Journal of Political Economy Vol. 87 No. 1 1979
On Compulsory-Arbitration Schemes
Abstract
This paper studies the settlements generated by several variants of a compulsory-arbitration scheme called ``final-offer arbitration'' (FOA). Some of these are now in use in several states, and one has been recommended by Clifford Donn as an improvement on existing schemes. Under reasonable economic assumptions, two versions of FOA now being used are equivalent to imposing z̄, the settlement the arbitrator would impose in conventional compulsory arbitration would impose in conventional compulsory arbitration, a result contrary to the intent of the FOA statues. However, a simple modification of Donn's proposal leads to a scheme that generates Pareto-efficient settlements that are at least as good for each agent as z̄. This suggests that substantial gains in welfare could be realized by a simple change in existing FOA statues and possibly also by using the new procedure in situations where compulsory arbitration is not now prescribed by law.
- Volume
- 87
- Issue
- 1
- Pages
- 131-159
- Sources
- bibtex:phds-export.bib