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Reputational Concerns and Bias in Arbitration

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  • Elisabetta Iossa

    ()

  • Giuliana Palumbo

Abstract

We analyze how reputational concerns of arbitrators affect the quality of their decision making. We assume that arbitrators differ in their ability to evaluate the correct decision and that information acquisition by arbitrators is costly and unobservable. We show that reputational concerns increase incentives for information acquisition but may induce the arbitrator to bias his decision towards one party in the dispute.This decision bias is greater when the dispute is confidential rather than when it is public, and the parties are more likely to choose confidentiality for less complex subject matters. In light of these results, we study the circumstances under which the parties to a contract choose to employ arbitration, rather than litigation in court, to resolve their disputes. We show that arbiration is more likely to be chosen by symmetric and long-lived parties.enough.

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Bibliographic Info

Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Economics and Finance Discussion Papers with number 06-09.

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Length: 29 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:bru:bruedp:06-09

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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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Cited by:
  1. Iossa, Elisabetta & Jullien, Bruno, 2007. "The Market for Lawyers: The Value of Information on the Quality of Legal Services," IDEI Working Papers 485, Institut d'Économie Industrielle (IDEI), Toulouse.

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