Mediation in Situations of Conflict

Kay Mitusch and Roland Strausz ()
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Kay Mitusch: Free University of Berlin

No 361, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: We study the effectiveness of mediators in situations of conflict. In a game of cheap talk a principal may employ a mediator whose task is to gather information and make non--binding proposals. We show that mediators facilitate information transmission and are helpful if and only if the likelihood of a conflict of interest is strictly positive but not too high. Mediation increases the amount of information that can be induced in equilibrium and is helpful when full information revelation is not feasible. The insights of this paper extend to general models of mechanism design with imperfect commitment of the contract designer.

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