Arbitration has been criticized as displacing cases from the public courts and thereby reducing the production of court precedent (the ‘displacement hypothesis’). Moreover, while arbitral awards might substitute for court precedent, the standard view is that arbitrators have little incentive to issue awards that produce legal rules because such awards mostly benefit parties to future disputes (the ‘positive externalities hypothesis’). This Article critically examines both the displacement hypothesis and the positive externalities hypothesis. In so doing, it not only fills gaps in the existing legal literature, but also offers new theoretical and empirical insights that provide the groundwork for a comprehensive account of arbitration and rule production.
The Article begins by evaluating the underlying factual predicate of the displacement hypothesis: the extent to which arbitration is used to resolve disputes in the relevant contracting market (defined as the type or types of contracts likely to give rise to disputes that raise legal issues in a particular field and in a particular jurisdiction). The Article then provides updated data on the use of arbitration clauses in credit card contracts and franchise agreements, showing that even ten years after the Supreme Court’s decision in AT&T Mobility LLC v Concepcion many standard form contracts still do not include arbitration clauses, contrary to the predictions of leading scholars …
Drahozal, Christopher R, Arbitration and Rule Production (July 1, 2021).