Side-payments and the costs of conflict

Erik Kimbrough and Roman Sheremeta

International Journal of Industrial Organization, 2013, vol. 31, issue 3, 278-286

Abstract: Conflict and competition often impose costs on both winners and losers, and conflicting parties may prefer to resolve a 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
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (60)

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Related works:
Working Paper: 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:eee:indorg:v:31:y:2013:i:3:p:278-286

DOI: 10.1016/j.ijindorg.2012.01.005

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