Is ADR the Superior Mechanism for Consumer Contractual Disputes? – An Assessment of the Incentivizing Effects of the ADR Directive

Abstract

The European legislator has adopted a new Directive on ADR which sets out minimum requirements for ADR entities throughout the European Union. From a law and economics point of view law enforcement is crucial to induce compliance. ADR can be viewed as a means of strengthening consumer law enforcement, leading to compliance at lower costs. Certain conditions, however, have to be fulfilled to exploit the benefits of an ADR mechanism successfully. The goal of this paper is to look into these conditions more specifically and critically assess the ADR Directive in light of these requirements. It is divided into a theoretical section and the analysis of the EU Directive. The main concern results to be the fact that ADR boards with very strong links to traders are allowed under the Directive. When looking at the composition of the bodies, a complicated compromise was enacted that is able to impede the working of such ADR bodies. Given that the Directive aims at minimum harmonization Member States have the opportunity to provide for a better design in their respective countries responding to this main concern and other critical points identified in the paper.

Keywords: Law enforcement, alternative dispute resolution, law and economics, cost-effectiveness, capture, minimum harmonisation

JEL Classification: K41, K42