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The gambling effect of final-offer arbitration in bargaining

  • King King Li
  • Kang Rong
Research Article
  • 60 Downloads

Abstract

We study an alternating-offer bargaining model with arbitration. Our model has two key features. First, there is a deadline in bargaining. Second, whenever the bargaining deadline is reached, an arbitrator uses final-offer arbitration to determine the outcome. We find that if players are sufficiently patient, they will always reject opponents’ offers during bargaining, and thus, the game always moves to arbitration. Our result is in sharp contrast to the usual prediction in the literature that the threat of going to final-offer arbitration encourages players to reach negotiated agreements before arbitration. Our result is due to the so-called gambling effect of final-offer arbitration that we discover.

Keywords

Bargaining Alternating offer Final-offer arbitration Deadline 

JEL Classification

C78 J52 

Notes

References

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Shenzhen Audencia Business SchoolShenzhen UniversityShenzhenChina
  2. 2.School of Economics, and Key Laboratory of Mathematical Economics (SUFE)Shanghai University of Finance and EconomicsShanghaiChina

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