Side-Payments and the Costs of Conflict

Erik Kimbrough and Roman Sheremeta

MPRA Paper from University Library of Munich, Germany

Abstract: Conflict and competition often impose costs on both winners and losers, and conflicting parties may prefer to resolve the dispute before it occurs. The equilibrium of a conflict game with side-payments predicts that with binding offers, proposers make and responders accept side-payments, generating settlements that strongly favor proposers. When side-payments are non-binding, proposers offer nothing and conflicts always arise. Laboratory experiments confirm that binding side-payments reduce conflicts. However, 30% of responders reject binding offers, and offers are more egalitarian than predicted. Surprisingly, non-binding side-payments also improve efficiency, although less than binding. With binding side-payments, 87% of efficiency gains come from avoided conflicts. However, with non-binding side-payments, only 39% of gains come from avoided conflicts and 61% from reduced conflict expenditures.

Keywords: contests; conflict resolution; side-payments; experiments (search for similar items in EconPapers)
JEL-codes: C72 C91 D72 (search for similar items in EconPapers)
Date: 2013-02-03
New Economics Papers: this item is included in nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (60)

Published in International Journal of Industrial Organization 31 (2013): pp. 278-286

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https://mpra.ub.uni-muenchen.de/46808/1/MPRA_paper_46808.pdf original version (application/pdf)

Related works:
Journal Article: Side-payments and the costs of conflict (2013)
Working Paper: Side-Payments and the Costs of Conflict (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:46808

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