THE INCENTIVE EFFECTS OF SETTLEMENTS UNDER JOINT AND SEVERAL LIABILITY

Several recent articles have examined the effects of joint and several liability on settlement.(1) But these settlement effects also have a significant impact on primary behavior.(2) This paper will examine the se effects under the most frequently analyzed paradigm of joint and se veral liability, in which plaintiff's probabilities of success against the defendants are perfectly correlated and any settlements are appli ed to future awards under a pro tanto set-off rule (i.e., the award is reduced by the amount of the settlement). Section I will present the basic model of settlement under joint and several liability. Section I I will draw the implications of settlement on primary behavior. As oth ers have noted, the settlement effects of joint and several liability increase the expected recovery to the plaintiff and the expected damag es payable by defendants.(3) However, this does not mean that they inc rease defendants' incentives to take care ex ante. Rather, as I will s how, the settlement effects of joint and several liability can either increase or decrease incentives to exercise care, depending on the nat ure of the uncertainty regarding defendants' liability and on the leve l of care that would prevail otherwise. (C) 1996 by Elsevier Science I nc.