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Settlement Negotiations with Two-Sided Asymmetric Information: Model Duality, Information Distribution and Efficiency

Author

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  • Andrew F. Daughety

    (Economics)

  • Jennifer F. Reinganum

    (Univ. of Iowa)

Abstract

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.

Suggested Citation

  • Andrew F. Daughety & Jennifer F. Reinganum, 1994. "Settlement Negotiations with Two-Sided Asymmetric Information: Model Duality, Information Distribution and Efficiency," Game Theory and Information 9403009, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpga:9403009
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    References listed on IDEAS

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    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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