Conflict with Quitting Rights: A Mechanism Design Approach

• Main Author: ANEY, Madhav S.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Labor Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/1385; https://ink.library.smu.edu.sg/context/soe_research/article/2384/viewcontent/18_2012_ConflictwithQuittingRightsAMechanismDesignApproach.pdf
• Institution: Singapore Management University

Why do agents engage in costly dispute resolution such as litigation and arbitration when costless settlement is available? I present a model with one sided asymmetric information where the payoff from litigation for both agents depends on the beliefs of the uninformed agent. Taking these payoffs as their outside options, agents negotiate over the allocation of an indivisible object that is in dispute and transfers. It is shown that it is impossible to implement an allocation that satisfies budget balance that guarantees the agents their payoff from conflict when agents can quit negotiations unilaterally at any stage.