Ludwig von Mises Institute

Private dispute resolution

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This page lists some private dispute resolution or arbitration services.

(Arbitration is the process by which the parties to a dispute submit their differences to the judgment of an impartial person or group appointed by mutual consent or statutory provision.[1])

Current examples[edit]

A 1994 study reports that about 90 percent of all international trade contracts contain arbitration clauses. Similarly, within the United States, arbitration under the auspices of various commercial organizations, or by independent arbitrators, perhaps from the American Arbitration Association (AAA), resolve at least three times as many commercial disputes as the common law courts do.

Arbitration of disputes between employers (both government and private) and unionized employees has also been routine (and even compulsory for government employees, as well as for some private sector employees, when negotiation proves inadequate) for several decades in the United States. Furthermore, while non-union employees’ disputes were almost never arbitrated before 1970, growing numbers are now resolved by arbitrators. Arbitration is also used for disputes between businesses and customers. For instance, the New York Stock Exchange formally provided for arbitration in its 1817 constitution, and it 'has been working successfully ever since', primarily to rectify disputes between Exchange members and their customers. The Council of Better Business Bureaus (BBB) operates arbitration programs for consumers in many parts of the United States, several automobile manufacturers have contracts with the BBB to arbitrate car owners’ complaints, AAA arbitrators annually resolve thousands of insurance claims, the National Association of Home Builders offers AAA arbitration of buyers’ complaints against association members, medical malpractice arbitration, begun in 1929, is on the rise, and so on. Non-contract civil disputes are also shifting to arbitration in the United States, in part to avoid litigation costs such as delays due to congested government courts. Indeed, a new private-for-profit court industry, developing since 1979, offers a wide variety of ADR procedures to resolve all kinds of disputes (there were more than 50 such firms in the United States 1992, most with offices in several states. These firms are attracting growing numbers of customers (as well as profits and investors, including many who do not contractually stipulate ADR prior to the dispute arising.[2]

Another example of private dispute resolution is that facilitated by the VISA corporation. Member banks agree to keep their quarrels within the VISA family when they join the central organization. Anticipating many costly legal disputes between the system's members, the VISA corporation saw an opportunity to invent a cheaper way to resolve disagreements. It created the VISA Arbitration Committee to judge the disputes of the member banks according to VISA's own legal code. The methods are quick, lawyerless, and unbureaucratic. Compared to the slow and costly justice that the banks receive when they have to settle a conflict with a firm outside the VISA camp (and within the reach of the public courts), the VISA banks get a bargain.[3]

In 1976, California had a 70,000-case public court backlog, with a median pretrial delay of 50.5 months. Two lawyers who wanted a complex case settled quickly found a retired judge with expertise in the area of the dispute, paid him at attorney’s-fee rates to resolve it, and saved their clients a tremendous amount of time and expense. This idea was quickly imitated and improved upon. The first private for-profit firm offering trials, Judicial Arbitration and Mediation Services Company (JAMS), was started in 1979 by a retired California state trial judge. It has become the largest firm in a rapidly expanding market, with gross revenue growth of 826 percent from 1988 to 1992. More than fifty firms are now active in this market and have moved from business disputes into personal injuries, divorces, warranty disputes, loan defaults, and other areas.[4]

Private Punishment[edit]

Main article: Private punishment

Fireman’s Fund Insurance Company estimates that one-third of all business failures are caused by employee theft. Presumably, these thefts are prosecutable, but police give them little attention, as the public-sector criminal justice system tends to be "unsympathetic to business losses due to crime". Hence, the crime investigated most frequently by security personnel in business organizations is employee theft, and the majority of security managers for business firms report that these crimes (and most other crimes by employees) are most often totally resolved "within the organization"—close to half of all employee thefts are resolved internally; most of the rest are solved through internal investigations followed by direct contact with a public prosecutor, thus bypassing public police. Indeed, within business organizations, "private justice may exert far greater control on citizens than the criminal justice system itself". The process may be formal, involving internal disciplinary bodies, boards, or panels, or informal, with confrontations and "negotiation" between security personnel or managers and accused offenders. Resulting sanctions include dismissal, suspension without pay, transfer, job reassignment or redesign to eliminate some duties, denial of subsequent advancement, and restitution agreements.[4]

References[edit]

  1. "arbitration", Free Online Dictionary, Thesaurus and Encyclopedia. Referenced 2012-12-17.
  2. Bruce L. Benson. "Arbitration" (pdf) from the Encyclopedia of Law and Economics, Volume I. Cheltenham, Edward Elgar, 2000, ISBN 1 85898 984 1. Referenced 2012-12-15.
  3. Bryan Caplan and Edward P. Stringham. "Privatizing the Adjudication of Disputes" (pdf), Independent Institute Working Paper Number 69, October 17, 2007. Referenced 2012-12-15.
  4. 4.0 4.1 Bruce L. Benson. "Crime Control Through Private Enterprise" (pdf), The Independent Review, v.II, n.3, Winter 1998, ISSN 1086-1653, Copyright © 1997, pp. 341–371. Referenced 2013-02-12.

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