Managing a conflict: optimal alternative dispute resolution

We study optimal methods for Alternative Dispute Resolution (ADR), a technique to achieve settlement and avoid costly adversarial hearings. Participation is voluntary. Disputants are privately informed about their marginal cost of evidence provision. If ADR fails to engender settlement, the disputants can use the information obtained during ADR to determine what evidence to provide in an adversarial hearing. Optimal ADR induces an asymmetric information structure but makes the learning report-independent. It is ex ante fair and decreases the disputants' expenditures, even if they fail to settle. We highlight the importance of real-world mediation techniques, such as caucusing, for implementing optimal ADR

Institutional differences and arbitration mechanisms in international joint ventures

We theoretically and empirically study the effects of legal institutions on the inclusion of arbitration provisions in international joint venture (IJV) contracts. Legal institutions offer a public trilateral forum to handle interpartner disputes. However, these institutions function differently across countries, which can impede IJV partners from resolving disputes effectively through court systems. Alternatively, partners can take advantage of private trilateral resolution mechanisms in the form of arbitration. We argue and demonstrate that differences among partners' home country legal institutions regarding the legal traditions, as well as the importance of procedures and costs imposed in these countries for enforcing contracts, increase the likelihood of choosing arbitration over litigation. We also compare results for partners' recourse to IJV boards as a private, bilateral means of addressing conflicts