Abstract
Nonbinding recommendations, such as provided by fact-finders, are shown to significantly increase voluntary settlements in bargaining. Theoretically, it is unclear whether recommendations will increase settlement rates. A recommendation may reduce outcome uncertainty, thereby “chilling” bargaining and increasing dispute rates. On the other hand, a recommendation may give the parties a focal point around which an agreement is made. Which of these effects dominates is a question that we consider using theory and data from controlled bargaining experiments. The data show the dominance of a focal point effect for suggestions, highlighting their potential role in improving dispute settlement procedures.(JEL C78, C92, J52)
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