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Abstract:
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This paper brings mechanism design to the study of conflict resolution in international relations. We determine when and how unmediated communication and
mediation reduce the ex ante probability of conflict, in a simple game where conflict is due to asymmetric information. Unmediated communication helps reducing
the chance of conflict as it allows conflicting parties to reveal their types and establish type-dependent transfers to avoid conflict. Mediation improves upon unmediated
communication when the intensity of conflict is high, or when asymmetric information is large. The mediator improves upon unmediated communication by not precisely
reporting information to conflicting parties, and precisely, by not revealing to a player with probability one that the opponent is weak. Surprisingly, in our set up, arbitrators
who can enforce settlements are no more effective in reducing the probability of conflict than mediators who can only make non-binding recommendations. |