Reply to “The Effects of ‘Early Offers’ in Medical Malpractice Cases: Evidence from Texas” Joni Hersch, Jeffrey O’Connell, and W. Kip Viscusi* This article is a reply to the critique by Black, Hyman, and Silver (BHS) of our 2007 Journal of Legal Studies article, “An Empirical Assessment of Early Offer Reform for Medical Malprac- tice.” The early offer reform gives insurers the option of making an early offer that will expedite payment of claimants’ economic losses and reasonable attorney fees. Using data on closed medical malpractice claims from the Texas Department of Insurance (TDI), our 2007 article estimates the financial impact of this proposal by comparing the expected payments to claimants under the early offer reform to the payments tinder current tort rules. A central component of our calculation of expected payments is unique information on insurers’ reserves associated with the claim; actual payments are reported in the TDI data for all litigated and settled cases involving payments of at least $10,000. The BHS article misrep- resents fundamental aspects of our empirical analysis, including the following. BHS set out to correct our purported “false assumption” that all claims have a 1.0 probability of success, which is a problem that arises because BHS omit the probability of claimant success from the formula that is presented in our paper. BHS’s error is compounded as their discussion of our paper fails to recognize that our use of reserve amounts in the analysis incorporates the insurers’ estimates of the likelihood of claimant success, Indeed, they neither acknowledge our use of the insurer reserve data, nor do they use the insurer reserve information in their paper. BHS claim incorrectly that our analysis does not discount deferred payments whereas in fact it does. Our early offer analysis uses data for both litigated and settled claims, avoiding the selection bias and measurement error problems associated with BHS’s extrapolation from the 2 percent of paid claims that are litigated to the universe of all settled and litigated claims. The BHS article also reflects a misunderstanding of the operation of the early offer reform. I. The Early Offer Reform Proposal The paper “An Empirical Assessment of Early Offer Reform for Medical Malpractice” by Hersch, O’Connell, and Viscusi (hereafter, HOV) develops a theoretical framework for estimating the financial implications of an “early offer” mechanism for resolving medical malpractice claims and presents empirical evidence using data on closed individual medical malpractice claims reported to the Texas Department of Insurance (TDI) in the time *Address correspondence to Joni Hersch; email: joni.hersch@vanderbilt.edu. Hersch is Professor of Law and Eco- nomics, Vanderbilt Law School; O’Connell is Samuel H. McCoy II Professor of Law, University of Virginia Law School; Viscusi is University Distinguished Professor of Law, Economics, and Management, Vanderbilt University. Journal of Empirical Legal Studies Volume 7, Issue 1, 164–173, March 2010 164