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Credible Pretrial Negotiation

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  • Barry Nalebuff

Abstract

Pretrial negotiation is a structured environment in which to study bargaining with incomplete information. When a plaintiff believes that a defendant owes him damages, he may first attempt to reach a private settlement before resorting to a costly court-imposed judgment. A central issue in their negotiations is whether the plaintiff's threat to litigate is credible. It is possible for the plaintiff to undermine the credibility of his litigation threat by making a settlement demand that is insufficient. As a result, the plaintiff must raise his settlement demand to limit the amount of bad news he can learn if his offer is rejected. When this credibility constraint is binding, traditional comparative static results are reversed. In addition, even though the defendant is being sued, he wants the plaintiff's threat to be credible.

Suggested Citation

  • Barry Nalebuff, 1987. "Credible Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 198-210, Summer.
  • Handle: RePEc:rje:randje:v:18:y:1987:i:summer:p:198-210
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    1. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
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