Arbitration Systems and Negotiations

Clara Ponsati, Adamuz and Mercedes

No 118, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: We consider a model of bargaining by concessions where agents can terminate negotiations by accepting the settlement of an arbitrator. The impact of pragmatic arbitrators -that enforce concessions that precede their appointment - is compared with that of arbitrators that act on principle - ignoring prior concessions. We show that while the impact of arbitration always depends on how costly that intervention is relative to direct negotiation, the range of scenarios for which it has an impact, and the precise effect of such impact, does change depending on the behavior -pragmatic or on principle- of the arbitrator. Moreover the requirement of mutual consent matters only when the arbitrator is pragmatic. Efficiency and equilibrium are not aligned since agents sometimes reach negotiated agreements when an arbitrated settlement is more efficient and vice-versa. The second type of inefficiency is avoided when arbitrators are appointed by mutual consent and act pragmatically. What system of arbitration has the best ex-ante performance depends on the distributions of arbitration and negotiation costs, and each can be the second best optimal for plausible environments.

Keywords: arbitration; bargaining; concessions (search for similar items in EconPapers)
JEL-codes: C78 K41 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-bec, nep-law and nep-reg
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Journal Article: Arbitration systems and negotiations (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:latm04:118

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