We study two variants of an arbitrated bargaining problem where two parties lay proportional claims to an asset, and an arbiter has a final say on allocation. The two variants we study vary by the incentives to the arbiter. In one variant, the arbiter is incentivized proportional to the payoff to the lowest paid claimant and in the other, the arbiter is incentivized proportional to the payoff to the highest paid claimant. While neither incentive scheme alters the set of equilibria, they alter expected payoff in off-equilibrium outcomes, and therefore impact equilibrium selection. Accordingly, the first variant leads to egalitarian claims whereas the second variant leads to greedy claims and subsequently to a high incidence of impasse.
JEL classification numbers: C78, C91, D81, J52