Strategic Bargaining Behavior, Self-Serving Biases, and the Role of Expert Agents: An Empirical Study of Final-Offer Arbitration

Orley Ashenfelter, Gordon B. Dahl

NBER Working Paper No. 11189
Issued in March 2005
NBER Program(s):Labor Studies

In this paper we study the complete evolution of a final-offer arbitration system used in New Jersey with data we have systematically collected over the 18-year life of the program. Covering the wages of police officers and firefighters, this system provides virtually a laboratory setting for the study of strategic interaction. Our empirical analysis provides convincing evidence that, left alone, the parties do not construct and present their offers as successfully as when they retain expert agents to assist them. In principle, expert agents may be helpful to the parties for two different reasons: (a) they may move the arbitrator to favor their position independently of the facts, or (b) they may help eliminate inefficiencies in the conduct of strategic behavior. In this paper we construct a model where the agent may influence outcomes independent of the facts, but where the agent may also improve the outcomes of the process by moderating any self-serving biases or over-confidence that may have led to impasse in the first instance. Our data indicate that expert agents may well have had an important role in moderating self-serving biases early in the history of the system, but that the parties have slowly evolved to a non-cooperative equilibrium where the use of third-party agents has become nearly universal and where agents are used primarily to move the fact finder's decisions.

download in pdf format
   (980 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11189

Users who downloaded this paper also downloaded* these:
Ashenfelter and Bloom w1149 Models of Arbitrator Behavior: Theory and Evidence
Ashenfelter, Currie, Farber, and Spiegel w3417 An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems
Farber and Bazerman w1488 The General Basis of Arbitrator Behavior: An Empirical Analysis of Conventional and Final-Offer Arbitration
Ashenfelter and Hyslop w7294 Measuring the Effects of Arbitration on Wage Levels: The Case of Police Officers
Bloom w1841 Empirical Models of Arbitrator Behavior Under Conventional Arbitration
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us