THE RATIONALE BEHIND CHOOSING ARBITRATION OVER LITIGATION: A LAW & ECONOMICS PERSPECTIVE

Abstract

In the contemporary globalised economy, popularity of arbitration as a dispute resolution method has amplified. It has many advantageous features such as expertise of arbitrator, speedy procedure, party autonomy, confidential proceedings, which lack in litigation, thereby making arbitration the preferred mode of dispute resolution. The growth of arbitration is also credited to its stakeholders, namely the arbitrator(s) and the parties. The stakeholders take part in arbitration to derive maximum utility for themselves. They make decisions in the process which are backed by economic considerations. Cost and incentives become the major determinants, guiding their rationale supporting ‘the choice of arbitration’. This paper studies the mechanism of arbitration through Law and Economics lens. It is divided into five parts. Part I introduces the theme and builds up conceptual framework for the ideas presented. Part II explores the incentives available to the parties to choose arbitration over litigation. Part III discusses the incentives available to arbitrator, which encourages them to constantly work on their skill to remain relevant in the highly competitive market of arbitration. This part also makes comparison between the incentives available to judges of traditional court with that of arbitrators. Part IV examines the social costs of arbitration and determines whether arbitral award is a public good or a private good. Part V concludes the paper by outlining the key findings of this study.