GAME-THEORETIC PROPERTIES OF FINAL-OFFER ARBITRATION

Final-Offer Arbitration (FOA) is a dispute settlement procedure in whi ch an arbitrator chooses one side's final position as the resolution. Game-theoretic models of FOA in two-sided interest disputes are review ed, especially models of the disputants' final offer choices under unc ertainty about the arbitrator's preferences. The extent to which the B rams-Merrill Theorem (1986) reveals optimal strategic behavior under F OA, and the implications for efficiency and equity, are assessed. Anal ysis of a model not satisfying the hypotheses of the Theorem suggests that, for some arbitrators, FOA can have an undersirable tendency. Ano ther game model is used to address the question of how disputants' dif ferential risk-aversion is reflected in their strategic behavior, and in the fairness of FOA outcomes. This calculation clarifies some appar ently contradictory empirical evidence about FOA.