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Arbitration systems and negotiations

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  • María Mercedes Adamuz

    ()

  • Clara Ponsatí

    ()

Abstract

We consider a model of bargaining by concessions where agents can terminate negotiations by accepting the settlement of an arbitrator. The impact of pragmatic arbitrators -that enforce concessions that precede their appointment - is compared with that of arbitrators that act on principle - ignoring prior concessions. We show that while the impact of arbitration always depends on how costly that intervention is relative to direct negotiation, the range of scenarios for which it has an impact, and the precise effect of such impact, does change depending on the behavior -pragmatic or on principle- of the arbitrator. Moreover the requirement of mutual consent matters only when the arbitrator is pragmatic. Efficiency and equilibrium are not aligned since agents sometimes reach negotiated agreements when an arbitrated settlement is more efficient and vice-versa. The second type of inefficiency is avoided when arbitrators are appointed by mutual consent and act pragmatically. What system of arbitration has the best ex-ante performance depends on the distributions of arbitration and negotiation costs, and each can be the second best optimal for plausible environments.

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Bibliographic Info

Article provided by Springer in its journal Review of Economic Design.

Volume (Year): 13 (2009)
Issue (Month): 3 (September)
Pages: 279-303

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Handle: RePEc:spr:reecde:v:13:y:2009:i:3:p:279-303

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Related research

Keywords: Arbitration; Bargaining; Concessions; Negotiations; C72; C79;

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  1. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
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  7. Farber, Henry S & Bazerman, Max H, 1986. "The General Basis of Arbitrator Behavior: An Empirical Analysis of Conventional and Final-Offer Arbitration," Econometrica, Econometric Society, vol. 54(4), pages 819-44, July.
  8. repec:fth:prinin:219 is not listed on IDEAS
  9. Robert Gibbons, 1988. "Learning In Equilibrium Models of Arbitration," NBER Working Papers 2547, National Bureau of Economic Research, Inc.
  10. David E. Bloom, 1986. "Empirical Models of Arbitrator Behavior Under Conventional Arbitration," NBER Working Papers 1841, National Bureau of Economic Research, Inc.
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  12. Avner Shaked, 1994. "Opting out: bazaars versus "hi tech" markets," Investigaciones Economicas, Fundación SEPI, vol. 18(3), pages 421-432, September.
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  14. Ehud Kalai & Robert W. Rosenthal, 1976. "Arbitration of Two-Party Disputes Under Ignorance," Discussion Papers 215, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Admati, Anat R & Perry, Motty, 1991. "Joint Projects without Commitment," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 259-76, April.
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