Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes

Henry S. Farber and Max H. Bazerman

The Quarterly Journal of Economics, 1989, vol. 104, issue 1, 99-120

Abstract: The fact that settlement rates are much higher, where final-offer arbitration rather than conventional arbitration is the dispute settlement procedure, is used as the basis of a test of the role of divergent and relatively optimistic expectations in causing disagreement in negotiations. Calculations of identical-expectations contract zones using existing estimates of models of arbitrator behavior yield larger identical-expectations contract zones in conventional arbitration than in final-offer arbitration. This evidence clearly suggests that divergent expectations alone are not an adequate explanation of disagreement in labor-management negotiations. A number of alternative explanations for disagreement are suggested and evaluated.

Date: 1989
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