12. Suppose the costs of litigation are $1000 for the defendant and the plaintiff. If the...

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12. Suppose the costs of litigation are $1000 for the defendant and the plaintiff. If the plaintiff wins, she collects $5000. The probability of the Plaintiff winning is .3 (thirty percent) and the probability of the Plaintiff losing is .7 (seventy percent). (100 points). Finally, the loser pays all legal expenses, both his and the other party's legal expenses. (Be Careful Here: this changes the formulation significantly). a) Compute the threat value for both the defendant and the plaintiff. (Remember that the threat value is the expected value of going to trial for each party.). b) Compute the non-cooperative value of the bargaining game between the Defendant and the Plaintiff. Suppose settlement costs for each party, plaintiff and defendant is $500 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? How much does the defendant pay the plaintiff? Show your work. 1 12. Suppose the costs of litigation are $1000 for the defendant and the plaintiff. If the plaintiff wins, she collects $5000. The probability of the Plaintiff winning is .3 (thirty percent) and the probability of the Plaintiff losing is .7 (seventy percent). (100 points). Finally, the loser pays all legal expenses, both his and the other party's legal expenses. (Be Careful Here: this changes the formulation significantly). a) Compute the threat value for both the defendant and the plaintiff. (Remember that the threat value is the expected value of going to trial for each party.). b) Compute the non-cooperative value of the bargaining game between the Defendant and the Plaintiff. Suppose settlement costs for each party, plaintiff and defendant is $500 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? How much does the defendant pay the plaintiff? Show your work. 1