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A ‘divide and choose’ approach to compromising

Postl, Peter; (2013) A ‘divide and choose’ approach to compromising. Economics Letters , 119 (2) pp. 204-209. 10.1016/j.econlet.2013.02.019. Green open access

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We study dispute resolution in the compromise model of Börgers and Postl (2009), which provides an alternative framework for analyzing the real-world procedure of tri-offer arbitration studied in Ashenfelter et al. (1992). Two parties involved in a dispute have to choose between their conflicting positions and a compromise settlement proposed by a neutral mediator. We ask how an adaptation of the familiar ‘divide and choose’ mechanism (DCM) performs as a protocol for dispute resolution in the absence of an arbitrator. We show that there is a unique equilibrium of the DCM if the parties’ von Neumann Morgenstern utilities from the compromise settlement are drawn independently from a concave distribution, or from any Beta-distribution (which need not be concave). Furthermore, for Beta-distributions that concentrate increasing probability mass on high von Neumann Morgenstern utilities of the compromise, the social choice rule implied by the DCM is asymptotically ex post Pareto efficient.

Type: Article
Title: A ‘divide and choose’ approach to compromising
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.econlet.2013.02.019
Publisher version: https://doi.org/10.1016/j.econlet.2013.02.019
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Arbitration, Divide and choose, Collective decision making, Private information
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
UCL > Provost and Vice Provost Offices > UCL SLASH
URI: https://discovery.ucl.ac.uk/id/eprint/10157805
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