Bargaining Outcomes with Double-Offer Arbitration

Final-Offer Arbitration and Risk Aversion in Bargaining

N are often conducted under the stipulation that an impasse is to be resolved using final-offer arbitration (FOA). In fact, FOA frequently is not needed; in Major League Baseball, for instance, more than 80% of the salary negotiations that could go to arbitration instead reach a bargained agreement. We show that the risk aversion of at least one side explains this phenomenon. We then model pay ...

Alternating-offer games with final-offer arbitration

I analyze an alternating-offer model that integrates the common practice of having an arbitrator determine the outcomes if both players’ offers are rejected. I assume that the arbitrator uses final-offer arbitration (as in professional baseball). I find that if the arbitrator does not excessively favor one player, then the unique subgame-perfect equilibrium always coincides with the subgame-per...

Bargaining with Voluntary Transmission of Private Information: Does the Use of Final Offer Arbitration Impede Settlement?

We identify two features of final offer arbitration (FOA) which may impede settlement in a bargaining game where asymmetric information drives the failure to settle. First, under FOA the informed party has an incentive not to voluntarily reveal private information. Revealing this information allows the previously uninformed party to submit a superior offer to the arbitrator to the detriment of ...

Bargaining with split-the-difference arbitration

We analyze an alternating-offer model in which an arbitrator uses the splitthe-difference arbitration rule to determine the outcome if both players’ offers are rejected by the opponents. We find that the usual chilling effect of split-the-difference arbitration only arises when the discount factor is sufficiently large. When the discount factor is sufficiently small, players tend to reach agree...

Bargaining with Asymmetric Uncertainty: Arbitration Mechanisms Compared