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Mediation Design

Author

Listed:
  • Gottardi, Piero

    (University of Essex)

  • Mezzetti, Claudio

    (University of Queensland & University of Warwick)

Abstract
We propose a mechanism design approach to study the role of a mediator in dispute resolution and bargaining. The mediator provides a buyer and a seller with “reality checks” by controlling the information each party has about her own value for a transaction, and proposes a price at which trade can occur if parties agree. We first consider the class of static information disclosure and trading mechanisms, in which the mediator simultaneously selects the information disclosed to the parties and posts the price at which they can trade. We characterize the mechanism that maximizes the ex-ante gains from trade. We show it is optimal to restrict agents’ information, as this allows to increase the volume of trade and complete some of the most valuable trades that are lost in the welfare maximizing mechanism under full information. We then study the value of the mediator engaging in “shuttle diplomacy” by considering a class of dynamic information disclosure and trading mechanisms, and show that it is possible to design a dynamic mechanism that achieves ex-post efficiency. Shuttle diplomacy facilitates trade by allowing the mediator to condition information releases and prices posted on the history of feedbacks she receives from the parties during her meetings with them.

Suggested Citation

  • Gottardi, Piero & Mezzetti, Claudio, 2020. "Mediation Design," The Warwick Economics Research Paper Series (TWERPS) 1248, University of Warwick, Department of Economics.
    • Handle: RePEc:wrk:warwec:1248
    as

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    File URL: https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2020/twerp_1248_-_mezzetti.pdf
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    References listed on IDEAS

    as
    1. Dirk Bergemann & Stephen Morris, 2019. "Information Design: A Unified Perspective," Journal of Economic Literature, American Economic Association, vol. 57(1), pages 44-95, March.
    2. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    3. Luis Rayo & Ilya Segal, 2010. "Optimal Information Disclosure," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 949-987.
    4. Bergemann, Dirk & Wambach, Achim, 2015. "Sequential information disclosure in auctions," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 1074-1095.
    5. Kalyan Chatterjee & William Samuelson, 1983. "Bargaining under Incomplete Information," Operations Research, INFORMS, vol. 31(5), pages 835-851, October.
    6. Anne-Katrin Roesler & Balázs Szentes, 2017. "Buyer-Optimal Learning and Monopoly Pricing," American Economic Review, American Economic Association, vol. 107(7), pages 2072-2080, July.
    7. Doornik, Katherine, 2014. "A rationale for mediation and its optimal use," International Review of Law and Economics, Elsevier, vol. 38(C), pages 1-10.
    8. Goltsman, Maria & Hörner, Johannes & Pavlov, Gregory & Squintani, Francesco, 2009. "Mediation, arbitration and negotiation," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1397-1420, July.
    9. Hagerty, Kathleen M. & Rogerson, William P., 1987. "Robust trading mechanisms," Journal of Economic Theory, Elsevier, vol. 42(1), pages 94-107, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Bargaining ; Information design ; Mechanism Design ; Mediation ; Persuasion JEL codes: C72 ; D47 ; D82 ; D86;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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