Arbitration and Incentives: How to Preclude the Chilling Effect?

Abstract

We seek to establish a mechanism for an arbitrator, as a set of rules used to control parties' incentives. We assume that the arbitrator is allowed to commit himself to a decision rule ex ante. The results show that the parties' messages reveal their private information if the costs of lie are high enough and if the decision rule is random. The decision rule described can apply to conventional arbitration and to final-offer arbitration. [PUBLICATION ABSTRACT]