106 Dispute Settlement with Second-Order Uncertainty
- Mostafa Beshkar, Jee-Hyeong Park
- 106.pdf
Abstract
The literature on pretrial dispute settlement has studied the effect of first- order uncertainty on pre-trial settlement bargaining while assuming common knowledge about higher-order beliefs. We study the effect of uncertainty regarding higher-order beliefs and show that ignorance about higher-order beliefs improves the ef?ciency of settlement bargaining. We introduce uncertainty about higher-order beliefs by assuming that one player receives a private and noisy signal of another player ’s private type. We show that such signals could improve the efficiency of settlement bargaining only if they are privately observed: the informational value associated with the signal com- pletely disappears if it is publicly observable.