:An Analysis of Final Offers Chosen in Baseball's Arbitration System: The Effect of Pre-arbitration Negotiation on the Choice of Final Offers

This article describes a model of final offer arbitration, like that used in major league baseball, in which two stages of wage bargaining exist between a risk-averse firm and a risk-averse employee. In the first stage, the negotiators set final offers. In the second stage, the negotiators bargain cooperatively. Using data from major league baseball, it is found that in cases involving position players and relief pitchers, negotiators set final offers in a risk-neutral manner. In cases involving starting pitchers, negotiators bargain in a non-risk-neutral manner.