Group Decision and Negotiation

, Volume 3, Issue 3, pp 285–301 | Cite as

Game-theoretic properties of Final-Offer Arbitration

  • D. Marc Kilgour
Article

Abstract

Final-Offer Arbitration (FOA) is a dispute settlement procedure in which an arbitrator chooses one side's final position as the resolution. Game-theoretic models of FOA in two-sided interest disputes are reviewed, especially models of the disputants' final offer choices under uncertainty about the arbitrator's preferences. The extent to which the Brams-Merrill Theorem (1986) reveals optimal strategic behavior under FOA, and the implications for efficiency and equity, are assessed. Analysis of a model not satisfying the hypotheses of the Theorem suggests that, for some arbitrators, FOA can have an undesirable tendency. Another game model is used to address the question of how disputants' differential risk-aversion is reflected in their strategic behavior, and in the fairness of FOA outcomes. This calculation clarifies some apparently contradictory empirical evidence about FOA.

Key words

Final-Offer Arbitration Non-Cooperative Game Theory Brams-Merrill Theorem Median Convergence Risk Aversion 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Ashenfelter, O. and D.E. Bloom (1984). “Models of Arbitrator Behavior: Theory and Evidence,”American Economic Review 74, 111–125.Google Scholar
  2. Brams, S.J., D.M. Kilgour, and S. Merrill, III. (1991). “Arbitration Procedures.” In H.P. Young (ed.),Negotiation Analysis. Ann Arbor, MI: University of Michigan Press, pp. 47–65.Google Scholar
  3. Brams, S.J., D.M. Kilgour, and S. Weber. (1991). “Sequential Arbitration Procedures: Dynamic versus Static Models of ADR.” In S.S. Nagel and M.K. Mills (eds.),Systematic Analysis in Dispute Resolution. New York, NY: Quorum Books, pp. 199–220.Google Scholar
  4. Brams, S.J., and S. Merrill, III. (1992). “Arbitration Procedures with the Possibility of Compromise,”Control and Cybernetics 21(1), 1–19.Google Scholar
  5. Brams, S.J., and S. Merrill, III. (1991). “Final-Offer Arbitration with a Bonus,”European Journal of Political Economy 7, 79–92.Google Scholar
  6. Brams, S.J., and S. Merrill, III. (1985). “Response to Rabow,”Management Science 31, 375–376.Google Scholar
  7. Brams, S.J., and S. Merrill, III. (1983). “Equilibrium Strategies for Final-Offer Arbitration: There Is No Median Convergence,”Management Science 29, 927–941.Google Scholar
  8. Chass, M. (1990). “Players Big Winners as Arbitration Ends,”New York Times, February 22 B14.Google Scholar
  9. Chatterjee, K. (1981). “Comparison of Arbitration Procedures: Models with Complete and Incomplete Information,”IEEE Transactions: Systems, Man, and Cybernetics, SMC-11, 101–109.Google Scholar
  10. Farber, H.S. (1980). “An Analysis of Final-Offer Arbitration,”Journal of Conflict Resolution 24, 683–705.Google Scholar
  11. Fudenberg, D., and J. Tirole. (1991).Game Theory. Cambridge, MA: MIT Press.Google Scholar
  12. Kreps, D.M. (1988).Notes on the Theory of Choice. Boulder, CO: Westview Press.Google Scholar
  13. Nash, J. (1951). “Non-cooperative Games,”Annals of Mathematics 54, 286–295.Google Scholar
  14. Rehmus, C.M. (1979). “Interest Arbitration.” In Public Employment Relations Services (ed.)Portrait of a Process: Collective Negotiations in Public Employment. Fort Washington, PA: Labor Relations Press, pp. 209–233.Google Scholar
  15. Samuelson, W.F. (1991). “Final-Offer Arbitration Under Incomplete Information,”Management Science 37, 1234–1247.Google Scholar
  16. Stevens, C.M. (1966). “Is Compulsory Arbitration Compatible with Bargaining?”Industrial Relations 5, 38–52.Google Scholar
  17. Suro, R. (1992). “Congress Forces End to Shutdown of Train Services,”New York Times, June 26, A1.Google Scholar
  18. Wittman, D. (1986). “Final-Offer Arbitration,”Management Science 32(12), 1551–1561.Google Scholar

Copyright information

© Kluwer Academic Publishers 1994

Authors and Affiliations

  • D. Marc Kilgour
    • 1
  1. 1.Department of MathematicsWilfrid Laurier UniversityWaterlooCanada

Personalised recommendations