Introduction

Recent years have seen the parallel but largely independent development of two literatures with closely related concerns: the theory of arbitration and the theory of incentives. Most of the theoretical arbitration literature seeks to predict and compare the allocative effects of the simple compulsory-arbitration schemes frequently used to resolve public-sector bargaining disputes in practice. Crawford (1981) provides a general introduction and a brief survey of this area. Sample references include Donn (1977), Crawford (1979, 1982a, 1982b), Farber and Katz (1979), Farber (1980), Bloom (1981), Hirsch and Donn (1982), Brams and Merrill (1983), and Donn and Hirsch (1983). These papers draw on, and give some references to, the large empirical and institutional arbitration literature. The incentives literature concerned directly with bargaining focuses instead on the theoretical limits of mechanism design in environments with asymmetric information. The papers by Kalai and Rosenthal (1978), Rosenthal (1978), Myerson (1979, 1983), Holmström (1982), Holmström and Myerson (1983), Myerson and Satterthwaite (1983), Samuelson (1984), and Crawford (1985), are a representative sample.

Although both literatures have the same goal – achieving better bargaining outcomes – this difference in focus, together with differences in style and analytical technique, has almost completely shut down communication between them, with discernible adverse effects on both. On the one hand, a large body of ad hoc, application-oriented analysis and measurement has developed in arbitration without recourse to carefully specified and worked-out models.