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

Andrew Daughety and Jennifer Reinganum ()

Game Theory and Information from University Library of Munich, Germany

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)
Pages: 22 pages
Date: 1994-03-31
Note: Zipped using PKZIP v2.04, encoded using UUENCODE v5.15. Zipped file includes 1 file -- 2sided.941 (body in WP5.1, 22 pages)
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Journal Article: Settlement negotiations with two-sided asymmetric information: Model duality, information distribution, and efficiency (1994)
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