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An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems

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  • Orley Ashenfelter
  • Janet Currie
  • Henry S. Farber
  • Matthew Spiegel

Abstract

This paper reports the results of a systematic experimental comparison of the effect of alternative arbitration systems on dispute rates. The key to our experimental design is the use of a common underlying distribution of arbitrator "fair" awards in the different arbitration systems. This allows us to compare dispute rates across different arbitration procedures where we hold fixed the amount of objective underlying uncertainty about the arbitration awards. There are three main findings. First, dispute rates are inversely related to the monetary costs of disputes. Dispute rates were much lower in cases where arbitration was not available so that the entire pie was lost in the event of dispute. Second, contrary to conventional wisdom, the dispute rate in a final-offer arbitration system is at least as high as the dispute rate in comparable conventional arbitration system. Third, dispute rates are inversely related to the uncertainty costs of disputes. Dispute rates were lower in conventional arbitration treatments where the variance of the arbitration award was higher and imposed greater costs on risk-averse negotiators. Our results can also be interpreted as providing tentative evidence that the negotiators were risk-averse on average.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3417.

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Date of creation: Aug 1990
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Publication status: published as Econometrica, vol. 60, no. 6 (November 1992) pp. 1407-1433.
Handle: RePEc:nbr:nberwo:3417

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  1. Currie, J. & Mcconnell, S., 1989. "Strikes And Arbitration In The Public Sector: Can Legislation Reduce Dispute Costs?," Papers, California Los Angeles - Applied Econometrics 9, California Los Angeles - Applied Econometrics.
  2. Tracy, Joseph S, 1986. "An Investigation into the Determinants of U.S. Strike Activity," American Economic Review, American Economic Association, American Economic Association, vol. 76(3), pages 423-36, June.
  3. 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.
  4. David E. Bloom & Christopher L. Cavanagh, 1986. "An Analysis of the Selection of Arbitrators," NBER Working Papers 1938, National Bureau of Economic Research, Inc.
  5. 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.
  6. Harrison, Glenn W, 1989. "Theory and Misbehavior of First-Price Auctions," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 749-62, September.
  7. McConnell, Sheena, 1989. "Strikes, Wages, and Private Information," American Economic Review, American Economic Association, American Economic Association, vol. 79(4), pages 801-15, September.
  8. Orley Ashenfelter & David E. Bloom, 1983. "Models of Arbitrator Behavior: Theory and Evidence," NBER Working Papers 1149, National Bureau of Economic Research, Inc.
  9. 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.
  10. 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, MIT Press, vol. 104(1), pages 99-120, February.
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