Dispute Resolutions in Economics

Negotiation is common in many settings. A common feature of all negotiation is an understanding by the parties to the negotiation about the process that will be used to resolve a dispute in the event the parties fail to reach agreement. The dispute settlement process defines the expectations that the parties have about what will happen in the event that no agreement is reached. This process, in turn, determines negotiator behavior. There are two fundamental types of dispute settlement mechanisms in the labor area: strikes and arbitration. Strikes involve the systematic imposition of costs on each side. Military disputes are implied, but presumably one or both parties concede sufficiently to make an agreement possible and end the dispute. Arbitration involves the mandating of a settlement by a third party. Litigation of civil disputes is another example of this type of mechanism. Several models of strikes and arbitration are outlined. The role of incomplete information and uncertainty are discussed in the context of these models.