IDEAS home Printed from https://ideas.repec.org/a/aea/aejmic/v3y2011i1p174-213.html
   My bibliography  Save this article

A Welfare Analysis of Arbitration

Author

Listed:
  • Wojciech Olszewski

Abstract

The paper compares conventional and final-offer arbitration. One party is supposed to make a payment to another party, whose amount depends on a state. Under one scenario, parties obtain signals about the state, which cannot be recognized by the opponents. If the arbitrator's ability of recognizing signals is high, the frequency of requesting arbitration is lower under conventional than under final-offer arbitration. If this ability is low, final-offer arbitration dominates conventional arbitration in quite a similar sense. Under the second scenario, parties believe that their opponents have wrong signals. Then, conventional arbitration approximates the original outcome better than final-offer arbitration. (JEL C78, D82, D86, J52)

Suggested Citation

  • Wojciech Olszewski, 2011. "A Welfare Analysis of Arbitration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 174-213, February.
    • Handle: RePEc:aea:aejmic:v:3:y:2011:i:1:p:174-213
    Note: DOI: 10.1257/mic.3.1.174
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.1.174
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Amy Farmer, 2007. "Bargaining over an Uncertain Value: Arbitration Mechanisms Compared," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(3), pages 547-579, October.
    2. Ashenfelter, Orley, et al, 1992. "An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems," Econometrica, Econometric Society, vol. 60(6), pages 1407-1433, November.
    3. Gibbons, Robert, 1988. "Learning in Equilibrium Models of Arbitration," American Economic Review, American Economic Association, vol. 78(5), pages 896-912, December.
    4. Ashenfelter, Orley, 1987. "Arbitrator Behavior," American Economic Review, American Economic Association, vol. 77(2), pages 342-346, May.
    5. Steven J. Brams & Samuel Merrill, III, 1986. "Binding Versus Final-Offer Arbitration: A Combination is Best," Management Science, INFORMS, vol. 32(10), pages 1346-1355, October.
    6. 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 415-432, June.
    7. Henry S. Farber & Harry C. Katz, 1979. "Interest Arbitration, Outcomes, and the Incentive to Bargain," ILR Review, Cornell University, ILR School, vol. 33(1), pages 55-63, October.
    8. Amy Farmer & Paul Pecorino, 2003. "Bargaining with Voluntary Transmission of Private Information: Does the Use of Final Offer Arbitration Impede Settlement?," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 19(1), pages 64-82, April.
    9. 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 1503-1528, November.
    10. repec:fth:prinin:219 is not listed on IDEAS
    11. 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 819-844, July.
    12. Steven J. Brams & Samuel Merrill, III, 1983. "Equilibrium Strategies for Final-Offer Arbitration: There is no Median Convergence," Management Science, INFORMS, vol. 29(8), pages 927-941, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Farmer, Amy & Pecorino, Paul, 2022. "Discovery in a screening model of final offer arbitration," International Review of Law and Economics, Elsevier, vol. 69(C).
    2. Bonev, Petyo & Matsumoto, Shigeru, 2022. "An empirical evaluation of environmental Alternative Dispute Resolution methods," Economics Working Paper Series 2208, University of St. Gallen, School of Economics and Political Science.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    2. Marselli, Riccardo & McCannon, Bryan C. & Vannini, Marco, 2015. "Bargaining in the shadow of arbitration," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 356-368.
    3. Orley Ashenfelter & Gordon B. Dahl, 2003. "Strategic Bargaining Behavior, Self-Serving Biases, and the Role of Expert Agents An Empirical Study of Final-Offer Arbitration," Working Papers 857, Princeton University, Department of Economics, Industrial Relations Section..
    4. Farmer, Amy & Pecorino, Paul, 2022. "Discovery in a screening model of final offer arbitration," International Review of Law and Economics, Elsevier, vol. 69(C).
    5. Nathalie Chappe, 2001. "L'analyse économique d'un mode de résolution des litiges : l'arbitrage," Revue Française d'Économie, Programme National Persée, vol. 15(4), pages 187-208.
    6. Orley Ashenfelter & David E. Bloom & Gordon B. Dahl, 2013. "Lawyers as Agents of the Devil in a Prisoner's Dilemma Game," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 10(3), pages 399-423, September.
    7. Juan-Pablo Montero, 2005. "A Model of Final Offer Arbitration in Regulation," Journal of Regulatory Economics, Springer, vol. 28(1), pages 23-46, July.
    8. Janet Currie, 1989. "Wages and Arbitrator Behavior," UCLA Economics Working Papers 562, UCLA Department of Economics.
    9. Daniel R. Marburger & Paul L. Burgess, 2004. "Can Prior Offers and Arbitration Outcomes Be Used to Predict the Winners of Subsequent Final‐Offer Arbitration Cases?," Southern Economic Journal, John Wiley & Sons, vol. 71(1), pages 93-102, July.
    10. Henry S. Farber, 2001. "Notes on the Economics of Labor Unions," Working Papers 831, Princeton University, Department of Economics, Industrial Relations Section..
    11. María Mercedes Adamuz & Clara Ponsatí, 2009. "Arbitration systems and negotiations," Review of Economic Design, Springer;Society for Economic Design, vol. 13(3), pages 279-303, September.
    12. Pecorino, Paul & Solomon, Michael & Van Boening, Mark, 2021. "Bargaining with voluntary transmission of private information: An experimental analysis of final offer arbitration," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 334-366.
    13. Orley Ashenfelter & Gordon Dahl, 2003. "Strategic Bargaining Behavior, Self-Serving Biases, and the Role of Expert Agents An Empirical Study of Final-Offer Arbitration," Working Papers 857, Princeton University, Department of Economics, Industrial Relations Section..
    14. Juan Pablo Montero, 2004. "A model of arbitration in regulation," Econometric Society 2004 Latin American Meetings 219, Econometric Society.
    15. Armstrong, Michael J. & Hurley, W. J., 2002. "Arbitration using the closest offer principle of arbitrator behavior," Mathematical Social Sciences, Elsevier, vol. 43(1), pages 19-26, January.
    16. Mark L. Egan & Gregor Matvos & Amit Seru, 2018. "Arbitration with Uninformed Consumers," NBER Working Papers 25150, National Bureau of Economic Research, Inc.
    17. Henry S. Farber, 2001. "Notes on the Economics of Labor Unions," Working Papers 831, Princeton University, Department of Economics, Industrial Relations Section..
    18. Dickinson, David L., 2006. "The chilling effect of optimism: The case of final-offer arbitration," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(1), pages 17-30, February.
    19. King King Li & Kang Rong, 2020. "The gambling effect of final-offer arbitration in bargaining," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 69(2), pages 475-496, March.
    20. Bolton, Gary E. & Katok, Elena, 1998. "Reinterpreting Arbitration's Narcotic Effect: An Experimental Study of Learning in Repeated Bargaining," Games and Economic Behavior, Elsevier, vol. 25(1), pages 1-33, October.

    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmic:v:3:y:2011:i:1:p:174-213. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.