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)
"A Welfare Analysis of Arbitration."
American Economic Journal: Microeconomics,
Bargaining Theory; Matching Theory
Asymmetric and Private Information
Economics of Contract: Theory
Dispute Resolution: Strikes, Arbitration, and Mediation; Collective Bargaining