Incentives in Arbitration

Arbitration is a process for resolving civil cases. Instead of using the court system, the parties agree to submit the decision to an arbitrator. The arbitrator is simply another lawyer who acts like a judge in the case. He'll hear motions and, if act as both the judge and jury in the trial-like arbitration. The arbitrator then makes his award which is generally binding on the parties, barring extraordinary circumstances.

Arbitration is usually preferred to court trial because it allows the parties to save some money. Courts are slow and formal, whereas arbitrators are swift and informal. Speed saves money.

Despite the similarities, it occurred to me that while arbitrators act like judges, they are unlikely to reach the same decisions as judges. I think this is for two reasons.

First, parties are less likely to appeal an arbitration decision. The standard for overturing an arbitrator's decision is higher than for a court. Appellate court generally do not defer to trial court's decisions on questions of law. Trial courts will, however, defer to arbitration decisions on these questions.This leaves the arbitrator more latitude.

Second, the arbitrator is usually selected by an agreement of the parties. That means that arbitrators are unlikely to be extremely biased in their decision. If they were, one side of a dispute would never choose them. But it also means that arbitrators are unlikely to send one party home empty handed. A lawyer that gets a really bad decision will probably never use the arbitrator again unless it was really clear that their side of the case should fail.

So, I think if you want the result that may be in tension with the law but seems fair, you probably want an arbitrator.  And if you have a technically good case but are seeking a result that seems less fair, you probably want a judge.