Bargaining Outcomes with Double-Offer Arbitration
AbstractIncreasingly, arbitration is becoming used to resolve bargaining disputes in a variety of settings. Reducing dispute rates is often listed as a main goal in designing arbitration mechanisms. Conventional arbitration and final-offer arbitration are two commonly used procedures, but theoretical examinations of these arbitration procedures show that disputantsÃ¢â¬â¢ final bargaining positions do not converge and disagreement is likely. This article contains results from a set of experiments designed to compare bargaining outcomes under the two commonly used arbitration procedures with outcomes under an innovative procedure called Ã¢â¬Ådouble-offerÃ¢â¬ arbitration (Zeng et al., 1996). This procedure requires that disputants make two final offers at impasse: a primary and a secondary offer. The arbitrator evaluates the pairs of offers using a linear criterion function, and theory suggests the secondary offers converge to the median of the arbitratorÃ¢â¬â¢s preferred settlement distribution. Because the procedureÃ¢â¬â¢s rules are that convergence of offers generates a settlement at those offers, this theoretical convergence result implies that arbitration is not needed in the end. Experimental results indicate that dispute rates in double-offer arbitration are, on average, about the same as dispute rates in conventional arbitration. However, other results show reason to favor double-offer arbitration. Specifically, in repeated bargaining, there is concern over whether use of an arbitration procedure becomes addictive and makes bargainers more likely to use the procedure in the future-a Ã¢â¬Ånarcotic effect.Ã¢â¬ The data show that double-offer arbitration is non-addictive, whereas both conventional and final-offer arbitration are. Copyright Springer Science + Business Media, Inc. 2005
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Date of creation: 2004
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