An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems Author(s): Orley Ashenfelter, Janet Currie, Henry S. Farber and Matthew Spiegel Reviewed work(s): Source: Econometrica, Vol. 60, No. 6 (Nov., 1992), pp. 1407-1433 Published by: The Econometric Society Stable URL: http://www.jstor.org/stable/2951527 . Accessed: 26/12/2012 14:25
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AN EXPERIMENTAL COMPARISON OF DISPUTE RATES IN ALTERNATIVE ARBITRATION SYSTEMS
JANET CURRIE, HENRY S. FARBER, BY ORLEY ASHENFELTER, AND MATTHEWSPIEGEL1
This paper reports the results of a systematic experimental comparison of the effect of alternative arbitration systems on dispute rates. By using a common underlying distribution of arbitrator "fair" awards in the different arbitration systems we are able to compare dispute rates across different arbitration procedures while holding fixed the amount of objective uncertainty the bargainers face. The three main findings indicate that (i) dispute rates are inversely related to the monetary costs of disputes, (ii) the dispute rate in a final-offer arbitration system is at least as high as the dispute rate in a comparable conventional arbitration system, and (iii) dispute rates are inversely related to the uncertainty costs of disputes, indicating that some bargainers behave as if they were risk averse.
KEYWORDS:Dispute settlement, arbitration, bargaining, experiments.
1. INTRODUCTION PAPER REPORTS THE RESULTS of a systematic experimental comparison of the effect of alternative arbitration systems on dispute rates. Three types of arbitration are considered. The first is conventional arbitration (CA), where the arbitrator is free to impose any settlement he or she prefers. The second is final-offer arbitration (FOA), where the arbitrator is constrained to impose one or the other of specially-formulated last offers of the parties without any ability to compromise. The third is tri-offer arbitration (TRI), where the arbitrator is constrained to impose one of three outcomes: one or the other of the last offers of the parties or the recommendation of a neutral fact-finder.2 These mechanisms are commonly used to settle disputes that arise in the negotiation of labor agreements in the public sector (Lester (1984)). Conventional arbitration is also used to settle many commercial disputes, and it has been experimented with as an alternative to trials in civil litigation in a number THIS
IWe are indebted to Vernon Smith for his generous assistance and for the use of his laboratory facilities at the University of Arizona. The software we developed to implement the experiments reported herein is available for use by any interested party. We would like to thank David Card, Vincent Crawford, Keith Murnighan, Max Bazerman, three anonymous referees, and the participants at an MIT labor economics lunch for helpful comments and suggestions. Shawn LeMaster provided excellent programming assistance. Janet Currie acknowledges the support of the Social Science and Humanities Research Council of Canada and of the Alfred P. Sloan Foundation. Henry Farber acknowledges the support of the National Science Foundation. This work was partially
