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Mediation in Situations of Conflict and Limited Commitment

  • Roland Strausz

    ()

    (Free University of Berlin, Department of Economics)

  • Kay Mitusch

We study the reasons and conditions under which mediation is beneficial when a principal needs information from an agent to implement an action. Assuming a strong form of limited commitment, the principal may employ a mediator who gathers information and makes non--binding proposals. We show that a partial revelation of information is more effective through a mediator than through the agent himself. This implies that mediation is strictly helpful if and only if the likelihood of a conflict of interest is positive but not too high. The value of mediation depends non--monotonically on the degree of conflict. Our insights extend to general models of contracting with imperfect commitment.

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Paper provided by Departmental Working Papers in its series Papers with number 023.

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