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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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  1. Steven Shavell, 1981. "Suit and Settlement vs. Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs," NBER Working Papers 0662, National Bureau of Economic Research, Inc.
  2. Gale, Douglas M, 1986. "Bargaining and Competition Part I: Characterization," Econometrica, Econometric Society, vol. 54(4), pages 785-806, July.
  3. Daughety, A. & Reinganum, J., 1991. "Keeping Society in the Dark : On the Admissibility of Pretrial Nogotiations as Evidence in Court," Working Papers 91-24, University of Iowa, Department of Economics.
  4. Vives, Xavier, 1984. "Duopoly information equilibrium: Cournot and bertrand," Journal of Economic Theory, Elsevier, vol. 34(1), pages 71-94, October.
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  7. Admati, Anat R & Perry, Motty, 1987. "Strategic Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 345-64, July.
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  12. I.P.L. P'ng, 1983. "Strategic Behavior in Suit, Settlement, and Trial," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 539-550, Autumn.
  13. Salant, Stephen W., 1984. "Litigation of Settlement Demands Questioned by Bayesian Defendants," Working Papers 516, California Institute of Technology, Division of the Humanities and Social Sciences.
  14. Daughety, A. & Reinganum, J., 1991. "Endogenous Sequencing in Models of Settlement and Litigation," Working Papers 91-23, University of Iowa, Department of Economics.
  15. Binmore, Ken G & Herrero, M J, 1988. "Security Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 33-48, January.
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  24. Rubinstein, Ariel, 1985. "A Bargaining Model with Incomplete Information about Time Preferences," Econometrica, Econometric Society, vol. 53(5), pages 1151-72, September.
  25. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
  26. Binmore, Ken G & Herrero, M J, 1988. "Matching and Bargaining in Dynamic Markets," Review of Economic Studies, Wiley Blackwell, vol. 55(1), pages 17-31, January.
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