Dispute Settlement with Second-Order Uncertainty

Mostafa Beshkar and Jee-Hyeong Park ()

Working Paper Series from Institute of Economic Research, Seoul National University

Abstract: The literature on pretrial dispute settlement has studied the effect of first- order uncertainty on pre-trial settlement bargaining while assuming common knowledge about higher-order beliefs. We study the effect of uncertainty regarding higher-order beliefs and show that ignorance about higher-order beliefs improves the ef?ciency of settlement bargaining. We introduce uncertainty about higher-order beliefs by assuming that one player receives a private and noisy signal of another player ¡¯s private type. We show that such signals could improve the efficiency of settlement bargaining only if they are privately observed: the informational value associated with the signal com- pletely disappears if it is publicly observable.

Date: 2019-06
New Economics Papers: this item is included in nep-law and nep-mic
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