Estimating a Bargaining Model with Asymmetric Information: Evidence from Medical Malpractice Disputes
AbstractGames with asymmetric information play a prominent role in the theoretical literature of malpractice disputes. The common modeling framework in many papers is a game in extensive form which consists of two stages. In the first stage, one agent makes a settlement demand, and the other agent accepts or rejects the demand. If the demand is accepted, the case is settled out of court. Otherwise the case is taken to court and decided by a jury. This article develops a strategy for estimating such a model and focuses on reconciling the theoretical literature with observed regularities in malpractice data. Estimation of these types of models is complicated by the fact that key variables are (partially) unobserved and must therefore be treated as latent variables. The estimation strategy requires a complete specification of the bargaining model, including distributional assumptions of the latent variables. The parameters of the model are estimated using a simulated method of moments (SMM) estimator. The results of this study suggest that a simple bargaining model with private information can explain many of the qualitative and quantitative regularities observed in the data.
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Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 99-02.
Date of creation: 1999
Date of revision:
Publication status: Published in JOURNAL OF POLITICAL ECONOMY, Vol. 108, 2000, pages 1006-1021
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Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
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Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
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