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Bargaining with Informative Offers: An Analysis of Final-Offer Arbitration

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  • Farmer, Amy
  • Pecorino, Paul

Abstract

Final-offer arbitration is analyzed when parties are permitted to renegotiate after bids are submitted to the arbiter. If the failure to settle without arbitration arises owing to informational asymmetries, then the final-offer bids may communicate some of this private information. The informational content of the bids may act to encourage settlement after the bids have been submitted, though this outcome is not guaranteed. We find that a pooling equilibrium, under which all cases settle prior to arbitration, is less likely when there exists an opportunity for renegotiation. However, for parameter values in which there is no pooling equilibrium, the renegotiation stage strictly reduces the use of arbitration. The results may prove important in comparing settlement rates between final-offer arbitration and conventional arbitration. Copyright 1998 by the University of Chicago.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Legal Studies.

Volume (Year): 27 (1998)
Issue (Month): 2 (June)
Pages: 415-32

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Handle: RePEc:ucp:jlstud:v:27:y:1998:i:2:p:415-32

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Web page: http://www.journals.uchicago.edu/JLS/

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Cited by:
  1. Charness, Gary & Kuhn, Peter J., 2010. "Lab Labor: What Can Labor Economists Learn from the Lab?," IZA Discussion Papers 4941, Institute for the Study of Labor (IZA).
  2. Wojciech Olszewski, 2011. "A Welfare Analysis of Arbitration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 174-213, February.
  3. R. Marselli & M. Vannini & BC. McCannon, 2013. "Bargaining in the Shadow of Arbitration," Working Paper CRENoS 201309, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  4. Qiao, Yue, 2013. "Legal effort and optimal legal expenses insurance," Economic Modelling, Elsevier, vol. 32(C), pages 179-189.

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