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The Impact of Compulsory Arbitration on Bargaining Behavior: An Experimental Study

Economics of Governance volume 7, pages 293–315 (2006)Cite this article

Abstract

A series of experiments compares bargaining behavior under three different settings: no arbitration, conventional and final-offer arbitration. Under no arbitration, disputes with zero payoffs were around 10%, while the pie was equally split in less than half of the cases. Under conventional arbitration – where the arbitrator is free to choose his award – every third negotiation ended in dispute, evidencing a modified chilling effect. Under final-offer arbitration – where the arbitrator must award the bargainers either one of their final offers – there was only a small increase in disputes, while equal splits doubled to 80%. The experiment shows that final-offer arbitration, despite having lower dispute rates, interferes more with bargaining behavior than conventional arbitration, where bargaining behavior is similar to that seen in the no-arbitration treatment. Under final-offer arbitration, negotiators adjust their bargaining strategy on the arbitrator’s expected award.

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Authors and Affiliations

  1. Fakultät für Wirtschaftswissenschaften, Department of Economics, Europa-Universität Viadrina, Große Scharrnstr. 59, 15230, Frankfurt (Oder), Germany

    Alexander S. Kritikos

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  1. Alexander S. Kritikos
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Correspondence to Alexander S. Kritikos.

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Kritikos, A.S. The Impact of Compulsory Arbitration on Bargaining Behavior: An Experimental Study. Economics of Governance 7, 293–315 (2006). https://doi.org/10.1007/s10101-006-0011-2

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  • DOI: https://doi.org/10.1007/s10101-006-0011-2

Keywords

  • Bargaining
  • Arbitration
  • Experiments
  • Fair Awards

JEL Classification Numbers

  • C78
  • C91
  • D63