Amended Final-Offer Arbitration Outperforms Final-Offer Arbitration

Posted: 16 Jun 2008

See all articles by Cary A. Deck

Cary A. Deck

University of Alabama - Department of Economics, Finance and Legal Studies

Amy Farmer

University of Arkansas - Department of Economics

Dao-Zhi Zeng

Tohoku University - Graduate School of Information Sciences

Date Written: Fall 2007

Abstract

Amended final-offer arbitration (AFOA) has been developed as an attractive alternative mechanism to final-offer arbitration (FOA). Under AFOA, more reasonable offers win, but the outcome is determined by the loser's offer and the arbitrator's value. In AFOA, disputants making extreme offers are penalized, thereby encouraging compromise. This article compares the theoretical and behavioral properties of AFOA and FOA. Controlled laboratory experiments indicate that AFOA significantly outperforms FOA, generating substantially greater prearbitration settlement. Consistent with theoretical predictions, offers converge under AFOA; however, FOA offers neither converge nor are consistent with theoretical predictions. This work suggests practitioners should consider adopting AFOA over FOA.

Suggested Citation

Deck, Cary A. and Farmer, Amy and Zeng, Dao-Zhi, Amended Final-Offer Arbitration Outperforms Final-Offer Arbitration (Fall 2007). American Law and Economics Review, Vol. 9, No. 2, pp. 384-407, 2007, Available at SSRN: https://ssrn.com/abstract=1145994 or http://dx.doi.org/10.1093/aler/ahm012

Cary A. Deck (Contact Author)

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Amy Farmer

University of Arkansas - Department of Economics ( email )

Fayetteville, AR 72701
United States
501-575-6093 (Phone)
501-575-3241 (Fax)

Dao-Zhi Zeng

Tohoku University - Graduate School of Information Sciences ( email )

Aramaki aza Aoba 6-3-09, Aoba-ku
Sendai, Miyagi 980-8579
Japan
+81 22 795 4380 (Phone)
+81 22 795 4380 (Fax)

HOME PAGE: http://www.se.is.tohoku.ac.jp/~zeng/eng.html

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