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Settlement negotiations with two-sided asymmetric information: Model duality, information distribution, and efficiency

  • Daughety, Andrew F.
  • Reinganum, Jennifer F.

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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Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 14 (1994)
Issue (Month): 3 (September)
Pages: 283-298

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Handle: RePEc:eee:irlaec:v:14:y:1994:i:3:p:283-298
Contact details of provider: Web page: http://www.elsevier.com/locate/irle

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  13. Daughety, A. & Reinganum, J., 1991. "Endogenous Sequencing in Models of Settlement and Litigation," Working Papers 91-23, University of Iowa, Department of Economics.
  14. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter.
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