Nonbinding recommendations: the relative effects of focal points versus uncertainty reduction on bargaining outcomes |
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Authors: | David L Dickinson Lynn Hunnicutt |
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Affiliation: | (1) University of South Carolina, Columbia, SC 29208, USA |
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Abstract: | This article focuses on the effects of nonbinding recommendations on bargaining outcomes. Recommendations are theorized to
have two effects: they can create a focal point for final bargaining positions, and they can decrease outcome uncertainty
should dispute persist. While the focal point effect may lower dispute rates, the uncertainty reduction effect is predicted
to do the opposite for risk-averse bargainers. Which of these effects dominates is of critical importance in the design of
alternative dispute resolution (ADR) procedures, which are increasingly utilized in a variety of settings. We theoretically
examine the effects of recommendations on the contract zone using a framework which allows bargainers’ final positions to
influence a binding outcome should negotiations fail. This provides a more stringent test of focal points than previously
considered. We also present data from controlled laboratory experiments consistent with our model. Recommendations are empirically
shown to influence final bargaining positions and negotiated settlement values. In fact, recommendations significantly reduce
dispute rates, even where they are completely ignored in final-stage arbitration. This highlights a potentially significant role for the use of nonbinding procedures,
such as mediation, as a preliminary stage in more efficient ADR procedures. |
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Keywords: | |
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