Learning in Equilibrium Models of Arbitration

40 Pages Posted: 9 Jun 2004

See all articles by Robert S. Gibbons

Robert S. Gibbons

Massachusetts Institute of Technology - Sloan School and Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 1988

Abstract

This paper analyzes strategic communication in equilibrium models of conventional and final-offer interest arbitration. Both models emphasize the role of learning by the arbitrator from the parties offers about the state of the employment relationship, which is known to the parties but not to the arbitrator. In both models, the arbitrators equilibrium behavior is identical to the reduced-form decision rule typically assumed in the empirical literature. The paper thereby provides a structural interpretation for the existing empirical work. The paper also represents progress towards a complete theory of arbitration because it satisfies three conditions that will be required of any such theory. First, the models predictions match the existing empirical evidence. Second, the models describe equilibrium behavior. And third, the models are built on a common set of assumptions about preferences, information, and commitment. The paper therefore not only provides an equilibrium foundation for the intuition that the arbitrator might learn from the parties offers, but also uses the idea of learning to develop a unified analytical treatment of the two major forms of interest arbitration.

Suggested Citation

Gibbons, Robert S., Learning in Equilibrium Models of Arbitration (March 1988). NBER Working Paper No. w2547. Available at SSRN: https://ssrn.com/abstract=425573

Robert S. Gibbons (Contact Author)

Massachusetts Institute of Technology - Sloan School and Department of Economics ( email )

E52-432
MIT
Cambridge, MA 02142
United States
617-253-0283 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER)

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