Models of Arbitrator Behavior ： Theory and Evidence ORLEY ASHENFELTER & DAVID E. BLOOM THE AMERICA N ECONOMIC REVIEW 1984 報告人：高培儒 1 20090429
Introduction • Arbitration‘s use in the settlement of disputes is arising, for example ： 1. the settlement of grievances in union ‐ management contract 2. disputes between buyers and sellers in commercial contract 3. disputes between baseball players and club owner 4. settlement of public sector labor dispute 2
Introduction • Vincent Crawford (1979) ： • if the arbitrator‘s notion of a fair settlement were known to the two parties, then • both conventional and final ‐ offer arbitration would almost certainly lead to the same outcome which is the arbitrator's preference . • If the parties bear the arbitration costs, the actual arbitration wouldn’t happen. 3
Introduction • The key to Crawford's conclusion is, of course, the assumption that both parties know with certainty the arbitrator's preferred outcome. • Henry Farber (1979, 1980) 、 Farber and Harry Katz (1979) ： explored the case where the parties are uncertain to the arbitrator's preferences. • In this setting, under conventional and final ‐ offer arbitration, the outcomes will generally differ. 4
Introduction • Our purpose in this paper is to open up the empirical analysis about ： � distinguishing whether the parties are certain about arbitrator preferences is equivalent to testing � whether the arbitrator's decisions under a final ‐ offer are predictable once information on the final offers and the environment of the bargaining unit is known. 5
Introduction • Our purpose in this paper is to open up the empirical analysis about ： � set out simple models of arbitrator behavior under both final ‐ offer and conventional arbitration � provide a method for testing the empirical implications of these models for observed arbitration awards and for the "fairness" of arbitrator behavior � In addition, they also want to investigate how the differences in arbitration systems may affect outcome. 6
New Jersey Fire and Police Arbitration Act • Approved in May 1977 • Followed from the passage in 1968 of legislation � that granted New Jersey's public sector employees the right to organize and � bargain collectively � but not the right to strike. � in the absence of the right to strike, negotiations often went on long after annual municipal budget cycles had been closed. 7
New Jersey Fire and Police Arbitration Act • The purpose of this act is to ensure that contract negotiations were final in time ： The collective bargaining must begin at least 120 – days before employer’s budget submission date. If parties do not reach an agreement by 60 days – prior that, they may select conventional arbitration. If parties cannot or prefer not to agree to – conventional arbitration, they are compelled to final ‐ offer arbitration. 8
New Jersey Fire and Police Arbitration Act • New Jersey Public Employment Relations Commission (PERC) ： � It is responsible for administration of the act. � Arbitrators are assigned to cases by it. � A list of seven members from PERC’s panel of arbitrators is first circulated to parties for comment. � One of the seven is then appointed to the case. � Arbitration fees borne jointly by the parties. 9
New Jersey Fire and Police Arbitration Act • Arbitrators are directed to give due weight to variety of factors ： 1. Interests of the public 2. Relevant comparisons of wage and working condition 3. Overall level of compensation already received 4. Financial impact of the settlement on the municipality 5. Cost of living 6. Continuity of employment 10
Arbitrator behavior under final ‐ offer • Notation ： � Wu=union’s final offer � We=employer’s final offer � Wa=arbitrator’s preferred settlement which is unknown to outsider and never reveal under final ‐ offer • The arbitrator would select the employer’s offer if ： 11
Arbitrator behavior under final ‐ offer • Since We < Wu ： • The probability of an employer victory, P, is ： • F( 。 ) is the value of the cumulative distribution function that describes arbitrator’s preference. 12
Arbitrator behavior under final ‐ offer • Let F( 。 ) to be normal with • where N( 。 ) indicates the value of the cumulative standard normal distribution function � constant in this probit function ： � coefficient of (We+Wu)/2 ： 13
Arbitrator behavior under final ‐ offer • Testable model for evenhanded arbitrator ： • Arbitrators demonstrate ： – Pro ‐ union ： – Pro ‐ employer ： – No bias ： 14
Arbitrator behavior under final ‐ offer • Whether arbitrator notions of fairness explicitly take account of the parties‘ final offer ？ • The employer's offer is accepted if • or 15
Arbitrator behavior under final ‐ offer • Condition (8) is, of course, identical to (1). • In this sense, the decision rule (1) may be a very robust empirical device • Combine these together ： 16
Arbitrator behavior under final ‐ offer • The sum of the coefficients of We and Wu is an estimate of • implying that we can identify ： • the equality of the coefficient provide a test of the hypothesis ： • Whether some specified variables affect 17
Arbitrator behavior under final ‐ offer • For the i th observation, we may write • Our estimates of the coefficients in the vector will indicate how the arbitrators think what is fair 18
Arbitrator behavior under final ‐ offer • three main candidate variables to enter the vector ： 1. a measure of the wage rate in some alternative occupation may influence an arbitrator's decision 2. arbitrators may act to narrow(or widen) the wage differentials of police workers across municipal 3. impact of the municipality's financial well ‐ being on the arbitrator's decision 19
Arbitrator behavior under conventional arbitration • Under conventional arbitration, the arbitrator is free to fashion a settlement of his own choosing • In these cases, Wa is observable, but We and Wu are not. 20
Arbitrator behavior under conventional arbitration • Whether the arbitrator fashions a compromise based on the arguments presented to him by the parties ： 21
Arbitrator behavior under conventional arbitration • omitted variable bias • We and Wu are unobservable • In New Jersey, the same panel of arbitrators is used in both conventional and final ‐ offer arbitration cases • For this group of arbitrators, we may assume • we may fit equations (6') and (11) separately and use a test for the equality of parameters as evidence to favor one or the other of the formulations of (11) or (12) 22
Empirical Methods • The likelihood function for the final ‐ offer arbitration sample ： • The likelihood function for the conventional arbitration sample ： • When 23
Table 1 24
Table 1 1. the mean of the union and employer final offers is quite low when compared to the mean of the conventionally arbitrated settlements. 2. in all three years, the union offers were accepted in roughly two ‐ thirds to three ‐ quarters of the cases. 3. the proportion of cases reaching arbitration dropped considerably between 1978 and 1980. 25
Table 2 26
Table 2 column 1 • In column (1) simplest results for each year probit function (4) and the regression equation (10) • The estimated mean of arbitrator preferences from the final ‐ offer arbitration cases – higher than the mean of the final offers of the employer groups – only slightly lower than the mean of the final offers of the union groups indicated in Table 1 27
Table 2 column 2 • columns (2) are obtained by maximizing the likelihood function (15) • Suppose that we take the mean and standard deviation of the conventional arbitration awards as measures of the mean and standard deviation of arbitrators' preferences. • These assumptions imply that we may predict the actual fraction of employer victories from knowledge of the final offers. • The result suggest these predictions are essentially identical to the maximum ‐ likelihood predictions based on the final ‐ offer data alone. 28
Table 2 column 3 • test the hypothesis ： • In 1980, the estimate is well above unity • In 1979, the estimate is slightly below unity • but in no case can we reject the hypothesis • The exception is for 1978, where the hypothesis is rejected at any conventional test level. 29
30
Table 3 • ESTIMATES OF EQUATIONS( 6') AND (11), variables in the vector xi • Lagged percent change in county income per capita ： • Salary level in previous year (in dollars) ： • Municipality‘s state equalized tax rate in previous year (in dollars per 100 dollars of ： • Net debt per capita in municipality in previous year (in dollars) ： 31
Table 3 • In sum, we have found statistically significant, but temporally unstable. • It may simply be the case that the main predictable variability in the central tendency of arbitrator awards is in their movements through time. • Or, there are stable relationships between arbitrator preferences and some set of variables, but have been omitted from xi. 32
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