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Settlement Offers

Author

Listed:
  • Schumacher, Heiner
  • Karle, Heiko
  • Volund, Rune

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.

Suggested Citation

  • Schumacher, Heiner & Karle, Heiko & Volund, Rune, 2016. "Settlement Offers," VfS Annual Conference 2016 (Augsburg): Demographic Change 145772, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc16:145772
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    References listed on IDEAS

    as
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    11. repec:dgr:umamet:2009030 is not listed on IDEAS
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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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