Final-Offer Arbitration

Final-offer arbitration is a special form of arbitration in which the arbitrator may not compromise but is required to choose the final offer of one of the parties to the dispute. This encourages parties to be reasonable, since they know that the most reasonable of the two (or more) offers will be selected.

This technique is often used in baseball salary disputes—in fact, some texts refer to the process as baseball arbitration. It is superior, in this context, to traditional arbitration because it prevents both parties from making outlandish demands in an effort to get the arbitrator to split the difference. Rather, the parties are encouraged to make reasonable demands. Often, in the process of determining what is reasonable, the disputing parties are actually able to work out an agreement without arbitration. Even when they cannot, however, the arbitrator is usually presented with two fairly reasonable offers rather than two extreme positions that are hard to reconcile.