Pretrial Bargaining in the Face of a Random Court Decision: Evidence from Laboratory Games

If negotiation over ownership of an asset is unsuccessful, agents go to court to determine possession. Experiments examine how the presence of a stochastic court decision affects pretrial bargaining behavior. Two players have private information over the value of an asset, owned by one player. If there is no acceptable trade price, a random court decision assigns ownership. The impact of a second stage court decision on bargaining outcomes and the efficiency of trades is measured. Courts reduce the total earnings of players and the frequency of efficient trades. Relative earnings and bargaining behavior depend on which agent proposes the trade price.