky vis-à-vis U.K. companies since SOX. Finally, using a large sample of U.S. and U.K. initial public offerings (“IPOs”), we find that the likelihood that an IPO was conducted in the U.K. increased significantly after SOX and that this effect was especially high for firms in high R&D industries. Taken together, the results support the view that SOX has had a chilling effect on risk-taking by publicly traded U.S. corporations.

The authors will present their paper at AEI on Monday; Charles W. Calomiris (AEI/Columbia), Allen Ferrell (Harvard Law), and Kate Litvak (Texas Law) will comment.

Posted by Ted Frank at 12:50 PM | TrackBack (0)

June 14, 2007

"Relapses Seen As Patients Abandon Treatment in Response to Negative Law Firm Ads"

As Michael noted the AP reported, a study commissioned by the National Council for Community Behavioral Healthcare and Eli Lilly and Company found that "even when patients were responding well to their prescribed antipsychotic treatment, many requested a medication change because these drugs are featured in law firm advertisements. Other patients stopped taking their medication, often without telling their psychiatrist, for the same reason."

“Many of our patients already struggle with accepting their illness and staying on their prescribed treatment, and now they are experiencing new levels of fear due to the increasing incidence of these jarring advertisements,” said Dr. Ralph Aquila, assistant clinical professor of psychiatry, Columbia College of Physicians and Surgeons; director, residential community services, St Luke's-Roosevelt Hospital Center, New York, NY. “This irresponsible advertising is hindering the progress of therapy for many of these patients and disrupting the important relationship between them and their healthcare providers. Plaintiffs attorneys need to consider the consequences that these advertisements may have on patients.”

Twenty-six percent of relapses led to suicide attempts. "Thirty-one percent [of psychiatrists] found patient resistance to starting medication due to concerns generated by law firm advertisements challenging, while 28% are concerned about malpractice risk if they prescribe a drug that’s the focus of product liability litigation."

Posted by Ted Frank at 07:42 AM | TrackBack (0)

June 11, 2007

McQuillan responds to Point of Law

Lawrence McQuillan responds in detail to my earlier post on their response to Richard Posner (who, in turn, was commenting on the PRI study Jackpot Justice).

Posted by Ted Frank at 07:47 PM | TrackBack (0)

June 07, 2007

Defense Costs in Medical Malpractice and Other Personal Injury Cases

The latest Black/Hyman/Silver/Sage paper is available on SSRN. The abstract:

We study litigation costs for personal injury tort claims in Texas over 1988-2004, relying on a detailed source of case-level data on defense legal fees and expenses, and Texas state bar data on lawyers' hourly rates. We study costs in medical malpractice cases in detail, and costs in other types of cases in less detail. Controlling for payouts (which are roughly flat), real defense costs in medical malpractice cases rise an estimated 4.6% per year, roughly doubling over this period; the rate of increase is similar for legal fees and for other expenses. Real hourly rates for personal injury defense counsel are flat, so rising rates cannot explain this increase. Costs correlate strongly with payouts. Medical malpractice insurers predominantly used outside counsel, occasionally used inside counsel, and rarely used both in the same case. Surprisingly, medical malpractice insurers did not react to the sustained rise in defense costs by adjusting their expense reserves, which did not increase either in real dollars or relative to reserves for indemnity payouts, and declined substantially as a percentage of defense costs.

In other types of commercially insured tort litigation (auto, general commercial, multi-peril, and other professional liability), defense costs rose more moderately by an estimated 2.2% per year. Defense costs are predicted by the same factors as in medical malpractice cases. However, insurers in these other lines of coverage responded to increasing defense costs by adjusting their expense reserves.

Rising defense costs imply a decline in the “efficiency” of litigation, at least as measured by transaction costs - with the steepest declines in medical malpractice cases. However, the time needed to resolve claims also declined in medical malpractice, other professional liability, and general commercial cases; on this measure, tort system performance improved.

This paper will be one of three presented at an event on economic research on medical malpractice insurance at AEI the morning of June 29. I'll have a post with more information about that event next week.

Posted by Ted Frank at 01:28 PM | TrackBack (0)