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Divide and compromise

Author

Listed:
  • Rodrigo A. Velez

    (Texas A&M University, Department of Economics)

  • Antonio Nicolo

    (School of Economics University of Manchester and Department of Economics University of Padua)

Abstract

We introduce a symmetrized version of the popular divide and choose mechanism for the allocation of a collectively owned indivisible good among two agents when monetary compensation is available. Our proposal retains the simplicity of divide and choose and corrects its ex-post asymmetry. When there is complete information, i.e., agents know each other well, it implements in subgame perfect equilibria a unique allocation that would be obtained by a balanced market. By correcting the ex-post asymmetry of divide and choose, our proposal may reduce welfare losses documented by laboratory studies for both divide and choose and auction-type mechanisms.

Suggested Citation

  • Rodrigo A. Velez & Antonio Nicolo, 2016. "Divide and compromise," Working Papers 20160710-001, Texas A&M University, Department of Economics.
    • Handle: RePEc:txm:wpaper:20160710-001
    as

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    File URL: https://pvsessions.tamu.edu/RePEc/velezdivideandcompromise.pdf
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    References listed on IDEAS

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    Cited by:

    1. Rodrigo A. Velez, 2017. "Equitable rent division," Working Papers 20170818-001, Texas A&M University, Department of Economics.
    2. Tommy Andersson & Lars Ehlers, 2022. "An algorithm for identifying least manipulable envy‐free and budget‐balanced allocations in economies with indivisibilities," International Journal of Economic Theory, The International Society for Economic Theory, vol. 18(1), pages 50-60, March.
    3. Brown, Alexander L. & Velez, Rodrigo A., 2016. "The costs and benefits of symmetry in common-ownership allocation problems," Games and Economic Behavior, Elsevier, vol. 96(C), pages 115-131.
    4. Rodrigo A. Velez, 2017. "Sharing an increase of the rent fairly," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 48(1), pages 59-80, January.
    5. Velez, Rodrigo A., 2023. "Equitable rent division on a soft budget," Games and Economic Behavior, Elsevier, vol. 139(C), pages 1-14.

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    More about this item

    Keywords

    indivisible goods; no-envy; implementation in subgame perfect equilibria;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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