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Bargaining with Asymmetric Dispute Costs

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  • Pecorino Paul

    (Department of Economics, Finance and Legal Studies, University of Alabama, Tuscaloosa, AL 35487, USA)

  • Van Boening Mark

    (Department of Economics, University of Mississippi, Holman Hall 373, University, MS 38677, USA)

Abstract

We conduct a bargaining experiment in a stylized litigation setting. In the baseline, dispute costs are divided equally between the two parties. There are two treatments with an asymmetric distribution of dispute costs. The design allows us to gain insight into how a fair offer evolves with the distribution of dispute costs. The amount of surplus in the average offer depends on the total amount of surplus available and not on the distribution of dispute costs. About 28% of the total surplus is contained in the average offer, regardless of the distribution of dispute costs. Based on the empirical rejection frequencies, we calculate that the optimal offer contains 13% of the total surplus from settlement. We also find evidence that disputes are more likely when dispute costs are asymmetrically distributed. This suggests that the experimental subjects have more difficulty coordinating on a fair offer when dispute costs are not symmetric.

Suggested Citation

  • Pecorino Paul & Van Boening Mark, 2014. "Bargaining with Asymmetric Dispute Costs," Review of Law & Economics, De Gruyter, vol. 10(1), pages 1-28, March.
    • Handle: RePEc:bpj:rlecon:v:10:y:2014:i:1:p:28:n:5
    DOI: 10.1515/rle-2013-0030
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    References listed on IDEAS

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    Cited by:

    1. Pecorino, Paul & Van Boening, Mark, 2015. "Costly voluntary disclosure in a screening game," International Review of Law and Economics, Elsevier, vol. 44(C), pages 16-28.
    2. Pecorino Paul & Van Boening Mark, 2019. "Costly Voluntary Disclosure in a Signaling Game," Review of Law & Economics, De Gruyter, vol. 15(2), pages 1-32, July.

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