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Side-Payments and the Costs of Conflict

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  • 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.

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Bibliographic Info

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

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

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

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Citations

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Cited by:
  1. Steven Tucker & Charles Noussair & Roman M. Sheremeta, 2013. "Overbidding And Heterogeneous Behavior In Contest Experiments," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 27(3), pages 491-514, 07.
  2. Erik O. Kimbrough & Roman M. Sheremeta & Timothy W. Shields, 2013. "When Parity Promotes Peace: Resolving Conflict Between Asymmetric Agents," Working Papers, Chapman University, Economic Science Institute 13-33, Chapman University, Economic Science Institute.
  3. Kimbrough, Erik & Sheremeta, Roman, 2014. "Why can’t we be friends? Entitlements and the costs of conflict," MPRA Paper 53253, University Library of Munich, Germany.
  4. Mago, Shakun & Sheremeta, Roman & Yates, Andrew, 2012. "Best-of-Three Contest Experiments: Strategic versus Psychological Momentum," MPRA Paper 43031, University Library of Munich, Germany.
  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, 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, Chapman University, Economic Science Institute 12-16, Chapman University, Economic Science Institute.
  7. Erik O. Kimbrough & Jared Rubin & Roman M. Sheremeta & Timothy Shields, 2013. "Commitment Problems in Conflict Resolution," Working Papers, Chapman University, Economic Science Institute 13-11, Chapman University, Economic Science Institute.
  8. Sheremeta, Roman, 2014. "Behavioral Dimensions of Contests," MPRA Paper 57751, University Library of Munich, Germany.
  9. Smith, Adam C. & Houser, Daniel & Leeson, Peter T. & Ostad, Ramin, 2014. "The costs of conflict," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 97(C), pages 61-71.
  10. Sheremeta, Roman, 2014. "Behavior in Contests," MPRA Paper 57451, University Library of Munich, Germany.

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