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Final-Offer Arbitration

Author

Listed:
  • Donald Wittman

    (Merrill College, University of California, Santa Cruz, California 95064)

Abstract

In final-offer arbitration the two parties to a dispute submit final offers to an arbitrator. The arbitrator then chooses as the binding solution that offer which is closest to his own view of the appropriate outcome. Because the disputants are imperfectly informed about the arbitrator's preferences, final-offer arbitration can be modeled as a game of imperfect information. Interesting questions arise concerning the nature of the optimal strategies and how they are affected by different characteristics of the arbitrator and the disputants. We provide conditions for an equilibrium to exist in a final-offer arbitration game when there are k issues, the probability function is not specified and the disputants are either risk averse or risk neutral. Furthermore, the players may have differing beliefs about the arbitrator's probability function. We demonstrate that increased risk aversion by one of the parties will result in both players choosing positions farther away from the more risk averse party. We also discover the affect of bias (as well as the effect of increased sensitivity) by the arbitrator on the positions taken by the players.

Suggested Citation

  • Donald Wittman, 1986. "Final-Offer Arbitration," Management Science, INFORMS, vol. 32(12), pages 1551-1561, December.
  • Handle: RePEc:inm:ormnsc:v:32:y:1986:i:12:p:1551-1561
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    File URL: http://dx.doi.org/10.1287/mnsc.32.12.1551
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    Citations

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    Cited by:

    1. Núñez, Matías & Laslier, Jean-François, 2015. "Bargaining through Approval," Journal of Mathematical Economics, Elsevier, vol. 60(C), pages 63-73.
    2. Anbarci, Nejat & Feltovich, Nick, 2012. "Bargaining with random implementation: An experimental study," Games and Economic Behavior, Elsevier, vol. 76(2), pages 495-514.
    3. Luke M. Froeb & Bernhard Ganglmair & Steven Tschantz, 2016. "Adversarial Decision Making: Choosing between Models Constructed by Interested Parties," Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 527-548.
    4. Willson, Stephen J., 2000. "Axioms for the outcomes of negotiation in matrix games," Mathematical Social Sciences, Elsevier, vol. 39(3), pages 323-348, May.

    More about this item

    Keywords

    arbitration; game theory;

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