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Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes."

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  • Henry S. Farber
  • Max H. Bazerman
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    Abstract

    One prominent explanation for disagreement in bargaining is that the parties have divergent and relatively optimistic expectations regarding the ultimate outcome if they fail to agree. The fact that settlement rates are much higher where final-offer arbitration is the dispute settlement procedure than where conventional arbitration is the dispute settlement procedure is used as the basis of a test of the role of divergent expectations in causing disagreement in negotiations. Calculations of identical-expectations contract zones using existing estimates of models of arbitrator behavior yield larger identical-expectations contract zones in conventional arbitration than in final-offer arbitration. This evidence clearly suggests that divergent expectations alone are not an adequate explanation of disagreement in labor-management negotiations. A number of alternative explanations for disagreement are suggested and evaluated.

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    File URL: http://www.nber.org/papers/w2139.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2139.

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    Date of creation: Aug 1989
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    Publication status: published as Quarterly Journal of Economics, Vol. CIV, No. 1, pp. 99-120, (February 1989).
    Handle: RePEc:nbr:nberwo:2139

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    1. David E. Bloom & Christopher L. Cavanagh, 1986. "An Analysis of the Selection of Arbitrators," NBER Working Papers 1938, National Bureau of Economic Research, Inc.
    2. Richard B. Freeman, 1984. "Unionism Comes to the Public Sector," NBER Working Papers 1452, National Bureau of Economic Research, Inc.
    3. Tracy, Joseph S, 1987. "An Empirical Test of an Asymmetric Information Model of Strikes," Journal of Labor Economics, University of Chicago Press, vol. 5(2), pages 149-73, April.
    4. MaCurdy, Thomas E & Pencavel, John H, 1986. "Testing between Competing Models of Wage and Employment Determination in Unionized Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages S3-S39, June.
    5. Dertouzos, James N & Pencavel, John H, 1981. "Wage and Employment Determination under Trade Unionism: The International Typographical Union," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1162-81, December.
    6. Pencavel, John H, 1984. "The Tradeoff between Wages and Employment in Trade Union Objectives," The Quarterly Journal of Economics, MIT Press, vol. 99(2), pages 215-31, May.
    7. Alan Carruth & Andrew Oswald, 1984. "Miners' Wages in Post-War Britain: An Application of a Model of Trade Union Behavior," Working Papers 558, Princeton University, Department of Economics, Industrial Relations Section..
    8. Henry S. Farber & Harry C. Katz, 1979. "Interest arbitration, outcomes, and the incentive to bargain," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 33(1), pages 55-63, October.
    9. Orley Ashenfelter & James N. Brown, 1985. "Testing the Efficiency of Employment Contracts," Working Papers 573, Princeton University, Department of Economics, Industrial Relations Section..
    10. Joel Sobel & Takahashi, 1983. "A Multi-stage Model of Bargaining," Levine's Working Paper Archive 255, David K. Levine.
    11. Max H. Bazerman & Henry S. Farber, 1985. "Arbitrator decision making: When are final offers important?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 39(1), pages 76-89, October.
    12. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
    13. Max H. Bazerman, 1985. "Norms of distributive justice in interest arbitration," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 38(4), pages 558-570, July.
    14. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-37, May.
    15. 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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