What is the difference between conventional arbitration and final offer arbitration and why might a state choose one over the other as its compulsory dispute resolution system? (10 minutes)

In arbitration, the parties present their final offers (and arguments) to an arbitrator for review. Conventional arbitration allows the arbitrator to fashion any terms for a settlement that he or she deems fair. The arbitrator in this case is not constrained to the final offers in deciding the settlement terms. The uncertainty of what the arbitrator will choose and the loss of control by the negotiators over the settlement terms is intended to motivate negotiators to reach their own negotiated agreement without resorting to arbitration. It has traditionally been believed that such a system suffers from the "chilling effect." If arbitrators simply split the difference between the positions of labor and management, each side might hold back from making comprises during negotiations. Thus, the chilling effect may lead to an increase in impasse.
In final offer arbitration, the arbitrator must choose either the union or management's offer and is not allowed to deviate from those final offers. Final offer arbitration was created to try to lessen the chilling effect of conventional arbitration. This offer comes in two variations: (1) total package final arbitration, in which the arbitrator must select one party's final offer on all the disputed contract terms (for example wages, health insurance holidays, etc.); and (2) issue-by-issue final offer arbitration, in which the arbitrator can choose either party's final offer on an issue-by-issue basis. It is generally believed that final offer arbitration puts the parties at greater risk of losing if their offers are unreasonable and, hence, should encourage the parties to come closer to an agreement during negotiations.