Bargaining in the Shadow of Arbitration

29 Pages Posted: 27 May 2013 Last revised: 10 May 2014

See all articles by Riccardo Marselli

Riccardo Marselli

Parthenope Universiy

Bryan C. McCannon

West Virginia University - College of Business & Economics

Marco Vannini

Università degli Studi di Sassari; Universita di Cagliari - Centre for North South Economic Research (CRENOS)

Date Written: May 27, 2013

Abstract

Arbitration, as an alternative to litigation for contract disputes, reduces costs and time. While it has frequently been thought of as a substitute to pretrial bargaining and litigation, in fact, parties may be able to reach a settlement privately while engaged in the arbitration process. Consequently, the institutional design of the arbitration may influence the bargaining. We develop a theoretical model of pre-arbitration bargaining that is able to identify the impact of the institutional features on its success. A detailed data set from arbitration proceedings in Italy is analyzed. The exogenous heterogeneity in the composition of the panel of arbitrators allows us to illustrate its effect on bargaining. We show that the number of arbitrators used interacts with their experience and independence to reduce uncertainty and facilitate settlement.

Keywords: arbitration, bargaining, contract dispute, Italy, settlement

JEL Classification: K41, C78

Suggested Citation

Marselli, Riccardo and McCannon, Bryan C. and Vannini, Marco, Bargaining in the Shadow of Arbitration (May 27, 2013). Available at SSRN: https://ssrn.com/abstract=2270481 or http://dx.doi.org/10.2139/ssrn.2270481

Riccardo Marselli

Parthenope Universiy ( email )

via Medina 40
Naples, 80133
Italy

HOME PAGE: http://marselli.altervista.org/

Bryan C. McCannon (Contact Author)

West Virginia University - College of Business & Economics ( email )

P.O. Box 6025
Morgantown, WV 26506
United States

Marco Vannini

Università degli Studi di Sassari ( email )

Via Regina Margherita 15
07100 Sassari
Italy

Universita di Cagliari - Centre for North South Economic Research (CRENOS) ( email )

V. S. Ignazio 78
Cagliari, 09124
ITALY

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