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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- Tilman Börgers & Peter Postl, 2005.
784828000000000188, UCLA Department of Economics.
- Ashenfelter, Orley, et al, 1992.
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- Ashenfelter, O. & Currie, J. & Farber, H.S., 1990. "An Experimental Comparison Of Dispute Rates In Alternative Arbritation Systems," Working papers 562, Massachusetts Institute of Technology (MIT), Department of Economics.
- 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.
- de Clippel, Geoffroy & Eliaz, Kfir & Knight, Brian, 2011.
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- 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.
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