An analysis of the effects of compulsory arbitration on bargaining

This dissertation analyzes the effects of compulsory arbitration on bargaining strategies and outcomes using joint models of arbitration and bargaining. Previous theoretical models have isolated arbitration from the bargaining process; however, empirical evidence suggests that concessions made in negotiation may influence arbitrators. This analysis addresses how the form of arbitration, the nature of bargaining, and informational asymmetries jointly determine the effectiveness of arbitration. Attention is focused on the two predominant forms of arbitration, final offer arbitration (which constrains the arbitrator to select from the bargainers' final offers) and conventional arbitration (in which the arbitrator is unconstrained).;The first essay examines a model with two periods of sequential alternating offers prior to a third period of arbitration. The bargaining offers are also the final offers submitted for arbitration. Discounting of future settlements gives parties an incentive to negotiate a settlement as early as possible. Final offer arbitration creates an additional incentive to use offers, which act as the arbitrator's constraints, to affect the arbitrator's expected settlement and thus what concessions may be extracted from a bargaining opponent. Under certain circumstances, that incentive leads to delayed (thus inefficient) settlements. Conventional arbitration is free from that drawback. When bargainers have private information, valued by the arbitrator for use in forming a settlement, bargaining strategies may influence the arbitrator through the information they convey. The incentive to send favorable signals to the arbitrator conflicts with the incentive to reach agreement. The gains from signaling depend on prior beliefs, the players' preferences, and on the form of arbitration. The first two factors determine which form of arbitration is more prone to leading to costly signals.;The second essay examines a model of simultaneous offers bargaining followed by arbitration if the offers are incompatible. The arbitrator's preferences are dependent on the bargainers', privately know, valuations. When arbitration is costly, equilibrium bargaining strategies can depend on valuations and thereby reveal information that will affect the arbitrator's settlement. In different types of equilibria, final offer arbitration and conventional arbitration are shown to have similar chilling effects on bargaining.