Arbitration Outcomes Research Articles

The Consumer Financial Protection Bureau's Arbitration Study: A Summary and Critique

The Consumer Financial Protection Bureau’s Arbitration Study: Report to Congress 2015 does not support the case for ex ante regulation of mandatory consumer arbitration clauses. It contains no data on the typical arbitration outcome - a settlement - and it is these arbitral settlements, and not arbitral awards, that should be compared to class action settlements. It does not address the public policy question of whether, by resolving disputes more accurately on the merits, arbitration may prevent class action settlements induced solely by defendants’ incentive to avoid massive discovery costs. It shows that in arbitration consumers often get settlements or awards, are typically represented by counsel, and achieve good results even when they are unrepresented. In class action settlements, the Consumer Financial Protection Bureau reports surprisingly high payout rates to class members and low attorneys’ fees relative to total class payout. These aggregated average numbers reflect the results in a very small number of massive class action settlements. Many class action settlements have much lower payout rates and higher attorneys’ fees.

The Influence of Arbitrator Background and Representation on Arbitration Outcomes

We study the role of arbitrator background in securities arbitration. We find that arbitrator background is correlated with arbitration outcomes. Specifically, industry experience, prior experience as a regulator, and status as a professional arbitrator are correlated with statistically significant differences in arbitration awards. We find that the impact of these characteristics is affected by whether the arbitrator in question serves as the panel chair and by whether the parties to the arbitration are represented by counsel. Our findings offer some preliminary insights into the debate over arbitrator bias. On the one hand, they suggest that the party selection process is relatively effective in screening for potential bias. FINRA has imposed increasingly more rigorous qualification requirements, specifically with respect to the independence of public arbitrators, but our study suggests that these requirements are unlikely to affect outcomes in most cases. On the other hand, party selection appears to be most effective when the parties are represented by counsel. Our findings highlight the importance of legal representation in the arbitration process.

Just Horseplay? Masculinity and Workplace Grievances in Fordist Canada, 1947–70s

This article examines men’s grievances concerning horseplay, profanity, alcohol, and violence, primarily in their legal arbitrated form, as a means of probing the gendered nature of the Fordist system of grievance arbitration. Horseplay grievances, for instance, were infused with ideas about masculinity, with the majority dealing with male-on-male activities, usually among workers. In arbitration discourse, horseplay and violence were naturalized as essentially male behaviour. An examination of these “bad behavior” grievances highlights how the arbitration process was not only shaped profoundly by class but also by gender and, to a lesser extent, ethnocentric ideologies. Gender stereotypes and moralistic assumptions shaped the arguments and outcome of grievance arbitration, and, with each decision, the system became more legalized and bureaucratized, with gender norms firmly embedded in arbitration discourse. While some gender norms changed their form in the post-Fordist workplace, current grievances concerning horseplay indicate some continuity with the past and the persisting equation of working-class masculinity with violence, rough behaviour, and intimidation in the workplace.

Lawyers as Agents of the Devil in a Prisoner's Dilemma Game

Do the parties in a typical dispute face incentives similar to those in the classic prisoner's dilemma game? In this article, we explore whether the costs and benefits of legal representation are such that each party seeks legal representation in the hope of exploiting the other party, while knowing full well that failing to do so will open up the possibility of being exploited. The article first shows how it is possible to test for the presence of such an incentive structure in a typical dispute resolution system. It then reports estimates of the incentives for the parties to obtain legal representation in wage disputes that were settled by final‐offer arbitration in New Jersey. The article also reports briefly on similar studies of data from discharge grievances, court‐annexed disputes in Pittsburgh, and child custody disputes in California. In each case, the data provide evidence that the parties face strong individual incentives to obtain legal representation that make the parties jointly worse off. Using our New Jersey data, we find that expert agents may well have played a productive role in moderating the biases of their clients, but only early on in the history of the system. Over time, the parties slowly evolved to a noncooperative equilibrium where the use of lawyers becomes nearly universal, despite the fact that agreeing not to hire lawyers is cheaper and does not appear to alter arbitration outcomes.

Lawyers as Agents of the Devil in a Prisoner's Dilemma Game: Evidence from Long Run Play

Do the parties in a typical dispute face incentives similar to those in the classic prisoner's dilemma game? In this paper, we explore whether the costs and benefits of legal representation are such that each party seeks legal representation in the hope of exploiting the other party, while knowing full well that failing to do so will open up the possibility of being exploited. The paper first shows how it is possible to test for the presence of such an incentive structure in a typical dispute resolution system. It then reports estimates of the incentives for the parties to obtain legal representation in wage disputes that were settled by final-offer arbitration in New Jersey. The paper also reports briefly on similar studies of data from discharge grievances, court-annexed disputes in Pittsburgh, and child custody disputes in California. In each case, the data provide evidence that the parties face strong individual incentives to obtain legal representation which makes the parties jointly worse off. Using our New Jersey data, we find that expert agents may well have played a productive role in moderating the biases of their clients, but only early on in the history of the system. Over time, the parties slowly evolved to a non-cooperative equilibrium where the use of lawyers becomes nearly universal, despite the fact that agreeing not to hire lawyers is cheaper and does not appear to alter arbitration outcomes.

Justice and rape on the periphery: the supremacy of social harmony in the space between local solutions and formal judicial systems in northern Uganda

In the Acholi sub-region of Uganda, historically and geographically peripheral since the colonial era and the epicenter of over 20 years of war – there is a peculiar manifestation of what appear to be contradictory phenomena: brutally violent retribution and extraordinary forgiveness. This article suggests that both responses to wrongdoing are motivated by the same supremely important value of social harmony. The article focuses on one crime, rape, and examines what justice means for Acholi women in the vacuum of justice created by the decayed state of former local methods of responding to wrongdoing and the still inadequate role and legitimacy of Uganda's judicial system and the International Criminal Court. The research indicates that notions of appropriate punishment are oriented by the degree to which the perpetrator is seen as important to future social harmony. The various responses to rape are a product of dynamics in the justice gap, and, I want to suggest, are illustrative of responses to crime or wrongdoing more generally. The article highlights the centrality of two integral aspects of lived Acholi reality: there is a profound value of social harmony, and a deep distrust of higher authorities to dispense justice in their interest. Women's experiences after rape in this study underscore the importance of an arbiter of injustice that has earned moral jurisdiction on a local level. When authority is recognized and trusted, parties typically accept the outcome of arbitration, restoring broken social harmony. However, without moral jurisdiction, outcomes of such processes are viewed with suspicion and usually exacerbate existing tensions.

Are Arbitrators Political?

We examine the role of arbitrator background for outcomes in investment arbitration. Both the investors and the host states expend a great deal of resources to influence the arbitration outcomes, raising an important question: is an arbitrator‟s decision biased toward his or her appointing party? We construct a unique personnel data set of all 350 arbitrators who have been appointed to adjudicate the more than 400 arbitration cases before the International Centre for the Settlement of Investment Disputes, and provide evidence on how the appointment of arbitrators and personal background influence arbitration outcomes. We find that arbitrators routinely appointed by the investor scrutinize the actions of host states more closely, as compared to arbitrators typically appointed by host states. Arbitrators are more lenient to host countries from their own legal family. Other aspects of the arbitrators experience and training, such as the development status of their country of origin and full-time private practice, also play an important role in arbitration decisions. The results are robust to the inclusion of industry fixed effects and country characteristics such development level and political institutions.

Obtaining a fair arbitration outcome

The ‘minimax theorem’ is the most recognized theorem for determining strategies in a two-person zero-sum game. Other common strategies exist such as the ‘maximax principle’ and ‘minimize the maximum regret principle’. All these strategies follow the Von Neumann and Morgenstern linearity axiom which states that numbers in the game matrix must be cardinal utilities and can be transformed by any positive linear function f (x) = ax +b, a > 0, without changing the information they convey. This paper describes risk-averse strategies for a two-person zero-sum game where the linearity axiom may not hold. With connections to gambling theory, there is evidence to show why it can be optimal for the favourable player to adopt risk-averse strategies. Based on this approach, an arbitration value is obtained in a litigation game, where the amount awarded to the victim is less than expectation and shown to be ‘fairer’ when compared with the amount obtained using the Von Neumann and Morgenstern game theory framework.

An Empirical Study of Employment Arbitration: Case Outcomes and Processes

Using data from reports filed by the American Arbitration Association (AAA) pursuant to California Code requirements, this article examines outcomes of employment arbitration. The study analyzes 3,945 arbitration cases, of which 1,213 were decided by an award after a hearing, filed and reaching disposition between January 1, 2003 and December 31, 2007. This includes all the employment arbitration cases administered nationally by the AAA during this time period that derived from employer-promulgated arbitration procedures. Key findings include: (1) the employee win rate among the cases was 21.4 percent, which is lower than employee win rates reported in employment litigation trials; (2) in cases won by employees, the median award amount was $36,500 and the mean was $109,858, both of which are substantially lower than award amounts reported in employment litigation; (3) mean time to disposition in arbitration was 284.4 days for cases that settled and 361.5 days for cases decided after a hearing, which is substantially shorter than times to disposition in litigation; (4) mean arbitration fees were $6,340 per case overall, $11,070 for cases disposed of by an award following a hearing, and in 97 percent of these cases the employer paid 100 percent of the arbitration fees beyond a small filing fee, pursuant to AAA procedures; (5) in 82.4 percent of the cases, the employees involved made less than $100,000 per year; and (6) the mean amount claimed was $844,814 and 75 percent of all claims were greater than $36,000. The study also analyzes whether there is a repeat player effect in employer arbitration. The results provide strong evidence of a repeat employer effect in which employee win rates and award amounts are significantly lower where the employer is involved in multiple arbitration cases, which could be explained by various advantages accruing to larger organizations with greater resources and expertise in dispute resolution procedures. The results also indicate the existence of a significant repeat-employer–arbitrator pairing effect in which employees on average have lower win rates and receive smaller damage awards where the same arbitrator is involved in more than one case with the same employer, a finding supporting some of the fairness criticisms directed at mandatory employment arbitration.

Fairness and Independence in Investment Arbitration: A Critique of Susan Franck's 'Development and Outcomes of Investment Treaty Arbitration'

This short article provides a critique of a prominent study, Franck (2009), that used quantitative research tools in order to evaluate potential bias in investment treaty arbitration. The study has been referenced in policy and academic discussions in order to allay concerns about an apparent lack of fairness and independence in investment treaty arbitration. This critique does not suggest that there is evidence of actual bias in investment treaty arbitration. Rather, it is argued that (1) the study by Franck contained findings and conclusions that were unsupported by the results of the study, (2) there is far too little available information upon which to base reliable conclusions about possible bias using quantitative research methods, and (3) the more pressing concern is perceived bias arising from institutional factors.

The International Centre for Settlement of Investment Disputes (ICSID): An Empirical Research on the Voting Behavior of Arbitrators

After 145 ratifications and hundreds of disputes, the International Centre for Settlement of Investment Disputes (ICSID) conceived by the International Bank for Reconstruction and Development (World Bank) for the promotion of foreign direct investment (FDI) has been under severe debate. While scholars have already focused on the outcome of international investment arbitration to address its independence and neutrality, the voting behavior of arbitrators remains amorphous. The ICSID arbitration is particularly interesting to appraise because its default system avoids the appointment of arbitrators of the same nationality of those of the parties and because it was designed to deal with conflicts not directly involving two states, but a host state and a foreign investor, unlike the traditional structure of international courts, as for example at the International Court of Justice (ICJ) and at the Word Trade Organization (WTO). This paper aims at testing two main hypotheses. Firstly, whether or not arbitrators favor the interest of the parties that select them and, moreover, if the interests of the home-state of arbitrators influence their votes in order to favor parties with similar characteristics, as to wealth, culture (religion, language and legal system), region and democratic level. Secondly, whether or not arbitrators split the differences of the parties’ interest, reaching compromised awards.

Unfair dismissals in Australia: does arbitration help employees?

PurposeTo determine the factors associated with arbitration awards in unfair dismissal complaints under Australian federal legislation and to assess whether employees benefit from arbitration.Design/methodology/approachThis research involves an empirical analysis of 342 decisions in 17 industries by arbitrators in the Australian Industrial Relations Commission over the four year period 1997‐2000. Logistic and ordinary least squares regression are used to analyse the data.FindingsThe findings of this study indicate that 50.6 per cent of arbitration decisions were in favour of employees and only 10.8 per cent of complainants were reinstated. Independent variables which are significantly associated with each of the three dependent variables are identified.Research implications/limitationsThe results of this study enable researchers to gain a deeper understanding of the arbitration process and recognise independent variables that are associated with the arbitrator's decision in unfair dismissal cases.Practical implicationsEmployers lose half the unfair dismissal cases that go to arbitration. To reduce legal and associated costs, employers may need to look at ways of creating a more harmonious workplace. Employees do not benefit much from arbitration and have little chance of reclaiming their jobs. Reaching a settlement through mediation may be a better option.Originality/valueThis is the first study to assess arbitration decisions in Australia. By developing a conceptual model based on arbitration outcomes and structuring the analysis on this model, the paper presents a logical understanding of the factors that drive arbitration decisions and remedies.

Do Lawyers Affect Grievance Arbitration Outcomes? The Newfoundland Experience

Unions and employers are no doubt aware that retaining legal counsel necessitates a more expensive and less expeditious grievance arbitration process. But if a party's prospects for success are enhanced by legal representation, the additional delay and expense may be justified. Does legal representation affect grievance outcomes? Most arbitrators are lawyers. Does an arbitrator's legal training affect the outcome of a grievance"! These, and other issues are examined in this study. The results suggest that legal representation does not affect grievance outcomes; nor do lawyer-arbitrators decide cases any differently than their lay colleagues.

The Causes of Bargaining Failure: Evidence from Major League Baseball

Abstract Final‐offer arbitration in Major League Baseball provides an ideal setting for examining the empirical regularities that are associated with bargaining failure, since final offers, salaries, and player statistics, which provide the fundamental facts for the case, are all readily available. Using data for players eligible for arbitration for 1990–93, we conduct a wide variety of empirical tests regarding the relationship between aggressive offers and arbitration outcomes. We find that aggressive offers by players trigger arbitration and that more aggressive offers are associated with inferior financial outcomes in arbitration. Overall, clubs appear to outperform players in arbitration. Unexpectedly high or low offers are less common for players who have previously been through arbitration, which suggests that learning occurs. Our results are inconsistent with simple one‐sided asymmetric‐information models of arbitration. The results are more consistent with an optimism model or a model in which so...

Can Prior Offers and Arbitration Outcomes Be Used to Predict the Winners of Subsequent Final‐Offer Arbitration Cases?

The purpose of interest arbitration is to encourage bargainers to negotiate their own mutually agreeable settlement. In final‐offer arbitration (FOA), the bargainers exchange final offers. If a settlement is not reached, an independent arbitrator selects one of the final offers as the award. At the beginning of each arbitration period, the only information available to bargainers relating to arbitrator preferences is past outcomes. Given its goal of driving negotiated settlements, an effective FOA process requires bargainers to infer useful information about arbitrator preferences from past outcomes. Using data from major league baseball, this article provides evidence that past FOA decisions are positively correlated with the outcomes of future FOA cases.

Can Prior Offers and Arbitration Outcomes Be Used to Predict the Winners of Subsequent Final-Offer Arbitration Cases?

preferences is past outcomes. Given its goal of driving negotiated settlements, an effective FOA process requires bargainers to infer useful information about arbitrator preferences from past outcomes. Using data from major league baseball, this article provides evidence that past FOA decisions are positively correlated with the outcomes of future FOA cases.

Bargaining with Voluntary Transmission of Private Information: Does the Use of Final Offer Arbitration Impede Settlement?

We identify two features of final offer arbitration (FOA) which may impede settlement in a bargaining game where asymmetric information drives the failure to settle. First, under FOA the informed party has an incentive to conceal private information about the expected outcome in arbitration from his bargaining partner. Revealing this information allows the previously uninformed party to submit a more advantageous offer to the arbitrator to the detriment of the informed party. Second, in a two-type model, the uninformed player may choose to arbitrate all cases, a result which never occurs in a simple litigation game. Each player's offer directly affects the outcome of arbitration under FOA, and it is this feature that generates impediments to settlement that are not observed in a simple litigation game. Both impediments to settlement are removed if bargaining is allowed to take place after potentially binding offers

The Impact of Hybrid Dispute‐Resolution Procedures on Constituent Fairness Judgments1

The authors investigated the effects of hybrid third‐party procedures on constituents' procedural and distributive fairness judgments. In Experiment 1, three independent variables were manipulated: third‐party procedure (Med–Arb vs. Arb–Med), concession making during mediation (concessions vs. no concessions), and role (labor vs. management). Participants viewed Med–Arb as fairer than Arb–Med. In Experiment 2, three factors were again manipulated: third‐party procedure (Med–Arb vs. Arb–Med), whether confidential information was revealed during mediation (confidential information revealed vs. not revealed), and arbitration outcomes (winning vs. losing). Results suggest that when no confidential information was revealed, Med–Arb was significantly fairer than Arb–Med, but if confidential information was revealed, then both procedures were equally fair. Results are discussed in terms of procedural design.

Equilibrium Explanation of Bargaining and Arbitration in Major League Baseball

Arbitration in Major League Baseball can be explained by baseball clubs’ lack of information regarding their players’ risk attitudes. Different player risk attitudes yield different contract zones of potential settlements. Profit-maximizing baseball clubs must sacrifice some potential settlements to minimize their expected payments to players. Mixed strategies in arbitration offers by players and settlement offers by clubs yield an equilibrium in a game with asymmetric information. The history of arbitration outcomes is explained by the predicted selection of cases for arbitration.

Bargaining with Voluntary Transmission of Private Information: Does the Use of Final Offer Arbitration Impede Settlement?

We identify two features of final offer arbitration (FOA) which may impede settlement in a bargaining game where asymmetric information drives the failure to settle. First, under FOA the informed party has an incentive not to voluntarily reveal private information. Revealing this information allows the previously uninformed party to submit a superior offer to the arbitrator to the detriment of the informed party. Second, in a two-type model, the uninformed player may choose to arbitrate all cases, a result which never occurs in a simple litigation game. Such a strategy allows this player to commit to an offer in arbitration that is optimal against the entire distribution of types with whom he must bargain. Each player's offer directly affects the outcome of arbitration under FOA, and it is this feature that generates impediments to settlement that are not observed in a simple litigation game. Both impediments to settlement are removed if bargaining is allowed to take place after potentially binding offers have been submitted to the arbitrator.