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Bargaining in the Shadow of Arbitration

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  • R. Marselli

    ()

  • M. Vannini

    ()

  • BC. McCannon

Abstract

Arbitration, as an alternative to litigation for contract disputes, reduces costs and time. While it has frequently been thought of as a substitute to pretrial bargaining and litigation, in fact, parties may be able to reach a settlement privately while engaged in the arbitration process. Consequently, the institutional design of the arbitration may influence the bargaining. We develop a theoretical model of pre-arbitration bargaining that is able to identify the impact of the institutional features on its success. A detailed data set from arbitration proceedings in Italy is analyzed. The exogenous heterogeneity in the composition of the panel of arbitrators allows us to illustrate its effect on bargaining. We show that the number of arbitrators used interacts with their experience and independence to reduce uncertainty and facilitate settlement.

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Bibliographic Info

Paper provided by Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia in its series Working Paper CRENoS with number 201309.

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Date of creation: 2013
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Handle: RePEc:cns:cnscwp:201309

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Keywords: settlement; italy; contract dispute; bargaining; arbitration;

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References

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  1. Gibbons, Robert, 1988. "Learning in Equilibrium Models of Arbitration," American Economic Review, American Economic Association, vol. 78(5), pages 896-912, December.
  2. Shavell, Steven, 1995. "Alternative Dispute Resolution: An Economic Analysis," The Journal of Legal Studies, University of Chicago Press, vol. 24(1), pages 1-28, January.
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  4. Orley C. Ashenfelter & David E. Bloom & Gordon B. Dahl, 2013. "Lawyers as Agents of the Devil in a Prisoner's Dilemma Game: Evidence from Long Run Play," NBER Working Papers 18834, National Bureau of Economic Research, Inc.
  5. Speight, Alan & Thomas, Dennis, 1997. "Arbitrator Decision-Making in the Transfer Market: An Empirical Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(2), pages 198-215, May.
  6. Amy Farmer & Paul Pecorino, 2003. "Bargaining with Voluntary Transmission of Private Information: Does the Use of Final Offer Arbitration Impede Settlement?," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 64-82, April.
  7. Farmer, Amy & Pecorino, Paul, 1998. "Bargaining with Informative Offers: An Analysis of Final-Offer Arbitration," The Journal of Legal Studies, University of Chicago Press, vol. 27(2), pages 415-32, June.
  8. 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.
  9. 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.
  10. Ezra Friedman & Abraham Wickelgren, . "Bayesian Juries and The Limits to Deterrence," Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series yale_lepp-1008, Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy.
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  15. Bryan C. McCannon, 2011. "Jury Size in Classical Athens: an Application of the Condorcet Jury Theorem," Kyklos, Wiley Blackwell, vol. 64(1), pages 106-121, 02.
  16. 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.
  17. Orley Ashenfelter & Gordon B. Dahl, 2012. "Bargaining and the Role of Expert Agents: An Empirical Study of Final-Offer Arbitration," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 116-132, February.
  18. Farmer, Amy & Tiefenthaler, Jill, 2001. "Conflict in divorce disputes: the determinants of pretrial settlement," International Review of Law and Economics, Elsevier, vol. 21(2), pages 157-180, June.
  19. Michael R. Baye & Joshua D. Wright, 2008. "Is Antitrust Too Complicated for Generalist Judges? The Impact of Economic Complexity and Judicial Training on Appeals," Working Papers 2008-19, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  20. Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 115-57, January.
  21. 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(6), pages 1503-28, November.
  22. Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753, April.
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