We study dominant strategy implementation in the compromise setting of Borgers and Postl (2006), in which two agents have to choose one of three mutually exclusive alternatives. The agents' ordinal rankings of these three alternatives are commonly known among them, and they are diametrically opposed to each other. We study the problem of an arbitrator who has to decide whether to implement one of the agents' favourite alternatives, or whether to choose the compromise, by which we mean the alternative that they both rank second. For the class of binary decision rules, i.e. decision rules for which the probability of implementing the compromise is either 0 or 1, we characterize all decision rules that are implementable in dominant strategies. We also discuss some welfare properties of dominant strategy implementable decision rules.
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Paper provided by Department of Economics, University of Birmingham in its series Discussion Papers with number
06-05.
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Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information