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An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems

Author

Listed:
  • Orley Ashenfelter

    (Princeton University)

  • Janet Currie

    (University of California, Los Angeles)

  • Henry S. Farber

    (Massachusetts Institute of Technology)

  • Matthew Spiegel

    (Columbia University)

Abstract

This paper reports the results of a systematic experimental comparison of the effect of alternative arbitration systems on dispute rates. The key to our experimental design is the use of a common underlying distribution of arbitrator "fair" awards in the different arbitration systems. This allows us to compare dispute rates across different arbitration procedures where we hold fixed the amount of objective underlying uncertainty about the arbitration awards. There are three main findings. First, dispute rates are inversely related to the monetary costs of disputes. Dispute rates were much lower in cases where arbitration was not available so that the entire pie was lost in the event of a dispute. This confirms the empirical importance of the so-called "chilling effect" on bargaining that has been conjectured is produced by the adoption of arbitration systems. Second, the dispute rate in a final-offer arbitration system is at least as high as the dispute rate in a comparable conventional arbitration system. Contrary to the usual argument, we find no evidence that final-offer arbitration eliminates the chilling effect. Third, dispute rates are inversely related to the uncertainty costs of disputes. Dispute rates were lower in conventional arbitration treatments where the variance of the arbitration award was higher and imposed greater costs on risk-averse negotiators. Our results can also be interpreted as providing tentative evidence that the negotiators were risk-averse on average. Finally, we find general agreement between the dispute rates in our experiment and dispute rates found in the field in comparable settings.

Suggested Citation

  • Orley Ashenfelter & Janet Currie & Henry S. Farber & Matthew Spiegel, 1990. "An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems," Working Papers 647, Princeton University, Department of Economics, Industrial Relations Section..
  • Handle: RePEc:pri:indrel:267
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    References listed on IDEAS

    as
    1. Harrison, Glenn W, 1989. "Theory and Misbehavior of First-Price Auctions," American Economic Review, American Economic Association, vol. 79(4), pages 749-762, September.
    2. Currie, J. & Mcconnell, S., 1989. "Strikes And Arbitration In The Public Sector: Can Legislation Reduce Dispute Costs?," Papers 9, California Los Angeles - Applied Econometrics.
    3. Kalyan Chatterjee & William Samuelson, 1983. "Bargaining under Incomplete Information," Operations Research, INFORMS, vol. 31(5), pages 835-851, October.
    4. Henry S. Farber & Harry C. Katz, 1979. "Interest Arbitration, Outcomes, and the Incentive to Bargain," ILR Review, Cornell University, ILR School, vol. 33(1), pages 55-63, October.
    5. Tracy, Joseph S, 1986. "An Investigation into the Determinants of U.S. Strike Activity," American Economic Review, American Economic Association, vol. 76(3), pages 423-436, June.
    6. Orley Ashenfelter & David Bloom, 1981. "Models of Arbitrator Behavior: Theory and Evidence," Working Papers 526, Princeton University, Department of Economics, Industrial Relations Section..
    7. Bloom, David E & Cavanagh, Christopher L, 1986. "An Analysis of the Selection of Arbitrators," American Economic Review, American Economic Association, vol. 76(3), pages 408-422, June.
    8. 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.
    9. McConnell, Sheena, 1989. "Strikes, Wages, and Private Information," American Economic Review, American Economic Association, vol. 79(4), pages 801-815, September.
    10. Max H. Bazerman & Henry S. Farber, 1985. "Arbitrator Decision Making: When are Final Offers Important?," ILR Review, Cornell University, ILR School, vol. 39(1), pages 76-89, October.
    11. 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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    More about this item

    Keywords

    arbitration; bargaining experiments;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence

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