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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 264:
Conflict Resolution Under Asymmetric Information

Helmut Bester and Karl Wärneryd ()

Abstract: We consider Bayesian incentive compatible and individually rational mechanisms for resolving conflicts between two agents who are uncertain about each other's fighting potential. We model the default option of outright conflict as a probabilistic contest. Examples of such contests may be international conflict, litigation, and elections. We show, in particular, that if the loss of surplus from outright conflict is small enough, then any mechanism must assign a positive probability of conflict. This happens even though only a peaceful agreement avoids a loss of resources.

Keywords: Conflict; asymmetric information; mechanism design; contests.; (follow links to similar papers)

JEL-Codes: C78; D72; D74; D82; H21; H23; (follow links to similar papers)

26 pages, September 30, 1998

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