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

Paper:ewp-game/9403009
From:    
Date: 31 Mar 94 16:41 CST

Title: Settlement Negotiations with Two-Sided Asymmetric Information: Model Duality, Information Distribution and Efficiency
Author: Andrew F. Daughety and Jennifer F. Reinganum
Contact: Institution: Economics; Univ. of Iowa; Iowa City, Iowa 52242; USA
EWP-references: none
Report-no: Working paper 92-26 of Economics Series at UI
Comments: Zipped using PKZIP v2.04, encoded using UUENCODE v5.15. Zipped file includes 1 file -- 2sided.941 (body in WP5.1, 22 pages)

Abstract:

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.

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