A welfare analysis of arbitration

Wojciech Olszewski*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

The paper compares conventional and final-offer arbitration. One party is supposed to make a payment to another party, whose amount depends on a state. Under one scenario, parties obtain signals about the state, which cannot be recognized by the opponents. If the arbitrator's ability of recognizing signals is high, the frequency of requesting arbitration is lower under conventional than under final-offer arbitration. If this ability is low, final-offer arbitration dominates conventional arbitration in quite a similar sense. Under the second scenario, parties believe that their opponents have wrong signals. Then, conventional arbitration approximates the original outcome better than final-offer arbitration.

Original languageEnglish (US)
Pages (from-to)174-213
Number of pages40
JournalAmerican Economic Journal: Microeconomics
Volume3
Issue number1
DOIs
StatePublished - Feb 2011

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

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