Working Paper: CEPR ID: DP1722
Authors: Hyun Song Shin
Abstract: Should arbitrators adjudicate on the basis of their own investigations, or invite the interested parties to make their cases and decide on the basis of the information so gathered? I call the former the inquisitorial procedure in arbitration and the latter the adversarial procedure. I conduct a welfare comparison of the two procedures by constructing a game-theoretic model of decision making by an arbitrator in the face of self-interested reporting strategies by the interested parties. Even if it is assumed that the arbitrator is, on average, as well informed as the two opposing parties, the adversarial procedure is strictly superior. The source of this superiority lies in a non-convexity in the adversarial procedure. There are increasing marginal returns to improvements in the information of an interested party. There are no analogous increasing returns to the arbitrator?s information under the inquisitorial procedure.
Keywords: legal procedure; persuasion; games; asymmetric information; value of information; advocates; inquisitor
JEL Codes: 073; 074; 082; 123; K40; K41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Adversarial procedure (K41) | Inquisitorial procedure (K40) |
| Adversarial procedure (K41) | Arbitrator's payoff (J52) |
| Information provided by parties (L86) | Arbitrator's payoff (J52) |
| Adversarial procedure (K41) | Extraction of information (Y60) |
| Increasing returns to information (D83) | Arbitrator's ability to discern truth (K41) |
| Inquisitorial procedure (K40) | Arbitrator's ability to discern truth (K41) |