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Divide and compromise

Author

Listed:
  • Rodrigo A. Velez

    () (Texas A&M University, Department of Economics)

  • Antonio Nicolo

    () (School of Economics University of Manchester and Department of Economics University of Padua)

Abstract

We introduce a symmetrized version of the popular divide and choose mechanism for the allocation of a collectively owned indivisible good among two agents when monetary compensation is available. Our proposal retains the simplicity of divide and choose and corrects its ex-post asymmetry. When there is complete information, i.e., agents know each other well, it implements in subgame perfect equilibria a unique allocation that would be obtained by a balanced market. By correcting the ex-post asymmetry of divide and choose, our proposal may reduce welfare losses documented by laboratory studies for both divide and choose and auction-type mechanisms.

Suggested Citation

  • Rodrigo A. Velez & Antonio Nicolo, 2016. "Divide and compromise," Working Papers 20160710-001, Texas A&M University, Department of Economics.
  • Handle: RePEc:txm:wpaper:20160710-001
    as

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    File URL: http://respec.tamu.edu/velezdivideandcompromise.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Rodrigo A. Velez, 2017. "Equitable rent division," Working Papers 20170818-001, Texas A&M University, Department of Economics.
    2. Brown, Alexander L. & Velez, Rodrigo A., 2016. "The costs and benefits of symmetry in common-ownership allocation problems," Games and Economic Behavior, Elsevier, vol. 96(C), pages 115-131.
    3. Rodrigo A. Velez, 2017. "Sharing an increase of the rent fairly," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 48(1), pages 59-80, January.

    More about this item

    Keywords

    indivisible goods; no-envy; implementation in subgame perfect equilibria;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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