Divergent Expectations as in Bargaining: Evidence Arbitration a Cause of Disagreement from a Comparison of Schemes

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 labormanagement negotiations. A number of alternative explanations for disagreement are suggested and evaluated. The authors thank Bob Gibbons for very useful comments on an earlier draft of this paper. Useful feedback was also received from participants in a workshop at Cornell University.