Can Prior Offers and Arbitration Outcomes Be Used to Predict the Winners of Subsequent Final-Offer Arbitration Cases?

The purpose of interest arbitration is to encourage bargainers to negotiate their own mutually agreeable settlement. In final-offer arbitration (FOA), the bargainers exchange final offers. If a settlement is not reached, an independent arbitrator selects one of the final offers as the award. At the beginning of each arbitration period, the only information available to bargainers relating to arbitrator preferences is past outcomes. Given its goal of driving negotiated settlements, an effective FOA process requires bargainers to infer useful information about arbitrator preferences from past outcomes. Using data from major league baseball, this article provides evidence that past FOA decisions are positively correlated with the outcomes of future FOA cases.