Working Paper: NBER ID: w2139
Authors: Max H. Bazerman; Henry S. Farber
Abstract: One prominent explanation for disagreement in bargaining is that the parties have divergent and relatively optimistic expectations regarding the ultimate outcome if they fail to agree. The fact that settlement rates are much higher where final-offer arbitration is the dispute settlement procedure than where conventional arbitration is the dispute settlement procedure is used as the basis of a test of the role of divergent expectations in causing disagreement in negotiations. Calculations of identical-expectations contract zones using existing estimates of models of arbitrator behavior yield larger identical-expectations contract zones in conventional arbitration than in final-offer arbitration. This evidence clearly suggests that divergent expectations alone are not an adequate explanation of disagreement in labor-management negotiations. A number of alternative explanations for disagreement are suggested and evaluated.
Keywords: bargaining; arbitration; negotiation; labor-management relations
JEL Codes: J52; C78
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Divergent expectations (D84) | disagreement in bargaining (C79) |
| size of identical-expectations contract zone (D86) | likelihood of agreement (C52) |
| identical-expectations contract zones are larger under CA than FOA (K12) | contradicting the divergent expectations hypothesis (D84) |
| higher settlement rates in FOA compared to CA (G29) | divergent expectations model does not fully account for disagreement (D80) |