Advanced Search
MyIDEAS: Login

Side-Payments and the Costs of Conflict

Contents:

Author Info

  • Erik O. Kimbrough

    ()
    (Department of Economics (AE1), School of Business and Economics, Maastricht University)

  • Roman M. Sheremeta

    (Argyros School of Business and Economics, Chapman University)

Abstract

Conflict and competition often impose costs on both winners and losers, and conflicting parties may prefer to resolve the dispute before it occurs. The equilibrium of a conflict game with side-payments predicts that with binding offers, proposers make and responders accept side-payments, generating settlements that strongly favor proposers. When side-payments are non-binding, proposers offer nothing and conflicts always arise. Laboratory experiments confirm that binding side-payments reduce conflicts. However, 30% of responders reject binding offers, and offers are more egalitarian than predicted. Surprisingly, non-binding side-payments also improve efficiency, although less than binding. With binding side-payments, 87% of efficiency gains come from avoided conflicts. However, with non-binding side-payments, only 39% of gains come from avoided conflicts and 61% from reduced conflict expenditures.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.chapman.edu/ESI/wp/Sheremeta_Side-PaymentsCostsofConflict.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 12-01.

as in new window
Length: 41 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:chu:wpaper:12-01

Contact details of provider:
Postal: One University Drive, Orange, CA 92866
Phone: (714) 628-2830
Fax: (714) 628-2881
Email:
Web page: http://www.chapman.edu/esi/
More information through EDIRC

Related research

Keywords: contests; conflict resolution; side-payments; experiments;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Tor Eriksson & Sabrina Teyssier & Marie-Claire Villeval, 2006. "Self-Selection and the Efficiency of Tournaments," Post-Print halshs-00175041, HAL.
  2. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Sheremeta, Roman & Zhang, Jingjing, 2009. "Can Groups Solve the Problem of Over-Bidding in Contests?," MPRA Paper 49885, University Library of Munich, Germany.
  4. Charness, Gary & Frechette, Guillaume R. & Qin, Cheng-Zhong, 2007. "Endogenous transfers in the Prisoner's Dilemma game: An experimental test of cooperation and coordination," Games and Economic Behavior, Elsevier, vol. 60(2), pages 287-306, August.
  5. Laura Schechter, 2007. "Theft, Gift-Giving, and Trustworthiness: Honesty Is Its Own Reward in Rural Paraguay," American Economic Review, American Economic Association, vol. 97(5), pages 1560-1582, December.
  6. Douglas Davis & Robert Reilly, 1998. "Do too many cooks always spoil the stew? An experimental analysis of rent-seeking and the role of a strategic buyer," Public Choice, Springer, vol. 95(1), pages 89-115, April.
  7. Mary L. Rigdon & Kevin A. McCabe & Vernon L. Smith, 2007. "Sustaining Cooperation in Trust Games," Economic Journal, Royal Economic Society, vol. 117(522), pages 991-1007, 07.
  8. Matthew O. Jackson & Simon Wilkie, 2002. "Endogenous Games and Mechanisms: Side Payments Among Players," Microeconomics 0211008, EconWPA.
  9. Moldovanu, Benny & Sela, Aner, 1999. "The Optimal Allocation of Prizes in Contests," Sonderforschungsbereich 504 Publications 99-75, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  10. Schweizer, Urs, 1989. "Litigation and Settlement under Two-Sided Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 163-77, April.
  11. Baye, Michael R. & Hoppe, Heidrun C., 2003. "The strategic equivalence of rent-seeking, innovation, and patent-race games," Games and Economic Behavior, Elsevier, vol. 44(2), pages 217-226, August.
  12. Murnighan, J. Keith, 2008. "Fairness in Ultimatum Bargaining," Handbook of Experimental Economics Results, Elsevier.
  13. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
  14. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
  15. Jack Hirshleifer, 1995. "Theorizing About Conflict," UCLA Economics Working Papers 727, UCLA Department of Economics.
  16. Linster, Bruce G, 1994. " Cooperative Rent-Seeking," Public Choice, Springer, vol. 81(1-2), pages 23-34, October.
  17. Philippe Jehiel & Benny Moldovanu, 1996. "Strategic Nonparticipation," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 84-98, Spring.
  18. Michelle R. Garfinkel & Stergios Skaperdas, 2006. "Economics of Conflict: An Overview," Working Papers 050623, University of California-Irvine, Department of Economics, revised Sep 2006.
  19. Steven N. Kaplan & Per Str�mberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 281-315.
  20. Guth, Werner & Tietz, Reinhard, 1990. "Ultimatum bargaining behavior : A survey and comparison of experimental results," Journal of Economic Psychology, Elsevier, vol. 11(3), pages 417-449, September.
  21. Lambert Schoonbeek, 2009. "Bribing potential entrants in a rent-seeking contest," Public Choice, Springer, vol. 139(1), pages 153-158, April.
  22. Kahn, Lawrence M. & Murnighan, J. Keith, 2008. "Payoff Uncertainty and Cooperation in Finitely-repeated Prisoner's Dilemma Games," Handbook of Experimental Economics Results, Elsevier.
  23. Garfinkel, M.R. & Skaperdas, S., 2000. "Conflict without Misperceptions or Incomplete Information: how the Future Matters," Papers 99-00-11, California Irvine - School of Social Sciences.
  24. Fudenberg, Drew & Gilbert, Richard & Stiglitz, Joseph & Tirole, Jean, 1983. "Preemption, leapfrogging and competition in patent races," European Economic Review, Elsevier, vol. 22(1), pages 3-31, June.
  25. Klaus Abbink & Bernd Irlenbusch & Elke Renner, 2000. "An Experimental Bribery Game," Econometric Society World Congress 2000 Contributed Papers 1389, Econometric Society.
  26. Joan Esteban & József Sákovics, 2008. "A Theory of Agreements in the Shadow of Conflict: The Genesis of Bargaining Power," Theory and Decision, Springer, vol. 65(3), pages 227-252, November.
  27. O'Keeffe, Mary & Viscusi, W Kip & Zeckhauser, Richard J, 1984. "Economic Contests: Comparative Reward Schemes," Journal of Labor Economics, University of Chicago Press, vol. 2(1), pages 27-56, January.
  28. Schmalensee, Richard, 1987. "Competitive advantage and collusive optima," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 351-367.
  29. Sheremeta, Roman, 2009. "Contest Design: An Experimental Investigation," MPRA Paper 52101, University Library of Munich, Germany.
  30. Susanne Büchner & Andreas Freytag & Luis González & Werner Güth, 2008. "Bribery and public procurement: an experimental study," Public Choice, Springer, vol. 137(1), pages 103-117, October.
  31. Hirshleifer, Jack, 1995. "Theorizing about conflict," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 7, pages 165-189 Elsevier.
  32. Roman M. Sheremeta, 2009. "Expenditures and Information Disclosure in Two- Stage Political Contests," Working Papers 09-10, Chapman University, Economic Science Institute.
  33. Price, Curtis & Sheremeta, Roman, 2011. "Endowment Effects in Contests," MPRA Paper 52103, University Library of Munich, Germany.
  34. Muthoo, Abhinay, 2004. "A model of the origins of basic property rights," Games and Economic Behavior, Elsevier, vol. 49(2), pages 288-312, November.
  35. Stergios Skaperdas, 2006. "Bargaining Versus Fighting," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(6), pages 657-676.
  36. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
  37. Robert Porter, 2005. "Detecting Collusion," Review of Industrial Organization, Springer, vol. 26(2), pages 147-167, December.
  38. Damiano Silipo, 2005. "The Evolution of Cooperation in Patent Races:Theory and Experimental Evidence," Journal of Economics, Springer, vol. 85(1), pages 1-38, 07.
  39. Steven N. Kaplan & Per Stromberg, 2000. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," NBER Working Papers 7660, National Bureau of Economic Research, Inc.
  40. Anbarci, N. & Skaperdas, S. & Syropoulos, C., 2000. "Comparing Bargaining Solutions in the Shadow of Conflict: How Norms Against Threats Can Have Real Effects," Papers 00-01-19, California Irvine - School of Social Sciences.
  41. Abbink, Klaus, 2004. "Staff rotation as an anti-corruption policy: an experimental study," European Journal of Political Economy, Elsevier, vol. 20(4), pages 887-906, November.
  42. Jinkwon Lee, 2007. "Repetition And Financial Incentives In Economics Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 21(3), pages 628-681, 07.
  43. Konrad, Kai A., 2009. "Strategy and Dynamics in Contests," OUP Catalogue, Oxford University Press, number 9780199549603, Octomber.
  44. Sheremeta, Roman M., 2010. "Experimental comparison of multi-stage and one-stage contests," Games and Economic Behavior, Elsevier, vol. 68(2), pages 731-747, March.
  45. Potters, Jan & de Vries, Casper G. & van Winden, Frans, 1998. "An experimental examination of rational rent-seeking," European Journal of Political Economy, Elsevier, vol. 14(4), pages 783-800, November.
  46. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
  47. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer, vol. 7(2), pages 283-290.
  48. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-26, June.
  49. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  50. Roman M. Sheremeta, 2010. "Expenditures and Information Disclosure in Two-Stage Political Contests," Journal of Conflict Resolution, Peace Science Society (International), vol. 54(5), pages 771-798, October.
  51. Lin, Ping, 1996. "Fixed-Fee Licensing of Innovations and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 443-49, December.
  52. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 93-108, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kimbrough, Erik & Sheremeta, Roman & Shields, Timothy, 2013. "When Parity Promotes Peace: Resolving Conflict Between Asymmetric Agents," MPRA Paper 52922, University Library of Munich, Germany.
  2. Smith, Adam C. & Houser, Daniel & Leeson, Peter T. & Ostad, Ramin, 2014. "The costs of conflict," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 61-71.
  3. Mago, Shakun D. & Sheremeta, Roman M. & Yates, Andrew, 2013. "Best-of-three contest experiments: Strategic versus psychological momentum," International Journal of Industrial Organization, Elsevier, vol. 31(3), pages 287-296.
  4. Steven Tucker & Charles Noussair & Roman M. Sheremeta, 2013. "Overbidding And Heterogeneous Behavior In Contest Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 491-514, 07.
  5. Lacomba, Juan A. & Lagos, Francisco & Reuben, Ernesto & van Winden, Frans, 2014. "On the escalation and de-escalation of conflict," Games and Economic Behavior, Elsevier, vol. 86(C), pages 40-57.
  6. Erik O. Kimbrough & Roman M. Sheremeta, 2012. "Why Can’t We Be Friends? Entitlements, bargaining, and conflict," Working Papers 12-16, Chapman University, Economic Science Institute.
  7. Erik O Kimbrough & Roman M Sheremeta, 2014. "Why can’t we be friends? Entitlements and the costs of conflict," Working Papers 14-01, Chapman University, Economic Science Institute.
  8. Erik O. Kimbrough & Jared Rubin & Roman M. Sheremeta & Timothy Shields, 2013. "Commitment Problems in Conflict Resolution," Working Papers 13-11, Chapman University, Economic Science Institute.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:chu:wpaper:12-01. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Megan Luetje).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.