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Splitting-the-Difference in Interest Arbitration

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  • Henry S. Farber

Abstract

This study develops two models of the behavior of interest arbitrators in which the arbitrator has some exogenous notion of an equitable settlement and yet is also influenced to some extent by the positions of the parties. The author argues that it is the arbitrator's notion of an equitable outcome that determines the positions of the parties, and empirical evidence suggesting that the arbitrator merely splits the difference is misleading. In fact, the parties are likely to position themselves around the expected arbitration award, suggesting that the expected arbitration outcome shapes the parties' bargaining positions rather than the reverse. There is nevertheless some truth to the notion that an arbitrator who is sensitive to the demands of the parties can chill bargaining. The author therefore proposes that the arbitration award be made independent of actual negotiating positions through a closed-offer mechanism.

Suggested Citation

  • Henry S. Farber, 1981. "Splitting-the-Difference in Interest Arbitration," ILR Review, Cornell University, ILR School, vol. 35(1), pages 70-77, October.
    • Handle: RePEc:sae:ilrrev:v:35:y:1981:i:1:p:70-77
    DOI: 10.1177/001979398103500106
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    Citations

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    Cited by:

    1. Alan Speight & Dennis Thomas, 1997. "Arbitrator Decision‐Making in the Transfer Market: an Empirical Analysis," Scottish Journal of Political Economy, Scottish Economic Society, vol. 44(2), pages 198-215, May.
    2. David E. Bloom, 1988. "Arbitrator Behavior in Public Sector Wage Disputes," NBER Chapters, in: When Public Sector Workers Unionize, pages 107-128, National Bureau of Economic Research, Inc.
    3. Orley Ashenfelter & David Bloom, 1981. "Models of Arbitrator Behavior: Theory and Evidence," Working Papers 526, Princeton University, Department of Economics, Industrial Relations Section..
    4. repec:eee:labchp:v:2:y:1986:i:c:p:1039-1089 is not listed on IDEAS
    5. Yannick Gabuthy & Nicolas Jacquemet, 2007. "An Experimental Evaluation of Online Dispute Resolution [Une évaluation expérimentale des modes électroniques de résolution des litiges]," Post-Print halshs-00259457, HAL.
    6. Max H. Bazerman & Henry S. Farber, 1983. "Arbitrator Decision Making: When Are Final Offers Important?," NBER Working Papers 1183, National Bureau of Economic Research, Inc.
    7. David Dickinson, 2003. "Mediation, Walrasian Tâtonnement, and Negotiations as an Exchange Economy," Working Papers 2003-11, Utah State University, Department of Economics.
    8. Nathalie Chappe, 2001. "L'analyse économique d'un mode de résolution des litiges : l'arbitrage," Revue Française d'Économie, Programme National Persée, vol. 15(4), pages 187-208.
    9. Daniel R. Marburger & Paul L. Burgess, 2004. "Can Prior Offers and Arbitration Outcomes Be Used to Predict the Winners of Subsequent Final‐Offer Arbitration Cases?," Southern Economic Journal, John Wiley & Sons, vol. 71(1), pages 93-102, July.
    10. Henry S. Farber, 2001. "Notes on the Economics of Labor Unions," Working Papers 831, Princeton University, Department of Economics, Industrial Relations Section..
    11. Gershoni, Naomi, 2021. "Individual vs. group decision-making: Evidence from a natural experiment in arbitration proceedings," Journal of Public Economics, Elsevier, vol. 201(C).
    12. Henry S. Farber, 2001. "Notes on the Economics of Labor Unions," Working Papers 831, Princeton University, Department of Economics, Industrial Relations Section..
    13. Henry S. Farber & Max H. Bazerman, 1984. "The General Basis of Arbitrator Behavior: An Empirical Analysis of Conventional and Final-Offer Arbitration," NBER Working Papers 1488, National Bureau of Economic Research, Inc.
    14. Lawrence Hadley & John Ruggiero, 2006. "Final-offer arbitration in major league baseball: A nonparametric analysis," Annals of Operations Research, Springer, vol. 145(1), pages 201-209, July.
    15. Klement, Alon & Neeman, Zvika, 2012. "Does Information about Arbitrators’Win/Loss Ratios Improve Their Accuracy?," Foerder Institute for Economic Research Working Papers 275786, Tel-Aviv University > Foerder Institute for Economic Research.

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