Learning from interest arbitration: The next round

In final offer arbitration the decision of the arbitrator provides the parties with information about the preferences of the arbitrator that is not available prior to the award. Using data from Wisconsin teacher negotiations from 1977 to 1986, the authors find that the information contained in an award altered the parties' expectations about the arbitrator's preferences and influenced the subsequent negotiated settlement. The negotiated settlement following an award was higher when the union's final offer was selected than when the employer's offer was selected. In the round following an award, the variance in negotiated settlements declined, and the wage structure toward which the settlements converged was one that conformed with the arbitrator's views of fairness.