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Arbitration in International Trade

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  • Alessandra Casella

Abstract

The great majority of international contracts provides that any disputes which may arise will be decided by arbitration. Legal scholars argue that international arbitration is leading to the development of legal doctrine attuned to the needs of business and independent of national laws. This paper studies international arbitration as a beautiful example of the role of private trade in shaping international institutions. We review the provisions and the practice of international arbitration, and present a general equilibrium model of the relationship between the expansion of trade and the adoption of arbitration. The model focuses on the heterogeneity existing among economic agents in terms of their legal needs. It shows how arbitration alters the size and composition of markets, while at the same time responding to exogenous change in trade. In addition, it shows how the legal services provided by the courts deteriorate in the presence of arbitration and predicts that the share of traders using arbitration should rise as markets expand. Overall, the model does remarkably well in generating results commonly discussed in the legal literature.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4136.

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Date of creation: Aug 1992
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Handle: RePEc:nbr:nberwo:4136

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  1. Alessandra Casella & Jonathan S. Feinstein, 1990. "Public Goods in Trade: On the Formation of Markets and Political Jurisdictions," NBER Working Papers 3554, National Bureau of Economic Research, Inc.
  2. Casella, Alessandra, 1992. "On Markets and Clubs: Economic and Political Integration of Regions with Unequal Productivity," American Economic Review, American Economic Association, vol. 82(2), pages 115-21, May.
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Cited by:
  1. Turrini, Alessandro & van Ypersele, Tanguy, 2010. "Traders, courts, and the border effect puzzle," Regional Science and Urban Economics, Elsevier, vol. 40(2-3), pages 81-91, May.
  2. Alessandro Turrini & Tanguy Van Ypersele, 2001. "Traders, Courts and the Home Bias Puzzle," Development Working Papers 159, Centro Studi Luca d\'Agliano, University of Milano.
  3. Bruno S. Frey, 2005. "Zwei Utopien jenseits des Weltstaates und der Anarchie," IEW - Working Papers 258, Institute for Empirical Research in Economics - University of Zurich.
  4. Bruce Benson, 1999. "To Arbitrate or To Litigate: That Is the Question," European Journal of Law and Economics, Springer, vol. 8(2), pages 91-151, September.
  5. Volckart, Oliver, 2004. "The economics of feuding in late medieval Germany," Explorations in Economic History, Elsevier, vol. 41(3), pages 282-299, July.
  6. Turrini, Alessandro Antonio & van Ypersele, Tanguy, 2006. "Legal Costs as Barriers to Trade," CEPR Discussion Papers 5751, C.E.P.R. Discussion Papers.

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