Abstract

We introduce self-serving bias into the Bebchuk [RAND Journal of Economics 15 (1984) 404] model in which trials result from asymmetric information and characterize the equilibrium. An increase in the self-serving bias of a defendant who receives an offer can, under some circumstances, reduce the incidence of trial. More typically, however, we find that an increase in the self-serving bias of either player increases the incidence of trial. An increase in the self-serving bias of a player who receives the offer has ambiguous effects on that player’s welfare. Self-serving bias serves as a commitment mechanism not to accept offers which are too unfavorable, but players with such a bias typically end up in trial more often. For the player making the offer, we find that an increase in self-serving bias unambiguously lowers welfare.

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