Hush Money

Models of bargaining under incomplete information usually focus on the revelation of information between the participants in the existing negotiation. However, what if one of the participants wants the details (or the existence) of the negotiations to be kept secret? In such circumstances bargaining involves multiple issues: the original object of the bargain and the agreement to keep a secret. A good example of this is pretrial settlement bargaining. We provide a simple incomplete information model wherein an initially uninformed plaintiff makes a menu of settlement demands (one of which involves sealing the settlement) of the informed defendant. Information here is multidimensional in that the defendant is informed both about his culpability in the harm suffered by the current plaintiff as well as the existence of other plaintiffs. It is the possibility that there are other plaintiffs that the defendant might face that improves the current plaintiff's bargaining position, as the likelihood of follow-on suits is dependent upon the visibility of the outcome of the current case. It is for this reason that the defendant may be willing to pay "hush money."