Bargaining with Asymmetric Dispute Costs

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.