The pendulum arbitration is a process for arbitration of a conflict that in Great Britain and the United States especially in wage bargaining is common. Both parties to the dispute send the arbitrator a proposal for a solution, who then decides on one of them.
Pendulum arbitrations are usually convened on the basis of a prior contractual agreement, just like other arbitration courts . Since the profits and losses of the parties to the dispute depend on the unknown behavior of the respective opponent, pendulum arbitration, like the prisoner's dilemma , can be analyzed in game theory .
Both parties send the arbitrator a secret and binding proposal for a solution. The arbitrator will prepare an acceptable proposal for a solution beforehand based on the situation. The arbitrator then chooses the proposal that is closest to his own proposal. This is then established as a binding agreement. This is done without forming an average or offering any compromise . There are also no negotiations. The arbitrator is prohibited from modifying the submitted proposals in any way.
- The arbitrator sets an acceptable value, for example 3,000 euros in damages, and keeps it secret.
- Party A comes up with an offer, for example 2000 euros in damages, and sends this proposal to the arbitrator. B does not get any insight into it.
- Party B is also considering an offer, for example 5,000 euros in damages, and also transmits this proposal to the arbitrator without A finding out about the content.
- The arbitrator now has three proposed solutions: 2000 and 5000 euros in damages, as well as his own proposal. He chooses the value that comes closest to his own solution. This proposed solution is then considered a definitive arbitration award.
In an alternative procedure, the arbitrator does not propose his own solution. He then only decides on the proposed solution that is the most reasonable from his point of view. However, there is the possibility that a proposed solution is chosen which could actually be further removed from the "neutral" judgment.
In a further alternative, the procedure can be structured in an open manner: Both parties must communicate their final proposals to both the arbitrator and the opposing party, and both parties are given the opportunity to comment on the proposal for the attention of the arbitrator and the respective opposing party. This essentially corresponds to the pendulum arbitration that has existed since 1974 in major league baseball wage negotiations.
- The main advantage of pendulum arbitration is that the procedure creates a certain degree of uncertainty - because A and B, in contrast to a (court) hearing, have no information about the position and proposal of the opposing party. The greater the actual distance between the proposals, the greater the uncertainty and thus the risk that the judgment could be unfair - in a glaring example, both parties could demand several million euros from each other. Since this uncertainty harms both parties, in the event of an impending pendulum arbitration, they have a great interest in reaching an amicable negotiation beforehand, or at least getting closer in their positions.
- In a normal negotiation, the conflicting parties tend to make high demands in order to influence their counterpart or the mediator (see anchor effect ). If one disregards court costs and fees based on the amount in dispute, a high claim is also safe because the judge will reduce the claims to a "reasonable" level on his own initiative. In a pendulum arbitration, each party to the conflict takes into account (ideally) the interests of its opponent and will determine the demands conservatively.
- Another advantage is the lean procedure, since in the simplest case both parties to the conflict develop and submit a proposal, and this without lengthy negotiations and presentation of evidence. Since the proposed solutions and the arbitrator's decision are definitive, the procedure is also shortened.
- In the absence of a formal negotiation or a presentation of evidence, the arbitrator does not gain a complete picture of the conflict. However, this would make sense, especially if the arbitrator should form his own "fair" judgment before the two proposed solutions arrive.
- It is in the nature of pendulum arbitration that the arbitrator's verdict is definitive. Any procedural errors cannot be brought to a higher authority.
Marvin Miller (1917–2012) was a director of the Major Baseball League Players Association (MLBPA) from 1966 to 1982 and was significantly involved in the wage negotiations of the players. He is considered to be the driving force behind the introduction of pendulum arbitration in American baseball , which is why the process is also called baseball arbitration . However, the origins of pendulum arbitration go back further, namely to the economics professor Carl M. Stevens from Reed College in Portland, Oregon. While working at the International Labor Organization in Geneva , he tried to design a process that would efficiently resolve labor disputes. In 1966 he published his idea in an article called "Is Compulsory Arbitration Compatible with Bargaining?" in Industrial Relations magazine .
In Chile in 1979 a law introduced pendulum arbitration as a normal part of collective wage bargaining.
- Does Gesamtmetall have any suggestions for improving conflict management at the level of collective bargaining? from Gesamtmetall.de, accessed on May 9, 2014.
- Fluet & Gabuthy, 2010: Conventional versus Final-Offer Arbitration
- California Department of Labor Relations, Commission on Health and Safety and Workers' Compensation: literature review - Final Offer Arbitration
- Carl M. Stevens (1966): Is Compulsory Arbitration Compatible with Bargaining?
- Law No. 2758 of July 6, 1979