Does Arbitration Blossom When State Courts are Bad?

32 Pages Posted: 12 Jan 2009

See all articles by Stefan Voigt

Stefan Voigt

University of Hamburg - Institute of Law & Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 9, 2009

Abstract

It is often conjectured that non-state dispute resolution blossoms when state courts are not independent or are perceived as low-quality courts. This conjecture implies a substitutive relationship between state and non-state dispute resolution. An alternative hypothesis argues that both the quality and the frequency of use of these two alternative mechanisms are complementary: societies with high-quality state courts would also be able to provide high-quality non-state dispute resolution. This is the first study that puts these hypotheses to an empirical test. It turns out that the lower the perceived quality of state courts, the less frequently conflicting firms resort to them. Second, firms in common-law countries turn away from state courts significantly more often than firms in civil-law countries. This result sheds doubt on the robustness of results generated within the legal traditions literature. Finally, in states that have created the preconditions for arbitration, businesspeople resort significantly more often to state courts. We interpret this as evidence in favor of the complementarity hypothesis.

Keywords: Alternative Dispute Revolution, Quality of Justice, Judicial Independence, Corruption, Private Provision of Public Goods

JEL Classification: H42, K42, O17

Suggested Citation

Voigt, Stefan, Does Arbitration Blossom When State Courts are Bad? (January 9, 2009). Available at SSRN: https://ssrn.com/abstract=1325479 or http://dx.doi.org/10.2139/ssrn.1325479

Stefan Voigt (Contact Author)

University of Hamburg - Institute of Law & Economics ( email )

Johnsallee 35
Hamburg, 20148
Germany
+49-40-428385782 (Phone)
+49-40-428386794 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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