Amended final-offer arbitration outperforms final-offer arbitration

Cary Deck, Amy Farmer, Dao-Zhi Zeng

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

Amended final-offer arbitration (AFOA) has been developed as an attractive alternative mechanism to final-offer arbitration (FOA). Under AFOA, more reasonable offers win, but the outcome is determined by the loser's offer and the arbitrator's value. In AFOA, disputants making extreme offers are penalized, thereby encouraging compromise. This article compares the theoretical and behavioral properties of AFOA and FOA. Controlled laboratory experiments indicate that AFOA significantly outperforms FOA, generating substantially greater prearbitration settlement. Consistent with theoretical predictions, offers converge under AFOA; however, FOA offers neither converge nor are consistent with theoretical predictions. This work suggests practitioners should consider adopting AFOA over FOA.

Original languageEnglish
Pages (from-to)384-407
Number of pages24
JournalAmerican Law and Economics Review
Volume9
Issue number2
DOIs
Publication statusPublished - 2007 Sep 1
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Law

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