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Amended final-offer arbitration over an uncertain value: A comparison with CA and FOA

Published online by Cambridge University Press:  14 March 2025

Cary Deck ,
Amy Farmer  and
Dao-Zhi Zeng
Cary Deck*
Affiliation:
Department of Economics, Sam M. Wlaton College of Business, University of Arkansas, Fayetteville, AR 72701
Amy Farmer*
Affiliation:
Department of Economics, Sam M. Wlaton College of Business, University of Arkansas, Fayetteville, AR 72701
Dao-Zhi Zeng*
Affiliation:
Graduate School of Management, Kagawa University, Takamatsu, 760-8523, Japan and Center for Research of Private Economy, Zhejiang University, Hangzhou 310027, China
*
e-mail: [email protected]
e-mail: [email protected]
e-mail: [email protected]
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Abstract

Arbitration is increasingly employed to resolve disputes. Two arbitration mechanisms, conventional arbitration (CA) and final-offer arbitration (FOA) are commonly utilized, but previous theoretical and empirical research has found that they are unsatisfactory. Several alternative mechanisms have been proposed, but ultimately laboratory research has found that they do not offer an improvement. An exception is amended final-offer arbitration (AFOA), which not only has desirable theoretical properties but also has been demonstrated to outperform FOA in the laboratory. This study provides a direct laboratory comparison of AFOA with CA. Also, by utilizing an environment with an uncertain payoff to one of the parties, this study tests the robustness of AFOA's performance relative to FOA. The results indicate that AFOA does outperform FOA, but that AFOA is only weakly better than CA.

Keywords

ArbitrationBargainingDispute resolutionExperiments

JEL classification

C7: Game Theory and Bargaining Theory C9: Design of Experiments K4: Legal Procedure, the Legal System, and Illegal Behavior J5: Labor–Management Relations, Trade Unions, and Collective Bargaining
Type
Research Article
Information
Experimental Economics , Volume 10 , Issue 4 , December 2007 , pp. 439 - 454
Copyright
Copyright © 2007 Economic Science Association

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