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.
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