Make Him an Offer He Can’t Refuse: Avoiding Conflicts through Side Payments
Erik Kimbrough and
Roman Sheremeta ()
Working Papers from Chapman University, Economic Science Institute
The equilibrium of a two-stage conflict game with side-payments predicts that with binding stage-one 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, 98% of efficiency gains come from avoided conflicts. However, with non-binding side-payments, only 49% of gains come from avoided conflicts and 51% from reduced conflict expenditures.
Keywords: contest; conflict resolution; side payments; experiments (search for similar items in EconPapers)
JEL-codes: C72 C91 D72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-gth
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Persistent link: http://EconPapers.repec.org/RePEc:chu:wpaper:10-23
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