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Dispute Settlement with Second-Order Uncertainty: The Case of International Trade Disputes

Mostafa Beshkar () and Jee-Hyeong Park ()
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Mostafa Beshkar: Indiana University
Jee-Hyeong Park: Seoul National University

No 2017-010, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: The literature on pretrial dispute settlement has studied the effect of firstorder uncertainty on pre-trial settlement bargaining while assuming away any uncertainty about higher-order beliefs. We propose a settlement bargaining model in which one player receives a private and noisy signal of another player's private type, thereby generating second-order uncertainty. We find that a private signal improves the efficiency of settlement bargaining. However, if the noisy signal of types is publicly observable, thereby eliminating the second-order uncertainty, the informational value associated with the signal of types completely disappears.

Keywords: Dispute Settlement; Second Order Uncertainty (search for similar items in EconPapers)
JEL-codes: C7 F1 K4 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2017-10
New Economics Papers: this item is included in nep-int, nep-law and nep-mic
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