Arbitration from a Law & Economics Perspective

This chapter offers a Law & Economics (L&E) perspective on international arbitration. L&E scholars tend to view dispute resolution as a market. They thus look at the supply and demand of such third-party adjudication, usually comparing litigation to arbitration. Predominantly, in the literature, there are two interrelated L&E perspectives on this: one is focused on the general welfare consequences of arbitration; the other is focused on why disputants choose one kind of third-party settlement over another. There are many ways of resolving disputes between contractual parties: arbitration is also in competition with mediation, conciliation, litigation, and other forms of resolving disputes, including so-called ‘extra-legal’, socially normative ones. Most literature has focused either on the choice between litigation and arbitration or on the influence of arbitration on negotiation and settlement between the parties. The chapter then addresses other disputant choices relating to third-party funding and arbitrator appointment. It also looks at the incentives and behaviour of arbitrators, including their cognitive abilities.