Bargaining with Asymmetric Dispute Costs

University of Alabama, Economics, Finance and Legal Studies Working Paper No. 06-07-01

CELS 2009 4th Annual Conference on Empirical Legal Studies Paper

36 Pages Posted: 8 Aug 2006 Last revised: 6 Jul 2013

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 1, 2013

Abstract

We conduct a bargaining experiment where the dispute resolution mechanism can be interpreted as a civil trial or conventional arbitration. The game involves a take-it-or-leave-it bargaining structure, and therefore contains an embedded ultimatum game. The sum of the dispute costs is constant, and in the baseline these costs are symmetric. A within-session treatment introduces an asymmetric distribution of dispute costs. We find that offers are roughly half way between the offer predicted by a model of narrow rationality and an offer which equally splits the surplus resulting from settlement. Based on the empirical rejection behavior, the optimal offer contains approximately 1/6 of the joint surplus from settlement. There is some evidence of higher dispute rates when the cost of a dispute are asymmetrically distributed.

Keywords: experimental bargaining, civil litigation, arbitration, fairness

JEL Classification: K41, D82, C91

Suggested Citation

Pecorino, Paul and van Boening, Mark, Bargaining with Asymmetric Dispute Costs (July 1, 2013). University of Alabama, Economics, Finance and Legal Studies Working Paper No. 06-07-01, CELS 2009 4th Annual Conference on Empirical Legal Studies Paper, Available at SSRN: https://ssrn.com/abstract=922063 or http://dx.doi.org/10.2139/ssrn.922063

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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