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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- Ashenfelter, O. & Currie, J. & Farber, H.S. & Spiegel, M., 1990.
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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.
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- John Morgan, 2004. "Dissolving a partnership (un)fairly," Economic Theory, Springer, vol. 23(4), pages 909-923, May.
- Tilman Börgers & Peter Postl, 2005.
122247000000000801, UCLA Department of Economics.
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- Geoffroy de Clippel & Kfir Eliaz & Brian Knight, 2014.
"On the Selection of Arbitrators,"
American Economic Review,
American Economic Association, vol. 104(11), pages 3434-58, November.
- Geoffroy de Clippel & Kfir Eliaz & Brian Knight, 2012. "On the Selection of Arbitrators," Working Papers 2012-8, Brown University, Department of Economics.
- de Clippel, Geoffroy & Eliaz, Kfir & Knight, Brian, 2011. "On the Selection of Arbitrators," CEPR Discussion Papers 8724, C.E.P.R. Discussion Papers.
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