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Dispute Settlement with Second-Order Uncertainty: The Case of International Trade Disputes

Author

Listed:
  • Mostafa Beshkar

    (Indiana University)

  • Jee-Hyeong Park

    (Seoul National University)

Abstract

The literature on pretrial dispute settlement has studied the effect of firstorder uncertainty on pre-trial settlement bargaining while assuming away any uncertainty about higher-order beliefs. We propose a settlement bargaining model in which one player receives a private and noisy signal of another player's private type, thereby generating second-order uncertainty. We find that a private signal improves the efficiency of settlement bargaining. However, if the noisy signal of types is publicly observable, thereby eliminating the second-order uncertainty, the informational value associated with the signal of types completely disappears.

Suggested Citation

  • Mostafa Beshkar & Jee-Hyeong Park, 2017. "Dispute Settlement with Second-Order Uncertainty: The Case of International Trade Disputes," CAEPR Working Papers 2017-010, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2017010
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Dispute Settlement; Second Order Uncertainty;

    JEL classification:

    • K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • F1 - International Economics - - Trade

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