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Finite Alternating-Move Arbitration Schemes and the Equal Area Solution

  • Nejat Anbarci

    ()

    (Department of Economics, Florida International University)

We start by considering the Alternate Strike (AS) scheme, a real-life arbitration scheme where two parties select an arbitrator by alternately crossing off at each round one name from a given panel of arbitrators. We find out that the AS scheme is not invariant to “bad” alternatives. We then consider another alternating-move scheme, the Voting by Alternating Offers and Vetoes (VAOV) scheme, which is invariant to bad alternatives. We fully characterize the subgame perfect equilibrium outcome sets of these above two schemes in terms of the rankings of the parties over the alternatives only. We also identify some of the typical equilibria of these above two schemes. We then analyze two additional alternating-move schemes in which players’ current proposals have to either honor or enhance their previous proposals. We show that the first scheme’s equilibrium outcome set coincides with that of the AS scheme, and the equilibrium outcome set of the second scheme coincides with that of the VAOV scheme. Finally, it turns out that all schemes’ equilibrium outcome sets converge to the Equal Area solution’s outcome of cooperative bargaining problem, if the alternatives are distributed uniformly over the comprehensive utility possibility set and as the number of alternatives tends to infinity.

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File URL: http://casgroup.fiu.edu/pages/docs/2247/1275232657_05-18.pdf
File Function: First version, 2005
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Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0518.

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Length: 23 pages
Date of creation: Nov 2005
Date of revision:
Publication status: Forthcoming in Theory and Decision.
Handle: RePEc:fiu:wpaper:0518
Contact details of provider: Postal: Miami, FL 33199
Phone: (305) 348-2316
Fax: (305) 348-1524
Web page: http://casgroup.fiu.edu/Economics/
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  1. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
  2. Orley Ashenfelter & David E. Bloom, 1983. "Models of Arbitrator Behavior: Theory and Evidence," NBER Working Papers 1149, National Bureau of Economic Research, Inc.
  3. David E. Bloom & Christopher L. Cavanagh, 1986. "An Analysis of the Selection of Arbitrators," NBER Working Papers 1938, National Bureau of Economic Research, Inc.
  4. Anbarci, Nejat, 1993. "Noncooperative Foundations of the Area Monotonic Solutions," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 245-58, February.
  5. Anbarci, Nejat & Bigelow, John P., 1994. "The area monotonic solution to the cooperative bargaining problem," Mathematical Social Sciences, Elsevier, vol. 28(2), pages 133-142, October.
  6. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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