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Dispute Settlement With Second‐Order Uncertainty

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  • Mostafa Beshkar
  • Jee‐Hyeong Park

Abstract

The literature on pretrial dispute settlement has focused on the effect of first‐order uncertainty on bargaining, while assuming common knowledge about higher‐order beliefs. We study the effect of higher‐order uncertainty and show that the existence of such uncertainty improves the efficiency of settlement bargaining by expanding the set of strategies implementable in the equilibrium. We introduce uncertainty about higher‐order beliefs by assuming that one player privately observes an imperfect signal of the other player's type. We show that such signals could improve the efficiency only if they are privately observed: The signal's informational value disappears if it is publicly observable.

Suggested Citation

  • Mostafa Beshkar & Jee‐Hyeong Park, 2021. "Dispute Settlement With Second‐Order Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1433-1452, November.
    • Handle: RePEc:wly:iecrev:v:62:y:2021:i:4:p:1433-1452
    DOI: 10.1111/iere.12519
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    1. Giovanni Maggi & Robert W. Staiger, 2018. "Trade Disputes And Settlement," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(1), pages 19-50, February.
    2. Mostafa Beshkar & Jee‐Hyeong Park, 2021. "Dispute Settlement With Second‐Order Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1433-1452, November.
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    1. Mostafa Beshkar & Jee‐Hyeong Park, 2021. "Dispute Settlement With Second‐Order Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1433-1452, November.

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