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Arbitration systems and negotiations

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  • María Mercedes Adamuz
  • Clara Ponsatí

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.
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  • María Mercedes Adamuz & Clara Ponsatí, 2009. "Arbitration systems and negotiations," Review of Economic Design, Springer;Society for Economic Design, vol. 13(3), pages 279-303, September.
    • Handle: RePEc:spr:reecde:v:13:y:2009:i:3:p:279-303
    DOI: 10.1007/s10058-008-0057-4
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    Cited by:

    1. Nejat Anbarci & Kang Rong & Jaideep Roy, 2019. "Random-settlement arbitration and the generalized Nash solution: one-shot and infinite-horizon cases," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(1), pages 21-52, July.

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    More about this item

    Keywords

    Arbitration; Bargaining; Concessions; Negotiations; C72; C79;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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