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A model of arbitration in regulation

Author

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  • Juan Pablo Montero

Abstract

I study a regulatory process in which both the regulator and the regulated firm propose prices that in case of disagreement are settled through final-offer arbitration – a practice currently used in Chile for setting prices in the water sector. Rather than submitting a single offer, each party simultaneously submit offers for each of the cost units in which the firm is divided. This multiplicity is believed to be responsible for the great divergence between parties’ offers observed in practice. I show, however, that reducing the number of offers makes little difference unless parties are required to submit a single offer

Suggested Citation

  • Juan Pablo Montero, 2004. "A model of arbitration in regulation," Econometric Society 2004 Latin American Meetings 219, Econometric Society.
  • Handle: RePEc:ecm:latm04:219
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    File URL: http://repec.org/esLATM04/up.3616.1082044245.pdf
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    References listed on IDEAS

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    1. Gibbons, Robert, 1988. "Learning in Equilibrium Models of Arbitration," American Economic Review, American Economic Association, vol. 78(5), pages 896-912, December.
    2. 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.
    3. 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.
    4. Vogelsang, Ingo, 2002. "Incentive Regulation and Competition in Public Utility Markets: A 20-Year Perspective," Journal of Regulatory Economics, Springer, vol. 22(1), pages 5-27, July.
    5. 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.
    6. Henry S. Farber & Max H. Bazerman, 1987. "Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes."," NBER Working Papers 2139, National Bureau of Economic Research, Inc.
    7. Orley Ashenfelter & David Bloom, 1981. "Models of Arbitrator Behavior: Theory and Evidence," Working Papers 526, Princeton University, Department of Economics, Industrial Relations Section..
    8. Henry S. Farber & Max H. Bazerman, 1989. "Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes," The Quarterly Journal of Economics, Oxford University Press, vol. 104(1), pages 99-120.
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    Cited by:

    1. Eduardo Saavedra, 2005. "Marco Regulatorio de los Servicios Básicos en Chile," ILADES-Georgetown University Working Papers inv167, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.

    More about this item

    Keywords

    final-offer arbitration; price regulation; Nash equilibrium;

    JEL classification:

    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General

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