Reinterpreting Arbitration's Narcotic Effect: An Experimental Study of Learning in Repeated Bargaining

33 Pages Posted: 29 Mar 2005

See all articles by Gary E. Bolton

Gary E. Bolton

Pennsylvania State University - Department of Supply Chain & Information Systems

Elena Katok

University of Texas at Dallas

Abstract

Field evidence suggests that arbitration increases negotiation dispute rates. We study repeated bargaining in a laboratory to understand the reasons why. Our results represent a reinterpretation of an explanation known as the narcotic effect. The standard interpretation assumes that the probability of dispute without arbitration is constant across negotiations, but field evidence suggests that experienced bargainers have fewer disputes. To properly assess arbitration's impact, we compare bargainer learning with and without arbitration, under otherwise comparable laboratory conditions, and develop a model to measure learning. We find strong evidence that learning occurs in both cases, but is slower with arbitration.

JEL Classification: C78, C92, D77, J52

Suggested Citation

Bolton, Gary Eugene and Katok, Elena, Reinterpreting Arbitration's Narcotic Effect: An Experimental Study of Learning in Repeated Bargaining. Available at SSRN: https://ssrn.com/abstract=673508

Gary Eugene Bolton

Pennsylvania State University - Department of Supply Chain & Information Systems ( email )

Dept. of Supply Chain & Information Systems
University Park, PA 16802-3306
United States
814-865-0611 (Phone)
814-863-2381 (Fax)

Elena Katok (Contact Author)

University of Texas at Dallas ( email )

Jindal School of Management
800 W. Campbell Dr.
Richardson, TX 75080
United States

HOME PAGE: http://www.utdallas.edu/~ekatok/

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