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Settlement Negotiations with Two-Sided Asymmetric Information: Model Duality, Information Distribution and Efficiency

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  • Andrew F. Daughety

    (Economics)

  • Jennifer F. Reinganum

    (Univ. of Iowa)

Abstract

We analyze a settlement and litigation game in which both parties possess private information relevant to the value of a claim. The plaintiff knows the level of damages, while the defendant knows the probability he will be held liable for those damages. We consider two alternatives: (1) the plaintiff proposes a settlement, which the defendant accepts or rejects; and (2) the defendant proposes a settlement, which the plaintiff accepts or rejects. Despite the extensive symmetry of the model, these alternatives will generally result in different equilibrium expected frequencies of trial, and therefore different social efficiencies.

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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 9403009.

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Length: 22 pages
Date of creation: 31 Mar 1994
Date of revision:
Handle: RePEc:wpa:wuwpga:9403009

Note: Zipped using PKZIP v2.04, encoded using UUENCODE v5.15. Zipped file includes 1 file -- 2sided.941 (body in WP5.1, 22 pages)
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