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

Alexander Kritikos

No 230, Discussion Papers from European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics

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 in choosing his award - every third negotiation ended in dispute giving evidence for a modified chilling effect. Under final offer arbitration - where the arbitrator has to award to the bargainers either one of their final offers - there was only a small increase of disputes while equal splits have doubled to 80%. The experiment shows final offer arbitration, though having lower dispute rates, to interfer more with bargaining behavior than conventional arbitration where the bargaining behavior was similar to the no-arbitration treatment. Under final offer arbitration, negotiators adjust their bargaining strategy to the arbitrator's expected award.

Keywords: Bargaining; Arbitration; Experiments; Fair Awards (search for similar items in EconPapers)
JEL-codes: C78 C91 D63 (search for similar items in EconPapers)
Date: 2005
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Journal Article: The Impact of Compulsory Arbitration on Bargaining Behavior: An Experimental Study (2006)
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