Resumen de An Amendment to Final-Offer Arbitration

Dao-Zhi Zeng

• Compulsory arbitration has become an increasingly frequent mean of resolving labor disputes in the private and public sectors and a variety of arbitration procedures have been proposed and used.

  Conventional arbitration (CA) is the most traditional procedure to settle disputes that arise in the negotiation of labor agreements and also in commercial disputes. CA requires that a third party arbitrator listen to the offers from disputants, based on which the arbitrator imposes a final settlement which is fair in his/her own view. In CA, although the arbitrator is free to fashion a settlement of his/her own choosing, and the arbitration decision needs not to be a compromise between the disputants� offers, it is observed that arbitrators� decisions are influenced more or less by disputants� offers. Therefore, CA provides an incentive for the disputants to avoid pre-arbitration concessions, or CA �chills� the negotiation process which precedes arbitration.

  Final-offer arbitration (FOA) was proposed by Stevens (1966). It requires that the arbitrator choose one of the disputants� offers without compromise. In this way, �winning� becomes important so disputants have to give compromising offers. Although this procedure is actually used in the determination of the wage in disputed contracts for major league baseball players and other many public sector labor disputes in US, theoretically and practically we know that the offers still diverge (see Farber (1980) and Brams and Merrill (1983)).

  Some procedures are proposed to improve FOA. Theoretically, it is known that combined arbitration (CBA) of Brams and Merrill (1986) and double-offer arbitration (DOA) of Zeng et al. (1996) can induce offers� convergence with some additional conditions to ensure the existence of a Nash equilibrium. The purpose of this paper is to provide a simple amendment of FOA so that it�s offers converge in quite general situation. Specifically, in the original FOA, the final arbitration result is determined by the winner�s offer. However, in our new arbitration procedure, the final arbitration result is determined by the loser�s offer.

  We furthermore illustrate two variations of the amended FOA. One of them generalizes the CBA of Brams and Merrill (1986).

  Finally, we consider a practical issue of the amended FOA. If two disputants fail to give convergent offers due to some casual reasons, the final arbitration result may be quite extreme. We propose two methods to solve this problem