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

Max Bazerman and Henry Farber
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Max Bazerman: Kellogg Graduate School of Management
Henry Farber: MIT

Working Papers from Princeton University. Economics Department.

Abstract: One prominent explanation for disagreement in bargaining is that the parties have divergent and relatively optimistic expectations regarding the ultimate outcome if they fail to agree. The fact that settlement rates are much higher where final-offer arbitration is the dispute settlement procedure than where conventional arbitration is the dispute settlement procedure is used as the basis of a test of the role of divergent 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.

Keywords: Game Theory; Bargaining Theory; Collective Bargaining (search for similar items in EconPapers)
JEL-codes: C70 C78 J52 (search for similar items in EconPapers)
Date: 1987-01
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:1987-1

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