Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 6/2011: Negotiation under possible third party settlement.

Sigbjørn Birkeland d.y. ()
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Sigbjørn Birkeland d.y.: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

Abstract: The effect of possible third party settlement on negotiation behaviour is studied in an economic bargaining experiment. The bargaining phase is preceded by a production phase that allows for different fairness principles to guide the division of the total production value. The experimental results show that a possible third party settlement lowers the dispute costs by reducing the number of rounds of alternating offers. In the presence of a third party, negotiators make first offers that are more strongly related to their production, which reduces the number of rounds of bargaining. The production phase has an effect on the distributional property of the settlements. In negotiations where third party settlement is an option, the negotiation outcome shifts towards a more unequal outcome, more in line with each person's contribution.

Keywords: Arbitration; Bargaining effciency; Experiment.

JEL-codes: C78; D63; J52

34 pages, November 15, 2010

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