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Models of Arbitrator Behavior: Theory and Evidence


  • Orley Ashenfelter

    (Princeton University)

  • David Bloom

    (Carnegie Mellon University)


Our purpose in this paper is to open up the empirical analysis of some simple models of arbitrator behavior under alternative mechanisms and in different economic environments. We do this by studying the outcomes of the first two years of operation of a New Jersey statute that mandates the arbitration of unsettled pay disputes by New Jersey police officers and the municipalities that employ them. This remarkable statute provides for conventional arbitration of pay disputes if the two parties can agree to this, but requires the use of final-offer arbitration if they cannot. Con- sequently, the results of both mechanisms may be analyzed and compared. Although further evidence from the New Jersey experience with an arbitration statute is necessary before firm conclusions should be drawn, several preliminary results of the empirical analysis are worth empha- sizing. First, the New Jersey system does seem to confront the parties with considerable uncertainty about the arbitration decisions they can expect. The mean of arbitrator's preferred awards is apparently closely related to alternative local wage settlements, but these decisions still contain considerable variability around this mean. Second, the union final offers have thus far been very conservative relative to the distribution of arbitrator's preferred settlements. This is demonstrated both by (a) the low values of union and employer final offers relative to the mean of con- ventionally arbitrated settlements, and by (b) the high correlation between the incidence of employer victories and the mean of union and employer final offers. The result is that a high proportion of union offers are being accepted by arbitrators and this proportion is predictable from the data on conventionally arbitrated outcomes alone. Whether this state of affairs simply reflects the risk aversion of the parties or a mistaken view by the parties of what arbitrators will allow is an important subject for further research. If the latter is the case the central tendency of future arbi- trated settlements may be considerably greater than has heretofore been seen, but employer victories are also likely to become considerably more numerous. In either case, our empirical results suggest that the form of the arbitration system adopted may have a considerable impact on the size of arbitration awards.

Suggested Citation

  • Orley Ashenfelter & David Bloom, 1981. "Models of Arbitrator Behavior: Theory and Evidence," Working Papers 526, Princeton University, Department of Economics, Industrial Relations Section..
  • Handle: RePEc:pri:indrel:146

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    References listed on IDEAS

    1. William M. Landes & Richard A. Posner, 1978. "Adjudication as a Private Good," NBER Working Papers 0263, National Bureau of Economic Research, Inc.
    2. David E. Card, 1983. "Arbitrators as Lie Detectors," Working Papers 172, Princeton University, Department of Economics, Industrial Relations Section..
    3. repec:fth:prinin:163 is not listed on IDEAS
    4. Crawford, Vincent P, 1979. "On Compulsory-Arbitration Schemes," Journal of Political Economy, University of Chicago Press, vol. 87(1), pages 131-159, February.
    5. repec:fth:prinin:172 is not listed on IDEAS
    6. Orley Ashenfelter & David Bloom, 1983. "The Pitfalls in Judging Arbitrator Impartiality by Win-Loss Tallies Under Final-Offer Arbitration," Working Papers 543, Princeton University, Department of Economics, Industrial Relations Section..
    7. Orley Ashenfelter & David Bloom, 1983. "The Pitfalls in Judging Arbitrator Impartiality by Win-Loss Tallies Under Final-Offer Arbitration," Working Papers 543, Princeton University, Department of Economics, Industrial Relations Section..
    8. Henry S. Farber, 1981. "Splitting-the-Difference in Interest Arbitration," ILR Review, Cornell University, ILR School, vol. 35(1), pages 70-77, October.
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    Cited by:

    1. Juan Pablo Montero, 2004. "A model of arbitration in regulation," Econometric Society 2004 Latin American Meetings 219, Econometric Society.
    2. Carmen Herrero & Juan Moreno-Ternero & Giovanni Ponti, 2010. "On the adjudication of conflicting claims: an experimental study," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 34(1), pages 145-179, January.
    3. Ashenfelter, O. & Bloom, D., 1990. "Lawyers As Agents Of The Devil In A Prisoner'S Dilemma Game," Papers 57, Princeton, Woodrow Wilson School - Discussion Paper.
    4. 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.
    5. David Dickinson, 2003. "Mediation, Walrasian Tâtonnement, and Negotiations as an Exchange Economy," Working Papers 2003-11, Utah State University, Department of Economics.
    6. Ehrenberg, Ronald G. & Schwarz, Joshua L., 1987. "Public-sector labor markets," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 2, chapter 22, pages 1219-1260 Elsevier.
    7. Orley Ashenfelter & Gordon B. Dahl, 2003. "Strategic Bargaining Behavior, Self-Serving Biases, and the Role of Expert Agents An Empirical Study of Final-Offer Arbitration," Working Papers 857, Princeton University, Department of Economics, Industrial Relations Section..
    8. Alexandre Mas, 2006. "Pay, Reference Points, and Police Performance," The Quarterly Journal of Economics, Oxford University Press, vol. 121(3), pages 783-821.
    9. Henry S. Farber & Max H. Bazerman, 1984. "The General Basis of Arbitrator Behavior: An Empirical Analysis of Conventional and Final-Offer Arbitration," NBER Working Papers 1488, National Bureau of Economic Research, Inc.
    10. María Mercedes Adamuz & Clara Ponsatí, 2009. "Arbitration systems and negotiations," Review of Economic Design, Springer;Society for Economic Design, vol. 13(3), pages 279-303, September.
    11. Max H. Bazerman & Henry S. Farber, 1983. "Arbitrator Decision Making: When Are Final Offers Important?," NBER Working Papers 1183, National Bureau of Economic Research, Inc.

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    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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