MAKING INTEREST ARBITRATION COSTLY: A POLICY PROPOSAL

CLIFFORD B. DONN AND BARRY T. HIRSCH

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DOI: 10.2190/8N5K-8K21-LE0P-WHTF

Abstract

It has long been acknowledged that the imposition of financial costs on bargaining parties, who request an arbitrator to resolve their disputes, will encourage parties to settle without the use of arbitration. This article outlines a proposal to charge parties using conventional arbitration a fee based on both the magnitude of the difference in their positions and on the size of the bargaining unit in question. The procedure, called "cost-formula arbitration," has three advantages over alternative cost-imposition techniques. First, the imposed costs will provide a more substantial incentive to settle than would be the case with most other schemes. Second, the parties will have incentives to maintain their genuine offers at the stage at which arbitration is invoked. Finally, the inducements to settle voluntarily are not dissipated when the size of bargaining units is large.

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