Recently, an amendment to final-offer arbitration (AFOA) was proposed to improve the well-known final-offer arbitration (FOA): AFOA is powerful enough to overcome the uncertainty about the arbitrator's notion of a fair settlement, if both disputants are risk neutral. This paper further examines the behavior of AFOA when two disputants are not risk neutral, by use of an existing concept of contract zone and a newly proposed concept of convergent-offer zone. The result is that AFOA is riskier than other existing procedures, therefore more powerful to induce an agreement between risk-averse disputants.
- Amended FOA (AFOA)
- Final-offer arbitration (FOA)
- Risk aversion
ASJC Scopus subject areas
- Economics and Econometrics