Interest Arbitration, Outcomes, and the Incentive to Bargain

Abstract

"This study develops a model of bargaining that demonstrates that an interest arbitration procedure will encourage negotiated settlements to the extent that risk aversion dominates the preferences of the parties and there is uncertainty regarding the arbitrator's behavior. The authors conclude that it is likely that risk aversion does dominate preferences, but the evidence is not conclusive. They also argue that uncertainty may be reduced over time for various reasons, leading to increased use of arbitration and a convergence between the terms of negotiated and arbitrated agreements."