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Mediation, Walrasian Tatonement, and Negotiations as an Exchange Economy


  • David Dickinson


Alternative dispute resolution (ADR) procedures, such as mediation and arbitration, are becoming increasingly used to help resolve disputes in a variety of arenas. Among ADR procedures, mediation is the most utilized yet least analyzed procedure. This article examines negotiations and dispute resolution using the tools of general equilibrium theory. Specifically, mediators function as the Walrasian auctioneers of exchange theory by altering trade-off rates among bargaining issues. In this way, mediators facilitate a process leading towards voluntary settlement. This idea of Walrasian mediation is supported by the literature on mediation and mediator techniques, and so this insight opens up mediation to much more rigorous economic analysis. Among the implications of this approach are: 1) successful mediation leads to Pareto efficient settlements; 2) non-neutral mediators—those with a stake in the outcome—can guide negotiators towards preferred outcomes by introducing resources into mediation; 3) mediation Pareto dominates arbitration for resolving disputes.

Suggested Citation

  • David Dickinson, 2005. "Mediation, Walrasian Tatonement, and Negotiations as an Exchange Economy," Working Papers 05-05, Department of Economics, Appalachian State University.
  • Handle: RePEc:apl:wpaper:05-05

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    References listed on IDEAS

    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. repec:fth:prinin:219 is not listed on IDEAS
    3. Ashenfelter, Orley, 1987. "Arbitrator Behavior," American Economic Review, American Economic Association, vol. 77(2), pages 342-346, May.
    4. Orley Ashenfelter & David Bloom, 1981. "Models of Arbitrator Behavior: Theory and Evidence," Working Papers 526, Princeton University, Department of Economics, Industrial Relations Section..
    5. Orley Ashenfelter, 1987. "Arbitrator Behavior," Working Papers 599, Princeton University, Department of Economics, Industrial Relations Section..
    6. Henry S. Farber, 1981. "Splitting-the-Difference in Interest Arbitration," ILR Review, Cornell University, ILR School, vol. 35(1), pages 70-77, October.
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    JEL classification:

    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies

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