Benevolent Mediation in the Shadow of Conflict


We propose a novel arbitration procedure. This procedure allows a completely uninformed arbitrator to efficiently settle a dispute between two fully informed players. The novelty is that we allow the players to make wasteful, pre-negotiation investments aimed at manipulating the outcome of the arbitration. Our arbitration procedure is such that these investments are minimized. The core of the arbitration procedure is a “concession game” in which the third party shares the available peace dividend as a function of the concessions made by each player. The concession game can be used to eliminate offensive investments, that is, investments that make the conflict occurring in case no agreement is reached more destructive.