Abstract
This paper analyzes mediation as a signal. Starting from a stylized case, a game theoretical model of one-sided incomplete information, taken from Cho and Kreps (1987), is applied to discuss strategic effects of mediation. It turns out that to reject mediation can be interpreted as a “negative signal” while the interpretation of accepting or proposing mediation is ambiguous and does not necessarily change the prior beliefs of the uninformed party. This asymmetry suggests that, in equilibrium, there is an excess of mediation.
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