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Managing a conflict: optimal alternative dispute resolution
Author(s) -
Balzer Benjamin,
Schneider Johannes
Publication year - 2021
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12374
Subject(s) - adversarial system , mediation , alternative dispute resolution , settlement (finance) , ex ante , dispute resolution , cheap talk , information asymmetry , conflict resolution , law and economics , litigation risk analysis , economics , business , microeconomics , political science , law , finance , accounting , audit , payment , macroeconomics
We study optimal methods for Alternative Dispute Resolution (ADR), a technique to achieve settlement and avoid costly adversarial hearings. Participation is voluntary. Disputants are privately informed about their marginal cost of evidence provision. If ADR fails to engender settlement, the disputants can use the information obtained during ADR to determine what evidence to provide in an adversarial hearing. Optimal ADR induces an asymmetric information structure but makes the learning report‐independent. It is ex ante fair and decreases the disputants' expenditures, even if they fail to settle. We highlight the importance of real‐world mediation techniques, such as caucusing, for implementing optimal ADR.