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It has been often argued in industrial relations and law and economics literature that enlarging the contract zone, by increasing the costs of disagreement, helps to reduce the bargaining impasse improving the bargaining result. For example, when the costs of disagreement rise, such as the costs of a trial, this will make a pre-trial settlement more attractive for disputing parties in a civil lawsuit. But the paper shows that this is not necessarily true, that the increase in the costs of disagreement may have a perverse effect of increasing the probability that the bargaining ends in disagreements.

The Analysis of Changes in the Contract Zone on Pre-Trial Bargaining Outcome under Incomplete Information