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Learning in Equilibrium Models of Arbitration

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  • Robert Gibbons

Abstract

This paper analyzes strategic communication in equilibrium models of conventional and final-offer interest arbitration. Both models emphasize the role of learning by the arbitrator from the parties offers about the state of the employment relationship, which is known to the parties but not to the arbitrator. In both models, the arbitrators equilibrium behavior is identical to the reduced-form decision rule typically assumed in the empirical literature. The paper thereby provides a structural interpretation for the existing empirical work. The paper also represents progress towards a complete theory of arbitration because it satisfies three conditions that will be required of any such theory. First, the models predictions match the existing empirical evidence. Second, the models describe equilibrium behavior. And third, the models are built on a common set of assumptions about preferences, information, and commitment. The paper therefore not only provides an equilibrium foundation for the intuition that the arbitrator might learn from the parties offers, but also uses the idea of learning to develop a unified analytical treatment of the two major forms of interest arbitration.

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Bibliographic Info

Paper provided by Massachusetts Institute of Technology (MIT), Department of Economics in its series Working papers with number 485.

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Date of creation: Mar 1988
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Handle: RePEc:mit:worpap:485

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Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), DEPARTMENT OF ECONOMICS, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
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References

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  1. Bloom, David E, 1986. "Empirical Models of Arbitrator Behavior under Conventional Arbitration," The Review of Economics and Statistics, MIT Press, vol. 68(4), pages 578-85, November.
  2. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  3. 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.
  4. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  5. Crawford, Vincent P, 1982. "Compulsory Arbitration, Arbitral Risk and Negotiated Settlements: A Case Study in Bargaining under Imperfect Information," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 69-82, January.
  6. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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Citations

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Cited by:
  1. Clara Ponsati & Adamuz & Mercedes, 2004. "Arbitration Systems and Negotiations," Econometric Society 2004 Latin American Meetings 118, Econometric Society.
  2. Jeremy Bertomeu & Hamid Beladi, 2007. "Mediator learning and dowry determination in an arranged marriage setting," Economics Bulletin, AccessEcon, vol. 15(12), pages 1-10.
  3. Janet Currie, 1989. "Wages and Arbitrator Behavior," UCLA Economics Working Papers 562, UCLA Department of Economics.
  4. repec:fth:prinin:267 is not listed on IDEAS
  5. Pierpaolo Battigalli & Giovanni Maggi, 2003. "International agreements on product standards: an incomplete-contracting theory," Working Papers 229, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  6. Martinelli, Cesar & Matsui, Akihiko, 2002. " Policy Reversals and Electoral Competition with Privately Informed Parties," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(1), pages 39-61.
  7. Alexandre Mas, 2006. "Pay, Reference Points, and Police Performance," NBER Working Papers 12202, National Bureau of Economic Research, Inc.
  8. repec:fth:prinin:285 is not listed on IDEAS
  9. 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.
  10. Wojciech Olszewski, 2011. "A Welfare Analysis of Arbitration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 174-213, February.
  11. Cesar Martinelli & Akihiko Matsui, 1999. "Policy Reversals: Electoral Competition with Privately Informed Parties," Working Papers 9905, Centro de Investigacion Economica, ITAM, revised Jan 2000.
  12. Juan-Pablo Montero, 2004. "A Model of Arbitration in Regulation," Documentos de Trabajo 267, Instituto de Economia. Pontificia Universidad Católica de Chile..
  13. Davis S. Kaplan & Joyce Sadka & Jorge Luis Silva-Mendez, 2006. "Litigation and Settlement: New Evidence from Labor Courts in Mexico," Working Papers 0606, Centro de Investigacion Economica, ITAM.
  14. repec:fth:prinin:296 is not listed on IDEAS
  15. Andersson, Thomas, 1990. "Government Failure: The Case of Global Environmental Mismanagement," Working Paper Series 287, Research Institute of Industrial Economics.

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