Does Arbitration Blossom when State Courts are Bad?

Stefan Voigt

No 200906, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

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. (search for similar items in EconPapers)
JEL-codes: H42 K42 O17 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2009
New Economics Papers: this item is included in nep-law and nep-pbe
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:200906

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