What is a last-offer arbitration?

This is a technique within an arbitration to try to bring both parties closer together in terms of what the amount awarded should be. Each party states its best offer as to the amount it thinks should be awarded, and the arbitrator has only the ability to choose either one proposal or the other, and cannot choose any other amount. Thus, each side has an incentive to be reasonable, because if one side is too extreme, the other side's number will be chosen.