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Amended final-offer arbitration over an uncertain value: A comparison with CA and FOA

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Author Info

  • Cary Deck

    ()

  • Amy Farmer

    ()

  • Dao-Zhi Zeng

    ()

Abstract

Arbitration is increasingly employed to resolve disputes. Two arbitration mechanisms, conventional arbitration (CA) and final-offer arbitration (FOA) are commonly utilized, but previous theoretical and empirical research has found that they are unsatisfactory. Several alternative mechanisms have been proposed, but ultimately laboratory research has found that they do not offer an improvement. An exception is amended final-offer arbitration (AFOA), which not only has desirable theoretical properties but also has been demonstrated to outperform FOA in the laboratory. This study provides a direct laboratory comparison of AFOA with CA. Also, by utilizing an environment with an uncertain payoff to one of the parties, this study tests the robustness of AFOA’s performance relative to FOA. The results indicate that AFOA does outperform FOA, but that AFOA is only weakly better than CA. Copyright Economic Science Association 2007

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Bibliographic Info

Article provided by Springer in its journal Experimental Economics.

Volume (Year): 10 (2007)
Issue (Month): 4 (December)
Pages: 439-454

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Handle: RePEc:kap:expeco:v:10:y:2007:i:4:p:439-454

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Web page: http://www.springerlink.com/link.asp?id=102888

Related research

Keywords: Arbitration; Bargaining; Dispute resolution; Experiments;

References

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  1. David Dickinson, . "A comparison of conventional, final offer, and combined arbitration for dispute resolution," Working Papers 2001-04, Utah State University, Department of Economics.
  2. Pecorino, Paul & Van Boening, Mark, 2001. "Bargaining and Information: An Empirical Analysis of A Multistage Arbitration Game," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 922-48, October.
  3. Farber, Henry S & Bazerman, Max H, 1989. "Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes," The Quarterly Journal of Economics, MIT Press, vol. 104(1), pages 99-120, February.
  4. Zeng, Dao-Zhi & Nakamura, Shinya & Ibaraki, Toshihide, 1996. "Double-offer arbitration," Mathematical Social Sciences, Elsevier, vol. 31(3), pages 147-170, June.
  5. David Dickinson, 2004. "Bargaining Outcomes with Double-Offer Arbitration," Working Papers 04-19, Department of Economics, Appalachian State University.
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  7. Steven J. Brams & Samuel Merrill, III, 1983. "Equilibrium Strategies for Final-Offer Arbitration: There is no Median Convergence," Management Science, INFORMS, vol. 29(8), pages 927-941, August.
  8. Margaret A. Neale & Max H. Bazerman, 1983. "The role of perspective-taking ability in negotiating under different forms of arbitration," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 36(3), pages 378-388, April.
  9. Farmer, Amy & Pecorino, Paul & Stango, Victor, 2004. "The Causes of Bargaining Failure: Evidence from Major League Baseball," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 543-68, October.
  10. Zeng, Dao-Zhi, 2003. "An amendment to final-offer arbitration," Mathematical Social Sciences, Elsevier, vol. 46(1), pages 9-19, August.
  11. Gary Long & Peter Feuille, 1974. "Final-offer arbitration: "Sudden death" in Eugene," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 27(2), pages 186-203, January.
  12. Amy Farmer, 2007. "Bargaining over an Uncertain Value: Arbitration Mechanisms Compared," Journal of Law, Economics and Organization, Oxford University Press, vol. 23(3), pages 547-579, October.
  13. Zeng, Dao-Zhi, 2006. "How powerful is arbitration procedure AFOA?," International Review of Law and Economics, Elsevier, vol. 26(2), pages 227-240, June.
  14. Babcock, Linda & Loewenstein, George & Wang, Xianghong, 1995. "The relationship between uncertainty, the contract zone, and efficiency in a bargaining experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 27(3), pages 475-485, August.
  15. Steven J. Brams & Samuel Merrill, III, 1986. "Binding Versus Final-Offer Arbitration: A Combination is Best," Management Science, INFORMS, vol. 32(10), pages 1346-1355, October.
  16. Bolton, Gary E. & Katok, Elena, 1998. "Reinterpreting Arbitration's Narcotic Effect: An Experimental Study of Learning in Repeated Bargaining," Games and Economic Behavior, Elsevier, vol. 25(1), pages 1-33, October.
  17. Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-126, Winter.
  18. Henry S. Farber & Max H. Bazerman, 1989. "Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes."," NBER Working Papers 2139, National Bureau of Economic Research, Inc.
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Cited by:
  1. Gary Charness & Peter J. Kuhn, 2010. "Lab Labor: What Can Labor Economists Learn from the Lab?," NBER Working Papers 15913, National Bureau of Economic Research, Inc.

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