Costly Voluntary Disclosure in a Signaling Game

32 Pages Posted: 14 Jul 2016

See all articles by Paul Pecorino

Paul Pecorino

University of Alabama - Department of Economics, Finance and Legal Studies

Mark van Boening

University of Mississippi - Department of Economics

Date Written: July 13, 2016

Abstract

We conduct an experimental analysis of pretrial bargaining, while allowing for the costly disclosure of private information in a signaling game. Under the theory, 100% of plaintiffs with a weak case are predicted to remain silent, while 100% of the plaintiffs with a strong case are predicted to voluntarily disclose their type. In the second half of the experiment, 80% of weak plaintiffs remain silent and 69% of strong plaintiffs reveal their type. In line with theory, weak plaintiffs who reveal their type receive a lower payoff, while strong plaintiffs who reveal their type receive a higher payoff. Plaintiffs with a strong case who reveal their type have a dispute rate which is 50 percentage points lower than strong plaintiffs who remain silent. Because plaintiffs who reveal their type cannot extract the entire surplus from settlement from the defendant, the incentive to engage in voluntary disclosure is weaker empirically, than it is in theory.

Keywords: Experimental Bargaining, Civil Litigation, Asymmetric Information, Costly Disclosure

JEL Classification: K4, D82, C91, C78

Suggested Citation

Pecorino, Paul and van Boening, Mark, Costly Voluntary Disclosure in a Signaling Game (July 13, 2016). Available at SSRN: https://ssrn.com/abstract=2809174 or http://dx.doi.org/10.2139/ssrn.2809174

Paul Pecorino (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States
205-348-0379 (Phone)
205-348-0590 (Fax)

Mark Van Boening

University of Mississippi - Department of Economics ( email )

371 Holman Hall
University, MS 38677
United States

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