This question comes up annually and because the impact of not participating in arbitration can have such a severe impact on the economics of your league, I think it’s one of those cut and dry situations where it makes sense to boot someone if they don’t participate (especially since the process is 30 days long). I think as a commissioner it would be in your best interest to send out several notifications to your league in the early weeks reminding them of the importance of participating. If you see an owner hasn’t allocated by the beginning of the last week, I’d send out a more direct notification/warning. Some owners wait until the very end by design, but as long as they indicate to you early on that that is their strategy, there’s shouldn’t be an issue.
Failing to participate in arbitration is an almost foolproof indicator that that team will be checked out of the next season.