Make Him an Offer He Can’t Refuse: Avoiding Conflicts Through Side-Payments

30 Pages Posted: 7 Feb 2011

See all articles by Roman M. Sheremeta

Roman M. Sheremeta

Case Western Reserve University

Erik O. Kimbrough

Chapman University - The George L. Argyros School of Business & Economics

Date Written: October 28, 2010

Abstract

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

JEL Classification: C72, C91, D72

Suggested Citation

Sheremeta, Roman M. and Kimbrough, Erik O., Make Him an Offer He Can’t Refuse: Avoiding Conflicts Through Side-Payments (October 28, 2010). Available at SSRN: https://ssrn.com/abstract=1755613 or http://dx.doi.org/10.2139/ssrn.1755613

Roman M. Sheremeta (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

Erik O. Kimbrough

Chapman University - The George L. Argyros School of Business & Economics ( email )

One University Dr
Orange, CA 92866
United States

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