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Lawyers as Agents of the Devil in a Prisoner's Dilemma Game: Evidence from Long Run Play

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  • Orley C. Ashenfelter
  • David E. Bloom
  • Gordon B. Dahl

Abstract

Do the parties in a typical dispute face incentives similar to those in the classic prisoner's dilemma game? In this paper, we explore whether the costs and benefits of legal representation are such that each party seeks legal representation in the hope of exploiting the other party, while knowing full well that failing to do so will open up the possibility of being exploited. The paper first shows how it is possible to test for the presence of such an incentive structure in a typical dispute resolution system. It then reports estimates of the incentives for the parties to obtain legal representation in wage disputes that were settled by final-offer arbitration in New Jersey. The paper also reports briefly on similar studies of data from discharge grievances, court-annexed disputes in Pittsburgh, and child custody disputes in California. In each case, the data provide evidence that the parties face strong individual incentives to obtain legal representation which makes the parties jointly worse off. Using our New Jersey data, we find that expert agents may well have played a productive role in moderating the biases of their clients, but only early on in the history of the system. Over time, the parties slowly evolved to a non-cooperative equilibrium where the use of lawyers becomes nearly universal, despite the fact that agreeing not to hire lawyers is cheaper and does not appear to alter arbitration outcomes.

Suggested Citation

  • Orley C. Ashenfelter & David E. Bloom & Gordon B. Dahl, 2013. "Lawyers as Agents of the Devil in a Prisoner's Dilemma Game: Evidence from Long Run Play," NBER Working Papers 18834, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18834
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    References listed on IDEAS

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    1. Richard N. Block & Jack Stieber, 1987. "The Impact of Attorneys and Arbitrators on Arbitration Awards," ILR Review, Cornell University, ILR School, vol. 40(4), pages 543-555, July.
    2. Farber, Henry S & Bazerman, Max H, 1986. "The General Basis of Arbitrator Behavior: An Empirical Analysis of Conventional and Final-Offer Arbitration," Econometrica, Econometric Society, vol. 54(4), pages 819-844, July.
    3. Orley Ashenfelter & Gordon B. Dahl, 2012. "Bargaining and the Role of Expert Agents: An Empirical Study of Final-Offer Arbitration," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 116-132, February.
    4. Ashenfelter, Orley, et al, 1992. "An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems," Econometrica, Econometric Society, vol. 60(6), pages 1407-1433, November.
    5. Dana, James D, Jr & Spier, Kathryn E, 1993. "Expertise and Contingent Fees: The Role of Asymmetric Information in Attorney Compensation," Journal of Law, Economics, and Organization, Oxford University Press, vol. 9(2), pages 349-367, October.
    6. Bloom, David E, 1986. "Empirical Models of Arbitrator Behavior under Conventional Arbitration," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 578-585, November.
    7. Spier, Kathryn E, 1994. "Settlement Bargaining and the Design of Damage Awards," Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(1), pages 84-95, April.
    8. Henry S. Farber, 1980. "An Analysis of Final-Offer Arbitration," Journal of Conflict Resolution, Peace Science Society (International), vol. 24(4), pages 683-705, December.
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    12. Alexander Kritikos, 2006. "The Impact of Compulsory Arbitration on Bargaining Behavior: An Experimental Study," Economics of Governance, Springer, vol. 7(3), pages 293-315, August.
    13. I.P.L. P'ng, 1983. "Strategic Behavior in Suit, Settlement, and Trial," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 539-550, Autumn.
    14. Katz, Avery, 1988. "Judicial decisionmaking and litigation expenditure," International Review of Law and Economics, Elsevier, vol. 8(2), pages 127-143, December.
    15. Farber, Henry S & Bazerman, Max H, 1986. "The General Basis of Arbitrator Behavior: An Empirical Analysis of Conventional and Final-Offer Arbitration," Econometrica, Econometric Society, vol. 54(6), pages 1503-1528, November.
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    Cited by:

    1. Marselli, Riccardo & McCannon, Bryan C. & Vannini, Marco, 2015. "Bargaining in the shadow of arbitration," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 356-368.
    2. Juranek, Steffen, 2015. "Investing in legal advice - What determines the costs of enforcing intellectual property rights?," Discussion Papers 2015/20, Norwegian School of Economics, Department of Business and Management Science.

    More about this item

    JEL classification:

    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • K0 - Law and Economics - - General

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