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Accident avoidance and settlement bargaining: The role of reciprocity

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  • Friehe, Tim
  • Pham, Cat Lam

Abstract

This paper explores how reciprocity concerns of potential accident victims influence potential injurers’ precautions before an accident and victims’ settlement behavior after an accident. In our framework, a strictly liable injurer privately informed about the probability of losing in trial chooses either high or low care and, in the event of an accident, the victim demands a settlement amount from the injurer. We find that victims’ intention-based reciprocity concerns tend to increase both the level of precautions and the likelihood of trial and that the impact of reciprocity concerns on equilibrium outcomes depends on the legal cost allocation rule.

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  • Friehe, Tim & Pham, Cat Lam, 2021. "Accident avoidance and settlement bargaining: The role of reciprocity," International Review of Law and Economics, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:irlaec:v:68:y:2021:i:c:s0144818821000557
    DOI: 10.1016/j.irle.2021.106031
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    More about this item

    Keywords

    Settlement; Care; Reciprocity; Fairness;
    All these keywords.

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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