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Strategic announcements of reference points in disputes and litigations

Listed author(s):
  • Andrea Gallice

We show how the common occurrence of seeing exceedingly high claims in disputes and litigations about how to share a limited resource can be rationalized by a model in which claimants display reference dependent preferences, expect the judge to use a generalized social welfare function, and strategically announce their reference points. The scope of the model is wide as the resource over which the dispute arises can be positive or negative, exogenously given or endogenously determined. Moreover, the social welfare specification is consistent with a number of different liability rules.

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File URL: http://www.carloalberto.org/assets/working-papers/no.279.pdf
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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 279.

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Length: 18 pages
Date of creation: 2012
Handle: RePEc:cca:wpaper:279
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  1. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1133-1165.
  2. Johannes Abeler & Armin Falk & Lorenz Goette & David Huffman, 2011. "Reference Points and Effort Provision," American Economic Review, American Economic Association, vol. 101(2), pages 470-492, April.
  3. Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-126, Winter.
  4. Shefrin, Hersh & Statman, Meir, 1985. " The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-790, July.
  5. David S. Loughran, 2005. "Deterring Fraud: The Role of General Damage Awards in Automobile Insurance Settlements," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(4), pages 551-575.
  6. Andrea Gallice, 2009. "Self-serving biased reference points," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0909, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
  7. Thomson, William, 2003. "Axiomatic and game-theoretic analysis of bankruptcy and taxation problems: a survey," Mathematical Social Sciences, Elsevier, vol. 45(3), pages 249-297, July.
  8. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
  9. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
  10. Munro, Alistair & Sugden, Robert, 2003. "On the theory of reference-dependent preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 50(4), pages 407-428, April.
  11. Smith, Ian, 2007. "Property division on divorce with inequity aversion," International Review of Law and Economics, Elsevier, vol. 27(2), pages 111-128.
  12. Babcock, Linda, et al, 1995. "Biased Judgments of Fairness in Bargaining," American Economic Review, American Economic Association, vol. 85(5), pages 1337-1343, December.
  13. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-631, July.
  14. Farmer, Amy & Pecorino, Paul & Stango, Victor, 2004. "The Causes of Bargaining Failure: Evidence from Major League Baseball," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 543-568, October.
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