A Unique and Robust Social Contract: An Application to Negotiations with Probabilistic Conflicts

ABSTRACT This paper considers social contracts (or mechanisms) in negotiations with incomplete information in which an outside option is a probabilistic conflict and a peaceful agreement is ex ante efficient. I compute the set of interim incentive efficient mechanisms, the ex ante incentive efficient mechanism, as well as the neutral bargaining solution. I numerically illustrate that the focus on the ex ante incentive efficient mechanism as the most reasonable prediction is not robust. This paper justifies the neutral bargaining solution as the unique, robust solution among all interim incentive efficient mechanisms.