A Necessary and Sufficient Condition for Peace An Extended Abstract

Under what conditions can potential contestants avoid conflicts through a peace settlement? This question is relevant to real world situations such as international conflicts and pre-litigation negotiations. In the spirit of Myerson and Satterthwaite [4] on bilateral trade, where information asymmetry is the impediment to mutually beneficial negotiation outcomes, a natural approach to address this question is mechanism design. Different from the settings of bilateral trade, however, the contestants’ private information here matters only to their outside options, when negotiation fails to preempt conflicts. Furthermore, the way in which their private information affects the outside options is endogenous, depending on the actions contestants choose based on their posterior beliefs after the failed negotiation. Given such a multistage environment, this paper presents a necessary and sufficient condition, in terms of the prior distributions of the contestants, for there to exist a mechanism that, if employed as the negotiation protocol, admits a perfect Bayesian equilibrium that results in peace settlements almost surely. 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.