A ‘divide and choose’ approach to compromising
AbstractWe study dispute resolution in the compromise model of Börgers and Postl (2009), which provides an alternative framework for analyzing the real-world procedure of tri-offer arbitration studied in Ashenfelter et al. (1992). Two parties involved in a dispute have to choose between their conflicting positions and a compromise settlement proposed by a neutral mediator. We ask how an adaptation of the familiar ‘divide and choose’ mechanism (DCM) performs as a protocol for dispute resolution in the absence of an arbitrator. We show that there is a unique equilibrium of the DCM if the parties’ von Neumann Morgenstern utilities from the compromise settlement are drawn independently from a concave distribution, or from any Beta-distribution (which need not be concave). Furthermore, for Beta-distributions that concentrate increasing probability mass on high von Neumann Morgenstern utilities of the compromise, the social choice rule implied by the DCM is asymptotically ex post Pareto efficient.
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Bibliographic InfoArticle provided by Elsevier in its journal Economics Letters.
Volume (Year): 119 (2013)
Issue (Month): 2 ()
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Web page: http://www.elsevier.com/locate/ecolet
Arbitration; Divide and choose; Collective decision making; Private information;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tilman Börgers & Peter Postl, 2008.
06-11R, Department of Economics, University of Birmingham.
- Orley Ashenfelter & Janet Currie & Henry S. Farber & Matthew Spiegel, 1990.
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NBER Working Papers
3417, National Bureau of Economic Research, Inc.
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- Orley Ashenfelter & Janet Currie & Henry S. Farber & Matthew Spiegel, 1990. "An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems," Working Papers 647, Princeton University, Department of Economics, Industrial Relations Section..
- Ashenfelter, O. & Currie, J. & Farber, H.S., 1990. "An Experimental Comparison Of Dispute Rates In Alternative Arbritation Systems," Working papers 562, Massachusetts Institute of Technology (MIT), Department of Economics.
- de Clippel, Geoffroy & Eliaz, Kfir & Knight, Brian, 2011.
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CEPR Discussion Papers
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- John Morgan, 2004. "Dissolving a partnership (un)fairly," Economic Theory, Springer, vol. 23(4), pages 909-923, May.
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