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

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  • Kritikos, Alexander S.

Abstract

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.

Suggested Citation

  • Kritikos, Alexander S., 2005. "The Impact of Compulsory Arbitration on Bargaining Behavior: An Experimental Study," Discussion Papers 230, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  • Handle: RePEc:zbw:euvwdp:230
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    References listed on IDEAS

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    Cited by:

    1. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
    2. Ashenfelter, Orley & Bloom, David E. & Dahl, Gordon B., 2013. "Lawyers as Agents of the Devil in a Prisoner's Dilemma Game: Evidence from Long Run Play," IZA Discussion Papers 7245, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Bargaining; Arbitration; Experiments; Fair Awards;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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