Is Arbitration Addictive?: Evidence from a Bargaining Experiment

We test for the presence of an addictive effect of arbitration (positive state dependence) using data both from a laboratory bargaining experiment and from the field. We find no evidence of state dependence in the experimental data, and we find weak evidence of positive state dependence in the field data on teachers in British Columbia. Hence, we reject the view that use of arbitration per se leads to state dependence either through reducing uncertainty about the arbitral process or through changing the bargaining parties’ perceptions about their opponents. The results further suggest that an explanation for any positive state dependence we find in the British Columbia field data must lie in an aspect of the arbitration process which is not captured by our simple experimental design.