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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.

Suggested Citation

  • Stefan Voigt, 2009. "Does Arbitration Blossom when State Courts are Bad?," MAGKS Papers on Economics 200906, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:200906
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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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    References listed on IDEAS

    as
    1. 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.
    2. Andrei Shleifer & Florencio Lopez-de-Silanes & Rafael La Porta, 2008. "The Economic Consequences of Legal Origins," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 285-332, June.
    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. Feld, Lars P. & Voigt, Stefan, 2003. "Economic growth and judicial independence: cross-country evidence using a new set of indicators," European Journal of Political Economy, Elsevier, vol. 19(3), pages 497-527, September.
    6. Lars P. Feld & Stefan Voigt, 2004. "Making Judges Independent – Some Proposals Regarding the Judiciary," CESifo Working Paper Series 1260, CESifo Group Munich.
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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.

    More about this item

    Keywords

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

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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