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Does Arbitration Blossom when State Courts are Bad?

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  • Stefan Voigt

    ()
    (Philipps-University Marburg)

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.

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File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/06-2009_voigt.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200906.

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Length: 33 pages
Date of creation: 2009
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:200906

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Related research

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

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References

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  1. Lars P. Feld & Stefan Voigt, 2003. "Economic Growth and Judicial Independence: Cross Country Evidence Using a New Set of Indicators," CESifo Working Paper Series 906, CESifo Group Munich.
  2. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2007. "The Economic Consequences of Legal Origins," NBER Working Papers 13608, National Bureau of Economic Research, Inc.
  3. Bernd Hayo & Stefan Voigt, 2008. "The Relevance of Judicial Procedure for Economic Growth," CESifo Working Paper Series 2514, CESifo Group Munich.
  4. William M. Landes & Richard A. Posner, 1978. "Adjudication as a Private Good," NBER Working Papers 0263, National Bureau of Economic Research, Inc.
  5. Lars P. Feld & Stefan Voigt, 2004. "Making Judges Independent – Some Proposals Regarding the Judiciary," CESifo Working Paper Series 1260, CESifo Group Munich.
  6. Frye, Timothy & Zhuravskaya, Ekaterina, 2000. "Rackets, Regulation, and the Rule of Law," Journal of Law, Economics and Organization, Oxford University Press, vol. 16(2), pages 478-502, October.
  7. Stefan Voigt, 2008. "The economic effects of judicial accountability: cross-country evidence," European Journal of Law and Economics, Springer, vol. 25(2), pages 95-123, April.
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Cited by:
  1. Inessa Love, 2011. "Settling Out of Court : How Effective is Alternative Dispute Resolution?," World Bank Other Operational Studies 11055, The World Bank.

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