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Multi-Offer Litigation: An Empirical Analysis of Alternative Mechanisms

This experiment analyzes multi-offer versions of the single-offer signaling and screening litigation games, as well as a bilateral multi-offer game. A plaintiff has either a low or a high claim on an uninformed defendant, and the two negotiate in an attempt to reach a pre-trial settlement. Trial is costly, and settlement generates surplus over which the two parties can bargain. In previous experiments, excess disputes occur even though offers contain surplus not predicted under the theory, and fairness appears to be important in explaining deviations from theory. This experiment examines whether renegotiation in the form of successive sequential offers can yield efficiency gains. There are four main findings. One, under the multi-offer structure the excess dispute rate is 23 percentage points lower in the screening game and the high-offer dispute rate is 31 percentage points lower in signaling game. The bilateral game yields an additional 15 percentage point reduction in the high-offer dispute rate, but excess disputes persist. Two, players take advantage of the multi-offer opportunity and make around 3 to 4 offers per negotiation. Three, across games the surplus in a fair offer remains constant at about onesixth of the surplus, but the benchmark from which this is measured varies according to which player has the power to make the offer. Fourth, dynamic behavior in the multi-offer games play an important but complex role in observed outcomes. Multi-offer mechanisms may be alternatives to costly information transmission like disclosure or discovery.