Speaker:      Professor Claudio Mezzetti, The University of Queensland

Location:     This seminar will be presented via ZOOM at  https://uqz.zoom.us/j/305607905

Abstract

We propose a mechanism design approach to study the role of a mediator in dispute resolution and bargaining. The mediator provides a buyer and a seller with “reality checks”  by controlling the information each party has about her own value for a transaction, and proposes a price at which trade can occur if parties agree. We first consider the class of static information disclosure and trading mechanisms, in which the mediator simultaneously selects the information disclosed to the parties and posts the price at which they can trade. We characterize the mechanism that maximizes the ex-ante gains from trade. We show it is optimal to restrict agents' information, as this allows to increase the volume of trade and complete some of the most valuable trades that are lost in the welfare maximizing mechanism under full information. We then study the value of the mediator engaging in “shuttle diplomacy” by considering a class of dynamic information disclosure and trading mechanisms, and show that it is possible to design a dynamic mechanism that achieves ex-post efficiency. Shuttle diplomacy facilitates trade by allowing the mediator to condition information releases and prices posted on the history of feedbacks she receives from the parties during her meetings with them.

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