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

Andrew F Daughety () and Jennifer Reinganum ()

Game Theory and Information from EconWPA

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.

JEL-codes: C7 D8 (search for similar items in EconPapers)
Date: Written
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Related works:
Journal Article: Settlement negotiations with two-sided asymmetric information: Model duality, information distribution, and efficiency (1994)
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