67/2011 Johannes Horner, Massimo Morelli and Francesco Squintani

This paper applies mechanism design to conflict resolution. We determine when and how unmediated communication and mediation reduce the ex ante probability of conflict in a game with asymmetric information. Mediation improves upon unmediated communication when the intensity of conflict is high, or when asymmetric information is significant. The mediator improves upon unmediated communication by not precisely reporting information to conflicting parties, and precisely, by not revealing to a player with probability one that the opponent is weak. Arbitrators who can enforce settlements are no more effective than mediators who only make non-binding recommendations.

Behavioural Economics and Wellbeing

The Review of Economic Studies

http://dx.doi.org/10.1093/restud/rdv022