Econometrica: Nov, 1992, Volume 60, Issue 6
An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems
Henry S. Farber, Janet Currie, Matthew Spiegel, Orley Ashenfelter
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.