Review of Behavioral Economics > Vol 10 > Issue 1

Fairness and Arbitration Mechanisms

Daniel M. Nedelescu, Department of Economics, University of Oklahoma, USA,
Suggested Citation
Daniel M. Nedelescu (2023), "Fairness and Arbitration Mechanisms", Review of Behavioral Economics: Vol. 10: No. 1, pp 45-56.

Publication Date: 17 Apr 2023
© 2023 D. M. Nedelescu
JEL Codes: J52, D74
Arbitrationcontract zoneinequality aversiondisagreement


Download article
In this article:
1. Introduction 
2. Literature Review 
3. The Model 
4. Conclusion 


Different arbitration mechanisms have been proposed to improve upon Conventional Arbitration. While some of them have the theoretical prediction that risk-neutral and risk-averse people will reach an agreement, laboratory experiments show that most of the proposed mechanisms have low agreement rates. This paper proposes an as yet unstudied factor to explain disagreements between disputants. Using a utility function proposed by Fehr and Schmidt (1999) that includes inequality aversion, the model predicts that two risk-neutral disputants might not have the economic incentives to reach an agreement.