The Dynamics of Pretrial Negotiation

Kathryn E. Spier

The Review of Economic Studies, 1992, vol. 59, issue 1, 93-108

Abstract: A model of sequential bargaining with one-sided incomplete information is analyzed where, if an agreement is not reached, the agents go to court. A "deadline effect" emerges where much settlement occurs just prior to the trial, and many cases proceed to court. If fixed costs are incurred during each bargaining period, a "U-shaped" pattern of settlement emerges. These patterns persist in the limit as the time between offers approaches zero. A model with an endogenous trial date is also considered, and it is shown that even with complete information, there exist inefficient equilibria where disputes are resolved in court.

Date: 1992
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