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University of Southern California Law and Economics Working Paper Series

 

All-or-Nothing versus Proportionate Damages

Shmuel Leshem, USC Law School

Abstract

This paper considers the choice between an all-or-nothing rule (AON) and a proportionate damages rule (PD) in civil litigation. Under AON, a prevailing plaintiff receives a judgment equal to his entire damages. Under PD, damages are reduced to reflect uncertainty. For example, if the trier of fact found that there was a seventy-five percent chance that the defendant is liable, the judgment would equal seventy-five percent of the plaintiff's damages. Using a moral hazard model that takes into account defendants' decisions to comply with legal rules, evidentiary uncertainty, and settlement, we show that AON usually maximizes the rate of compliance, although it may result in a higher level of litigation. This, in turn, provides an efficiency rationale for the ubiquity of AON in the legal system.

Subject Area

Civil Law, Law and Economics

Recommended Citation

Shmuel Leshem, "All-or-Nothing versus Proportionate Damages" (April 2009). University of Southern California. University of Southern California Law and Economics Working Paper Series. Working Paper 90.
http://law.bepress.com/usclwps/lewps/art90

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