Autore
Herring, Robbin

Titolo
The 'divergent beliefs' hypothesis and the 'contract zone' in final offer arbitration
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1994 - Fascicolo: 35 - Pagina iniziale: 1 - Pagina finale: 23

This paper presents a model of final offer arbitration which allows one to consider the consequences of the direct costs of arbitration on final offers, something that has been neglected in the literature. Another, and more important advantage of the model of this paper is that it fully characterises the set of equilibrium offers and describes a class of cases for which the set of equilibria can consist of both agreement and disagreement equilibria. This shows that the concepts of a 'positive' and 'negative' contract zones are not mutually exclusive, as is generally presumed in the literature. This insight has important consequences both for the debate of whether a positive contract zone is sufficient for agents to agree and for most empirical arguments based on this assumption. Since the model is driven by divergent beliefs about the true beliefs of the arbitrator the question of when and whether agents have divergent beliefs is of some importance. This paper thus uses the opportunity to partially reevaluate the debate on the divergent expectations hypothesis (and the evidence supporting it) in the light of the model of this paper.



Testo completo: http://hdl.handle.net/1814/514

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