Privatizing the Adjudication of Disputes

Bryan Caplan, Edward P. Stringham


Must the state handle the adjudication of disputes? Researchers of different perspectives, from heterodox scholars of law who advocate legal pluralism to libertarian economists who advocate the privatization of law, have increasingly questioned the idea that the state is, or should be, the only source of law. Both groups point out that government law has problems and that non-state alternatives exist. This Article discusses some problems with the public judicial system and several for-profit alternatives. Public courts lack both incentives to embrace customer orientation and pricing mechanisms, plus they face problems associated with the bureaucratic provision of services. When parties are able to choose their tribunals, in contrast, those tribunals must provide service to customers and be mindful about conserving resources. Competition between arbitrators also can allow for experimentation and the provision of customized services rather than a centrally planned, one-size-fits-all system. Contracts with arbitration clauses can easily stipulate the choice of tribunal, and we argue that if government courts simply refused to overrule binding arbitration agreements, de facto privatization could easily take place. This Article discusses how the private adjudication of disputes could enable the market to internalize externalities and provide services that customers desire.

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