Academic journal article Economic Inquiry

Does Fact-Finding Promote Settlement? Theory and a Test

Academic journal article Economic Inquiry

Does Fact-Finding Promote Settlement? Theory and a Test

Article excerpt

I. INTRODUCTION

Dispute resolution is of interest in a variety of bargaining environments, from labor relations to insurance. Commonly used forms of dispute resolution include mediation and arbitration. A mediator does not impose a binding settlement; an arbitrator imposes a settlement that is typically binding and nonappealable. Fact-finding falls somewhere in between these two, given that a fact-finder issues a formal but nonbinding recommendation that may guide and/or pressure disputants as to what a mandated settlement might look like. Mediators behave more as facilitators, whereas fact-finders base recommendations on their research of a dispute. As such, their recommendations may foreshadow an eventual arbitrated settlement. Hebdon (2001), for example, reports that a chief aim of the public policy change in New York state in 1991 was to "give more weight to the fact-finder recommendations" (p. 74). Here we ask whether nonbinding recommendations, such as those issued by fact-finders, significantly affect dispute rates and/or bargaining outcomes. We offer a simple theoretical extension from existing research as well as empirical data generated in a controlled laboratory bargaining environment to explore relevant issues. (1)

Farber and Katz (1979) studied bargainer incentives under conventional arbitration and show that uncertainty about the arbitrator's notion of a fair settlement is a key variable that increases the bargainers' contract zone (i.e., the region of outcomes mutually preferred to the disputants' reservation values or threat points). (2) To the extent that fact-finding decreases uncertainty, their results suggest that fact-finding is counterproductive toward good-faith bargaining because decreased uncertainty also decreases the size of the contract zone. (3) An alternative view of fact-finding is that the formal recommendation creates a focal point for the disputants, a settlement that suggests itself as a likely and reasonable outcome of the bargaining process, and therefore makes agreement more likely. (4) Which of these effects may dominate is the key subject of this article.

We model fact-finding as an intermediate step in negotiations prior to resolving disputes through binding arbitration. (5) Though fact-finding in the United States is most common in public sector labor disputes, it is also used elsewhere. In 2002, the American Arbitration Association announced its new fact-finding service, which is available for dispute resolution as well as for other arenas where independent investigation or conclusions are desirable. Also, fact-finding is a type of nonbinding alternative dispute resolution procedure encouraged by the Alternative Dispute Resolution Act of 1998 as a way of helping reduce some of the backlog of cases in federal courts. In the public sector, formal fact-finding is often the terminal dispute resolution procedure. For example, primary and secondary schoolteachers in Indiana, police and firefighters in Idaho, and state employees in Wisconsin and New Jersey must all undergo mandatory fact-finding for labor disputes. Other jurisdictions allow for legislative review and/or final resolution after fact-finding by a legislative body, as with police and firefighters in Kansas, New Hampshire, and Florida among others (see Lund and Maranto 1996 for a complete listing). When legislative review or binding arbitration follows fact-finding, this nonbinding procedure provides an intermediate step in the dispute resolution process. (6) Our focus is on the nonbinding intermediate step in dispute resolution, and this has general relevance beyond a specific procedure like fact-finding.

The key research question is whether bargaining efficiency could be improved where there already exists a nonbinding or binding dispute settlement procedure. Fact-finding and arbitration are merely convenient labels to describe nonbinding recommendations (or suggestions) and binding settlement procedures, respectively. …

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