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A ‘divide and choose’ approach to compromising

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  • Postl, Peter

Abstract

We 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 Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 119 (2013)
Issue (Month): 2 ()
Pages: 204-209

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Handle: RePEc:eee:ecolet:v:119:y:2013:i:2:p:204-209

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Arbitration; Divide and choose; Collective decision making; Private information;

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  1. Tilman Börgers & Peter Postl, 2005. "Efficient Compromising," Levine's Bibliography 122247000000000801, UCLA Department of Economics.
  2. Orley Ashenfelter & Janet Currie & Henry S. Farber & Matthew Spiegel, 1990. "An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems," NBER Working Papers 3417, National Bureau of Economic Research, Inc.
  3. John Morgan, 2004. "Dissolving a partnership (un)fairly," Economic Theory, Springer, vol. 23(4), pages 909-923, May.
  4. Geoffroy de Clippel & Kfir Eliaz & Brian Knight, 2012. "On the Selection of Arbitrators," Working Papers 2012-8, Brown University, Department of Economics.
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