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Game Theory and Gonsalves: A Recommendation for Reforming Stockholder Appraisal Actions

Christian J. Henrich
The Business Lawyer
Vol. 56, No. 2 (February 2001), pp. 697-735
Published by: American Bar Association
Stable URL: http://www.jstor.org/stable/40687992
Page Count: 39
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Game Theory and Gonsalves: A Recommendation for Reforming Stockholder Appraisal Actions
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Abstract

Statutory appraisal remedies have received much criticism from the courts, legal commentators, and parties to such actions. One of the principal weaknesses of present appraisal procedures is that they incentivize the litigants to present highly contradictory arguments and evidence to the court. This makes an already difficult task, appraising shares of stock, even more challenging. The Article recommends instituting a Final-offer Arbitration (FOA) procedure as a means of motivating the parties in an appraisal action to present more reasonable arguments and analyses to the court. In FOA, the litigants submit a final, binding offer as to the shares' value. The Court must choose one party's offer, without modification. The Article uses game theory to demonstrate (i) how FOA works, (ii) why FOA is likely to improve the efficiency and accuracy of the statutory appraisal process, and (iii) the likely impact of implementing such a procedure on key constituencies.

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