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26 2018 12:45
Sala riunioni 3.b3.sro1 - Via Roentgen, 1

Applied Micro

Managing a Conflict


Johannes Schneider (Universidad Carlos III de Madrid)


Abstract

We characterize the design of mechanisms aiming to settle conflicts that otherwise escalate to a costly game. Participation is voluntary. Players have private information about their strength in the escalation game. The designer fully controls settlement negotiations but has no control over the escalation game. We transform the mechanism design problem of conflict management to the information design problem of belief management conditional on escalation. The transformed problem identifies how the properties of the escalation game influence the optimal mechanism. Applying our results to two types of escalation games, we obtain qualitative differences driven by the game’s sensitivity to information.