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Mediation, arbitration and negotiation

Listed author(s):
  • Goltsman, Maria
  • Hörner, Johannes
  • Pavlov, Gregory
  • Squintani, Francesco

We compare three common dispute resolution processes - negotiation, mediation, and arbitration - in the framework of Crawford and Sobel [V. Crawford, J. Sobel, Strategic information transmission, Econometrica 50 (6) (1982) 1431-1451]. Under negotiation, the two parties engage in (possibly arbitrarily long) face-to-face cheap talk. Under mediation, the parties communicate with a neutral third party who makes a non-binding recommendation. Under arbitration, the two parties commit to conform to the third party recommendation. We characterize and compare the optimal mediation and arbitration procedures. Both mediators and arbitrators should optimally filter information, but mediators should also add noise to it. We find that unmediated negotiation performs as well as mediation if and only if the degree of conflict between the parties is low.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 144 (2009)
Issue (Month): 4 (July)
Pages: 1397-1420

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Handle: RePEc:eee:jetheo:v:144:y:2009:i:4:p:1397-1420
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Ricardo Alonso & Niko Matouschek, 2008. "Optimal delegation," LSE Research Online Documents on Economics 58665, London School of Economics and Political Science, LSE Library.
  2. Vijay Krishna & John Morgan, 2005. "Contracting for Information under Imperfect Commitment," Microeconomics 0504006, EconWPA.
  3. Kay Mitusch & Roland Strausz, 2005. "Mediation in Situations of Conflict and Limited Commitment," Journal of Law, Economics and Organization, Oxford University Press, vol. 21(2), pages 467-500, October.
  4. Morgan, John & Stocken, Phillip C, 2003. " An Analysis of Stock Recommendations," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 183-203, Spring.
  5. Dino Gerardi, 2002. "Unmediated Communication in Games with Complete and Incomplete Information," Cowles Foundation Discussion Papers 1371, Cowles Foundation for Research in Economics, Yale University.
  6. Board, Oliver J. & Blume, Andreas & Kawamura, Kohei, 2007. "Noisy talk," Theoretical Economics, Econometric Society, vol. 2(4), December.
  7. Kovác, Eugen & Mylovanov, Tymofiy, 2009. "Stochastic mechanisms in settings without monetary transfers: The regular case," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1373-1395, July.
  8. Myerson, Roger B., 1982. "Optimal coordination mechanisms in generalized principal-agent problems," Journal of Mathematical Economics, Elsevier, vol. 10(1), pages 67-81, June.
  9. Robert J. Aumann & Sergiu Hart, 2003. "Long Cheap Talk," Econometrica, Econometric Society, vol. 71(6), pages 1619-1660, November.
    • Robert J. Aumann & Sergiu Hart, 2002. "Long Cheap Talk," Discussion Paper Series dp284, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem, revised Nov 2002.
  10. Ricardo Alonso & Niko Matouschek, 2008. "Optimal Delegation," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 259-293.
  11. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  12. Nahum D. Melumad & Toshiyuki Shibano, 1991. "Communication in Settings with No. Transfers," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 173-198, Summer.
  13. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
  14. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
  15. Alonso, Ricardo & Matouschek, Niko, 2005. "Relational Delegation," IZA Discussion Papers 1454, Institute for the Study of Labor (IZA).
  16. Ricardo Alonso & Niko Matouschek, 2007. "Relational delegation," LSE Research Online Documents on Economics 58668, London School of Economics and Political Science, LSE Library.
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