MEDICAL MALPRACTICE - AN EMPIRICAL-EXAMINATION OF THE LITIGATION PROCESS

New data on medical malpractice claims against a single hospital in which a direct measure of the quality of medical care is available are used to investigate the roles of the negligence rule and incomplete information in the dispute settlement process in medical malpractice. We find that the quality of medical care (negligence) is an extremely important determinant of defendants' medical malpractice liability. More generally, we find that the data are consistent with a model in which plaintiffs are poorly informed ex ante about whether there has been negligence, file suit to gather information, and either drop the case if they find that negligence was unlikely or settle for a positive payoff if they find that negligence was likely. We also find that the cases are resolved earlier in the litigation process when the parties are more certain, one way or the other, about the likelihood of negligence.