Litigation with Symmetric Bargaining and Two-Sided Incomplete Information

41 Pages Posted: 13 Aug 2003

See all articles by Daniel Friedman

Daniel Friedman

University of California, Santa Cruz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Donald Wittman

University of California, Santa Cruz - Department of Economics

Date Written: July 2003

Abstract

We construct game theoretic foundations for bargaining in the shadow of a trial. Plaintiff and defendant both have noisy signals of a common-value trial judgment and make simultaneous offers to settle. If the offers cross, they settle on the average offer; otherwise, both litigants incur an additional cost and the judgment is imposed at trial. We obtain an essentially unique NE and characterize its conditional trial probabilities and judgments. Some of the results are intuitive, e.g., an increase in trial cost (or a decrease in the range of possible outcomes) reduces the probability of a trial. Other results reverse findings from previous literature. For example, trials are possible even when the defendant's signal indicates a higher potential judgment than the plaintiff's signal, and when trial costs are low, the middling cases (rather than the extreme cases) are more likely to settle.

JEL Classification: K41, C78, D82

Suggested Citation

Friedman, Daniel and Wittman, Donald, Litigation with Symmetric Bargaining and Two-Sided Incomplete Information (July 2003). Available at SSRN: https://ssrn.com/abstract=432909 or http://dx.doi.org/10.2139/ssrn.432909

Daniel Friedman (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Social Sciences I
Santa Cruz, CA 95064
United States
831-459-4981 (Phone)
831-459-5900 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Donald Wittman

University of California, Santa Cruz - Department of Economics ( email )

217, Social Sciences 1 1156 High St.
Santa Cruz, CA 95064
United States
831-459-4445 (Phone)
831-459-5900 (Fax)

HOME PAGE: http://www2.ucsc.edu/people/wittman/index.html

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