Abstract 

We study bilateral communication between two parties who need to take a joint decision, such as whether to implement a joint project, a merger, a marriage etc. Each party has private information about the value of the match, which creates friction in the decision-making process. We focus on the role of bilateral unmediated communication in this setting, and investigate how such communication should be organized, in particular, how many rounds of exchange of messages are necessary to implement desirable decision rule(s). Different communication protocols are considered, and their outcomes are characterized. A simple communication protocol which involves one round of communication is sufficient when to implement a monotone and deterministic decision rule. However, when the decision rule is non-monotone in the parties’ types, more than a single round of communication, with gradual release of information, are necessary. We demonstrate how the number of the rounds of communication varies with the complexity of the implemented decision rule.Our analysis also provides a perspective on the role of a neutral mediator and/or mechanism designer in this process.