Settlement Offers

Heiner Schumacher, Heiko Karle and Rune Volund

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: We analyze how early settlement offers affect Nash bargaining outcomes when agents are asymmetrically informed about the distribution of bargaining powers and exhibit expectations-based loss-aversion preferences. Before the start of the bargaining process, the sender has private information about the receiver’s bargaining power. His settlement offers may convey this private information so that they change the receiver’s expectations and, by loss aversion, preferences. We show that the sender can exploit this mechanism by making non-binding settlement offers, i.e., the receiver is free to accept them at any time, even after learning her true bargaining value.

JEL-codes: C78 D03 K12 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-gth, nep-law and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145772

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