Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2017

Font Size:  Small  Medium  Large

A Necessary and Sufficient Condition for Peace

Charles Zheng*

Last modified: 2017-04-18

Abstract


This paper examines the possibility for two potential contestants to agree on a peace settlement thereby avoiding an all-pay contest, in which each contestant would exert a costly effort based on its own strength, privately known, and on the posterior belief about the rival, inferred from the negotiation.  A necessary and sufficient condition is found, in terms of the contestants' prior distributions, for there to exist a negotiation mechanism that admits a peace-ensuring perfect Bayesian equilibrium.  The finding is based on an analysis of two-player all-pay contests that unifies the methods previously separated by the difference in discrete versus continuous distributions, given independent types.  The peace condition implies that the prospect of peace is improved when both potential contestants become ex ante stronger.  It is also robust to equilibrium refinements such as the intuitive criterion and universal divinity.