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Finite Alternating-Move Arbitration Schemes and the Equal Area Solution

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  • Nejat Anbarci

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Abstract

We start by considering the Alternate Strike (AS) scheme, a real-life arbitration scheme where two parties select an arbitrator by alternately crossing off at each round one name from a given panel of arbitrators. We find out that the AS scheme is not invariant to “badâ€\x9D alternatives. We then consider another alternating-move scheme, the Voting by Alternating Offers and Vetoes (VAOV) scheme, which is invariant to bad alternatives. We fully characterize the subgame perfect equilibrium outcome sets of these above two schemes in terms of the rankings of the parties over the alternatives only. We also identify some of the typical equilibria of these above two schemes. We then analyze two additional alternating-move schemes in which players’ current proposals have to either honor or enhance their previous proposals. We show that the first scheme’s equilibrium outcome set coincides with that of the AS scheme, and the equilibrium outcome set of the second scheme coincides with that of the VAOV scheme. Finally, it turns out that all schemes’ equilibrium outcome sets converge to the Equal Area solution’s outcome of cooperative bargaining problem, if the alternatives are distributed uniformly over the comprehensive utility possibility set and as the number of alternatives tends to infinity. Journal of Economic Literature Classification Number: C72. Copyright Springer 2006

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Bibliographic Info

Article provided by Springer in its journal Theory and Decision.

Volume (Year): 61 (2006)
Issue (Month): 1 (08)
Pages: 21-50

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Handle: RePEc:kap:theord:v:61:y:2006:i:1:p:21-50

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Web page: http://www.springerlink.com/link.asp?id=100341

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Keywords: The Federal Mediation and Conciliation Service (FMCS); the Alternate Strike (AS) scheme; the Voting by Alternating Offers and Vetoes (VAOV) scheme; the Enhancing Past Concessions scheme; the Honoring Past Concessions scheme; the Equal Area solution;

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  1. Orley Ashenfelter & David Bloom, 1981. "Models of Arbitrator Behavior: Theory and Evidence," Working Papers 526, Princeton University, Department of Economics, Industrial Relations Section..
  2. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, Econometric Society, vol. 18(2), pages 155-162, April.
  3. Bloom, David E & Cavanagh, Christopher L, 1986. "An Analysis of the Selection of Arbitrators," American Economic Review, American Economic Association, vol. 76(3), pages 408-22, June.
  4. Anbarci, Nejat, 1993. "Noncooperative Foundations of the Area Monotonic Solutions," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 245-58, February.
  5. Anbarci, Nejat & Bigelow, John P., 1994. "The area monotonic solution to the cooperative bargaining problem," Mathematical Social Sciences, Elsevier, vol. 28(2), pages 133-142, October.
  6. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, Econometric Society, vol. 21(1), pages 128-140, April.
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Cited by:
  1. Geoffroy de Clippel & Kfir Eliaz, 2009. "Reason-Based Choice: A Bargaining Rationale for the Attraction and Compromise Effects," Working Papers 2009-4, Brown University, Department of Economics.
  2. Zak, F., 2014. "Psychological Games in the Theory of Choice. II. Shame, Regret, Egoism and Altruism," Journal of the New Economic Association, New Economic Association, New Economic Association, vol. 22(2), pages 12-40.
  3. de Clippel, Geoffroy & Eliaz, Kfir & Knight, Brian, 2011. "On the Selection of Arbitrators," CEPR Discussion Papers 8724, C.E.P.R. Discussion Papers.

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