Settlement escrows: an experimental study of a bilateral bargaining game

This paper reports the results of a bargaining experiment. We follow the pre-trial bargaining model of Gertner and Miller (1995) under uncertainty and examine the effect of a litigation institution, called a settlement escrow, and uncertainty on the timing and quality of settlement outcomes. Our findings indicate that settlement rates are significantly higher when a settlement escrow is added to the bargaining process where there is asymmetric information. Quality of outcomes, measured as the percentage of the true damage that the outcome represents, is positively and significantly influenced by the addition of a settlement escrow. [Copyright &y& Elsevier]