Hostname: page-component-7b9c58cd5d-bslzr Total loading time: 0.001 Render date: 2025-03-15T02:07:05.388Z Has data issue: false hasContentIssue false
  • English
  • Français

Bargaining Outcomes with Double-Offer Arbitration

Published online by Cambridge University Press:  14 March 2025

David L. Dickinson
David L. Dickinson*
Affiliation:
Department of Economics, Appalachian State University, Boone, North Carolina, 28608
*
email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Increasingly, arbitration is becoming used to resolve bargaining disputes in a variety of settings. Reducing dispute rates is often listed as a main goal in designing arbitration mechanisms. Conventional arbitration and final-offer arbitration are two commonly used procedures, but theoretical examinations of these arbitration procedures show that disputants’ final bargaining positions do not converge and disagreement is likely. This article contains results from a set of experiments designed to compare bargaining outcomes under the two commonly used arbitration procedures with outcomes under an innovative procedure called “double-offer” arbitration (Zeng et al., 1996). This procedure requires that disputants make two final offers at impasse: a primary and a secondary offer. The arbitrator evaluates the pairs of offers using a linear criterion function, and theory suggests the secondary offers converge to the median of the arbitrator's preferred settlement distribution. Because the procedure's rules are that convergence of offers generates a settlement at those offers, this theoretical convergence result implies that arbitration is not needed in the end. Experimental results indicate that dispute rates in double-offer arbitration are, on average, about the same as dispute rates in conventional arbitration. However, other results show reason to favor double-offer arbitration. Specifically, in repeated bargaining, there is concern over whether use of an arbitration procedure becomes addictive and makes bargainers more likely to use the procedure in the future-a “narcotic effect.” The data show that double-offer arbitration is non-addictive, whereas both conventional and final-offer arbitration are.

Keywords

dispute/conflict resolutionexperimentsexpectations

JEL classification

D74: Conflict • Conflict Resolution • Alliances • Revolutions D84: Expectations • Speculations J52: Dispute Resolution: Strikes, Arbitration, and Mediation • Collective Bargaining C90: General
Type
Research Article
Information
Experimental Economics , Volume 8 , Issue 2 , June 2005 , pp. 145 - 166
Copyright
Copyright © 2005 Economic Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ashenfelter, O., Currie, J., Farber, H.S., and Spiegel, M. (1992). “An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems.” Econometrica. 60, 1407–1433.CrossRefGoogle Scholar
Babcock, L., Farber, H., Fobian, C., and Shafir, E. (1993). “Forming Beliefs about Adjudicated Outcomes: Perceptions of Risk and Reservation Values.” International Review of Law and Economics. 15, 289–303.CrossRefGoogle Scholar
Babcock, L. and Loewenstein, G. (1997). “Explaining Bargaining Impasse: The Role of Self-Serving Biases.” Journal of Economic Perspectives. 11, 109–126.CrossRefGoogle Scholar
Babcock, L., Loewenstein, G., and Issacharof, S. (1997). “Creating Convergence: Debiasing Biased Litigants.” Law and Social Inquiry. 22, 401–413.CrossRefGoogle Scholar
Babcock, L., Wang, X., and Loewenstein, G. (1996). “Choosing the Wrong Pond: Social Comparisons that Reflect a Self-Serving Bias.” Quarterly Journal of Economics. 111, 1–19.CrossRefGoogle Scholar
Bolton, G.E. and Katok, E. (1998). “Reinterpreting Arbitration's Narcotic Effect: An Experimental Study of Learning in Repeated Bargaining.” Games and Economic Behavior. 25, 1–33.CrossRefGoogle Scholar
Brams, S. and Merrill, S. III (1986). “Binding Versus Final-Offer Arbitration: A Combination Is Best.” Management Science. 32, 1346–1355.CrossRefGoogle Scholar
Brams, S.J. and Merrill, S. III (1983). “Equilibrium Strategies for Final-Offer Arbitration: There Is No Median Convergence.” Management Science. 29, 927–941.CrossRefGoogle Scholar
Butler, R.J. and Ehrenberg, R.G. (1981). “Estimating the Narcotic Effect of Public Sector Impasse Procedures.” Industrial and Labor Relations Review. 35, 3–20.CrossRefGoogle Scholar
Crawford, V.P. (1979). “On Compulsory Arbitration Schemes.” Journal of Political Economy. 87, 131–159.CrossRefGoogle Scholar
Deck, C. and Farmer, A. “Bargaining Over an Uncertain Value: Arbitration Mechanisms Compared.” Working paper University of Arkansas.Google Scholar
Dickinson, D.L. (2004). “A Comparison of Conventional, Final-Offer, and ‘Combined’ Arbitration for Dispute Resolution.” Industrial and Labor Relations Review. 57(2), 288–301.Google Scholar
Dickinson, D.L. (2003). “Expectations and Comparative Arbitration Institutions.” Utah State University ERI working paper #03-02.Google Scholar
Farber, H.S. (1980). “An Analysis of Final-Offer Arbitration.” The Journal of Conflict Resolution. 24, 683–705.CrossRefGoogle Scholar
Farber, H.S. and Katz, H.C. (1979). “Interest Arbitration, Outcomes, and the Incentive to Bargain.” Industrial and Labor Relations Review. 33, 55–63.CrossRefGoogle Scholar
Farber, H.S. and Bazerman, M.H. (1989). “Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes.” Quarterly Journal of Economics. 104, 99–120.CrossRefGoogle Scholar
Pecorino, P. and Boening, M.V. (2001). “Bargaining and Information: An Empirical Analysis of a Multistage Arbitration Game.” Journal of Labor Economics. 19, 922–948.CrossRefGoogle Scholar
Stevens, C.M. (1966). “Is Compulsory Arbitration Compatible with Bargaining?” Industrial Relations. 19, 38–52.CrossRefGoogle Scholar
Zeng, D., Nakamura, S., and Ibaraki, T. (1996). “Double-Offer Arbitration.” Mathematical Social Sciences. 31, 147–170.CrossRefGoogle Scholar