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The Impact of Compulsory Arbitration on Bargaining Behavior: An Experimental Study

  • Alexander Kritikos

    ()

A series of experiments compares bargaining behavior under three different settings: no arbitration, conventional and final offer arbitration. Under no arbitration disputes with zero payoffs were around 10%, while the pie was equally split in less than half of the cases. Under conventional arbitration - where the arbitrator is free in choosing his award - every third negotiation ended in dispute giving evidence for a modified chilling effect. Under final offer arbitration – where the arbitrator has to award to the bargainers either one of their final offers - there was only a small increase of disputes while equal splits have doubled to 80%. The experiment shows final offer arbitration, though having lower dispute rates, to interfer more with bargaining behavior than conventional arbitration where the bargaining behavior was similar to the no-arbitration treatment. Under final offer arbitration, negotiators adjust their bargaining strategy to the arbitrator´s expected award.

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File URL: http://hdl.handle.net/10.1007/s10101-006-0011-2
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Article provided by Springer in its journal Economics of Governance.

Volume (Year): 7 (2006)
Issue (Month): 3 (August)
Pages: 293-315

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Handle: RePEc:spr:ecogov:v:7:y:2006:i:3:p:293-315
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