Mediation Design by an Informed Party

This paper investigates mediation design by an informed party—the expert—who selects a mediation mechanism at the interim stage, i.e., after observing her private information. We consider a basic strategic environment in which the expert's information is a binary state of the world and an uninformed decision-maker chooses an action on the real line. Preferences are quadratic, with state-contingent bliss points that differ across parties. Our framework is closely related to the informed-principal problem, and our analysis builds on its foundational results. To delimit the reasonable predictions of the interim mediation design game, we sequentially refine the set of perfect Bayesian equilibrium outcomes by applying several solution concepts: the strong solution, core mechanisms, neologism-proof equilibria, and the neo-optimum.