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Ideal Default For Resolving Disputes Efficiently

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  • Nejat Anbarci
  • Gorkem Celik

Abstract

We study arbitration mechanisms where two parties to the dispute have single‐peaked preferences over outcomes, represented by concave utility functions. The most preferred outcome of each party is her private information. By participating in an arbitration mechanism, the parties forfeit the default outcome, which is set without consideration of private preferences. We show that the ideal default outcome for efficient dispute resolution maximizes the sum of the reservation payoffs of the most difficult agent types to persuade to participate in the mechanism. This result is contrary to the conventional wisdom that an unattractive default could force the parties to agree.

Suggested Citation

  • Nejat Anbarci & Gorkem Celik, 2025. "Ideal Default For Resolving Disputes Efficiently," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(1), pages 201-221, February.
    • Handle: RePEc:wly:iecrev:v:66:y:2025:i:1:p:201-221
    DOI: 10.1111/iere.12737
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