LITIGATION AND PRETRIAL NEGOTIATION UNDER INCOMPLETE INFORMATION

We formulate a pretrial negotiation problem as an infinite-horizon bar gaining model with one-sided uncertainty and alternating offers, with the informed party having an outside option. The plaintiff has private information and also has an outside option of ''going to court,'' The defendant moves first. We show that there exists a unique sequential equilibrium, In equilibrium, when the defendant makes an offer, all th e plaintiffs whose net recovery from litigation is greater (smaller) t han the offer, reject it (accept it) and go to court next period. Henc e, along the equilibrium path, the game lasts at most two periods,