Choosing ADR or litigation

• Published in: International review of law and economics 2017-03, Vol.49, p.33-40
• Main Authors: Deffains, Bruno, Demougin, Dominique, Desrieux, Claudine
• Format: Article
• Language: English
• Subjects: Alternative dispute resolution; Conflict resolution; Litigation; Quantitative Finance; Tullock game
• ISSN: 0144-8188; 1873-6394
• DOI: 10.1016/j.irle.2016.11.002

•We model the decision by two contestants between litigation and ADR.•We represent the parties’ behavior by a Tullock contest.•The cost structure of providing effective legal arguments is higher under litigation.•We show that tension may arise between efficiency and the choice of the disputants.•Identity of decision makers and timing of the decision matter for the final choice. We model the decision by two contestants to select one of two conflict resolution forums in which to address their conflict; alternative dispute resolution (ADR) or litigation. Given a forum, we represent the parties’ behavior by a Tullock contest. Because of the additional constraints disputants face in courts, we assume that the cost structure of providing effective legal arguments is higher under litigation. Paradoxically, litigation may be procedurally more efficient in equilibrium. The final choice of the parties is based on their respective utility and we show that a tension may arise with procedural efficiency. Finally, we also show that the timing of the decision of the conflict resolution mechanism (before or after the conflict arises) affects the choices the parties make.