1. Suppose that the costs of litigation are $100 for both the defendant and the plaintiff. If the plaintiff wins, she collects $500. The probability of winning is 0.4 (40 percent) and the probability of losing is .6 (60 percent).

a) Compute the threat value for both the defendant and the plaintiff Mon

b) Compute the non-cooperative value of the bargaining game between the defendant and plaintiff.

Suppose settlement costs for each party, plaintiff and defendant, is $5 each.

c. Compute the cooperative value for this situation

d. What is the cooperative surplus in this case?

e. What is the bargaining solution in this case: what is the gain to settlement?