Biased Judgments of Fairness in Bargaining

Abstract

When court trials (or arbitration) are the mechanisms for resolving bargaining impasses, the costs and risks associated with third-party intervention should motivate settlement (Henry Farber and Harry Katz, 1979). However, empirical evidence suggests that impasses and inefficient settlements are common in the legal system and in contract negotiations. For example, one study of asbestos suits found that only 37 cents of every dollar spent by both sides end up in the plaintiffs' hands (James Kakalik et al., 1983).

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