Negotiation under Possible Third-Party Resolution

The effect of a possible third-party resolution on negotiation behavior is studied in an economic bargaining experiment. The bargaining phase is preceded by a production phase that allows for different fairness principles to guide the division of the total production value. The experimental results show that a possible third-party resolution lowers the dispute costs by reducing the number of rounds of alternating offers. In the presence of a third party, negotiators make first offers that are more strongly related to their production, which reduces the number of bargaining rounds. The production phase has an effect on the distributional property of the agreements. In negotiations in which third-party resolution is an option, the negotiation outcome shifts toward a more unequal outcome, more in line with each person’s contribution.