Arbitrating a Dispute: A Decision Analytic Approach

Many collective decision-making and bargaining situations can be described through the set of the feasible joint evaluations of all conceivable settlements. Attention should then be restricted to that subset (Pareto-optimal frontier) from which no joint gains are possible. Hence, the focal issue becomes which element of the Pareto-optimal subset should be chosen as a solution to the dispute. This paper proposes an arbitration procedure to address this issue. The proposed approach, decision-analytic in its nature, is inspired by LaValle’s (LaValle, I. H. 1978. Fundamentals of Decision Analysis. Holt, Rinehart and Winston, New York.) allocation-function approach (which is not specific on how to obtain an allocation function) and by Eliashberg and Winkler's (Eliashberg, J., R. L. Winkler. 1981. Risk sharing and group decision making. Management Sci.27 (November) 1221–1235.) work (which does not accommodate probability differences within the group). After the new approach is presented, its implications are examined for some likely scenarios and examples are considered.