Medical malpractice: Claim disposition, settlement size, loss reserve, and pretrial negotiation

The purposes of the present study are (1) to present empirical studies on standard models of medical malpractice litigation and settlement using a data base with many advantages over the ones used in previous studies; (2) to compare some regression models of case reserves for the medical malpractice claims, and to suggest a practically plausible model of case reserves; and (3) to present a theoretical model of pretrial negotiation, and to test the implications of the theoretical model empirically. Most of the empirical findings on the determinants of the claim disposition and settlement size are consistent with previous studies, but there also are some new findings. Empirical findings of the present study do not support some of the major criticisms on the current medical malpractice law of the United States: (1) the court awards are random; and (2) malpractice law has no bearing on the settlement out of court. An interesting issue in empirical studies in medical malpractice has been the selection bias. The present study did not find strong evidence on the existence of selection bias, but found that predicted settlement size is not significantly affected by the existence of selection bias. A sequential bargaining model of pretrial negotiation is developed and empirically tested. The innovation of this model is to incorporate an information learning stage between rounds of negotiation. Because of this innovation, the model can show that the reason for the parties in conflict take costly bargaining process is that they can learn economically beneficial information through the process. The model also shows that the plaintiffs settlement offer is decreasing as negotiation rounds proceeds, the reason why the low type defendants are more likely to go to trial so that the defendants prevail at trial in most cases, etc. The empirical study supports almost all the implications derived from the theory. A notable value of this empirical study is that it is the first empirical study in medical malpractice analyzing data on bargaining process itself