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

Author
Abstract

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 the evolution 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.

Year of Publication
2003
Number
478
Date Published
09/2003
Publication Language
eng
Citation Key
8097
URL
Working Papers