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Amended final-offer arbitration over an uncertain value: A comparison with CA and FOA

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  • Cary Deck
  • Amy Farmer
  • Dao-Zhi Zeng

Abstract

Arbitration is increasingly employed to resolve disputes. Two arbitration mechanisms, conventional arbitration (CA) and final-offer arbitration (FOA) are commonly utilized, but previous theoretical and empirical research has found that they are unsatisfactory. Several alternative mechanisms have been proposed, but ultimately laboratory research has found that they do not offer an improvement. An exception is amended final-offer arbitration (AFOA), which not only has desirable theoretical properties but also has been demonstrated to outperform FOA in the laboratory. This study provides a direct laboratory comparison of AFOA with CA. Also, by utilizing an environment with an uncertain payoff to one of the parties, this study tests the robustness of AFOA’s performance relative to FOA. The results indicate that AFOA does outperform FOA, but that AFOA is only weakly better than CA. Copyright Economic Science Association 2007

Suggested Citation

  • Cary Deck & Amy Farmer & Dao-Zhi Zeng, 2007. "Amended final-offer arbitration over an uncertain value: A comparison with CA and FOA," Experimental Economics, Springer;Economic Science Association, vol. 10(4), pages 439-454, December.
    • Handle: RePEc:kap:expeco:v:10:y:2007:i:4:p:439-454
    DOI: 10.1007/s10683-006-9146-9
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    References listed on IDEAS

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    3. 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.
    4. Yannick Gabuthy & Eve-Angéline Lambert, 2013. "Freedom to bargain and disputes’ resolution," European Journal of Law and Economics, Springer, vol. 36(2), pages 373-388, October.
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    6. Daniel M. Nedelescu, 2019. "Alpha-Final Offer Arbitration: The Best Way to Avoid Negotiation Failure," Group Decision and Negotiation, Springer, vol. 28(6), pages 1109-1128, December.
    7. Kosmopoulou, Georgia & Nedelescu, Daniel M., 2022. "The effect of a larger contract zone on agreement rates under arbitration," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 100(C).

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