Compromise by "multimatum"

TL;DR

This paper introduces a novel compromise solution and a multimatum mechanism for two-agent social choice problems with large policy spaces, ensuring efficient outcomes through strategic proposals and choices.

Contribution

It develops a new compromise rule based on a common cardinalization and proves the multimatum mechanism fully implements this solution in subgame perfect equilibrium.

Findings

The multimatum mechanism achieves full implementation of the compromise solution.

Applications demonstrate the mechanism's effectiveness in political economy and facility location.

The approach handles large, possibly infinite, policy spaces efficiently.

Abstract

We propose a solution and a mechanism for two-agent social choice problems with large (infinite) policy spaces. Our solution is an efficient compromise rule between the two agents, built on a common cardinalization of their preferences. Our mechanism, the multimatum, has the two players alternate in proposing sets of alternatives from which the other must choose. Our main result shows that the multimatum fully implements our compromise solution in subgame perfect Nash equilibrium. We demonstrate the power and versatility of this approach through applications to political economy, other-regarding preferences, and facility location.