Bargaining with Voluntary Transmission of Private Information: Does the Use of Final Offer Arbitration Impede Settlement?

Posted: 7 Mar 2003

See all articles by Amy Farmer

Amy Farmer

University of Arkansas - Department of Economics

Paul Pecorino

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

Multiple version iconThere are 2 versions of this paper

Abstract

We identify two features of final offer arbitration (FOA) which may impede settlement in a bargaining game where asymmetric information drives the failure to settle. First, under FOA, the informed party has an incentive to conceal private information about the expected outcome in arbitration from his bargaining partner. Revealing this information allows the previously uninformed party to submit a more advantageous offer to the arbitrator to the detriment of the informed party. Second, in a two-type model, the uninformed player may choose to arbitrate all cases, a result which never occurs in a simple litigation game. Each player's offer directly affects the outcome of arbitration under FOA, and it is this feature that generates impediments to settlement that are not observed in a simple litigation game. Both impediments to settlement are removed if bargaining is allowed to take place after potentially binding offers have been submitted to the arbitrator.

Suggested Citation

Farmer, Amy and Pecorino, Paul, Bargaining with Voluntary Transmission of Private Information: Does the Use of Final Offer Arbitration Impede Settlement?. The Journal of Law, Economics, and Organization, Vol. 19, No. 1, pp. 64-82, 2003, Available at SSRN: https://ssrn.com/abstract=355200

Amy Farmer (Contact Author)

University of Arkansas - Department of Economics ( email )

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

Paul Pecorino

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

P.O. Box 870244
Tuscaloosa, AL 35487
United States
205-348-0379 (Phone)
205-348-0590 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
414
PlumX Metrics