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American Economic Journal: Microeconomics: Vol. 3 No. 1 (February 2011)

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A Welfare Analysis of Arbitration

Article Citation

Olszewski, Wojciech. 2011. "A Welfare Analysis of Arbitration." American Economic Journal: Microeconomics, 3(1): 174-213.

DOI: 10.1257/mic.3.1.174

Abstract

The paper compares conventional and final-offer arbitration. One party is supposed to make a payment to another party, whose amount depends on a state. Under one scenario, parties obtain signals about the state, which cannot be recognized by the opponents. If the arbitrator's ability of recognizing signals is high, the frequency of requesting arbitration is lower under conventional than under final-offer arbitration. If this ability is low, final-offer arbitration dominates conventional arbitration in quite a similar sense. Under the second scenario, parties believe that their opponents have wrong signals. Then, conventional arbitration approximates the original outcome better than final-offer arbitration. (JEL C78, D82, D86, J52)

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Authors

Olszewski, Wojciech (Northwestern U)

JEL Classifications

C78: Bargaining Theory; Matching Theory
D82: Asymmetric and Private Information
D86: Economics of Contract: Theory
J52: Dispute Resolution: Strikes, Arbitration, and Mediation; Collective Bargaining

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