A BATTLE-OF-THE-SEXES GAME WITH INCOMPLETE INFORMATION

A battle-of-the-sexes game with incomplete information presents two different efficiency problems: coordination, and maximizing ex ante expected utility by favoring a player facing high stakes. Communication and mediation can allow an optimal tradeoff between the two problems. This paper gives (1) necessary conditions for (and specification of) an incentive-efficient mediation mechanism and (2) necessary and sufficient conditions for mediation to be required for efficiency. These conditions yield additional results concerning the necessity of privacy in communications and the superfluity of enforcement. Contrary to some recent studies, our results demonstrate that unmediated communication is insufficient to achieve incentive efficiency. An application to the theory of regulation is suggested. © 1992.