A ‘divide and choose’ approach to compromising
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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- Geoffroy de Clippel & Kfir Eliaz & Brian Knight, 2014.
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- Börgers, Tilman & Postl, Peter, 2009. "Efficient compromising," Journal of Economic Theory, Elsevier, vol. 144(5), pages 2057-2076, September.
- Tilman Börgers & Peter Postl, 2005. "Efficient Compromising," Levine's Bibliography 784828000000000188, UCLA Department of Economics.
- Tilman Börgers & Peter Postl, 2005. "Efficient Compromising," Levine's Bibliography 122247000000000801, UCLA Department of Economics.
- Tilman Börgers & Peter Postl, 2008. "Efficient Compromising," Discussion Papers 06-11R, Department of Economics, University of Birmingham.
- John Morgan, 2004. "Dissolving a partnership (un)fairly," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(4), pages 909-923, May.
- Brams, Steven J. & Kilgour, D. Marc & Merrill, Samuel III, 1991. "Arbitration Procedures," Working Papers 91-38, C.V. Starr Center for Applied Economics, New York University. Full references (including those not matched with items on IDEAS)
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