Law without Hierarchy
42 Pages Posted: 2 Nov 2021
Date Written: October 28, 2021
Legal systems are often assumed to require a single authoritative agency, such as a high court. Yet in some arbitration systems with no central authority, we observe the development of rules that are clear, adaptable, and judicable---and hence fulfill common criteria for law. This paper argues that institutional procedures of certain arbitration systems produce incentives to develop such rules. Using a formal model, I show that when arbitrators can be vetoed by disputants, arbitrators have an incentive to conceal biases that, if revealed, result in future rejection. An arbitrator maintains a neutral reputation by publishing reasoned explanations that rely upon precedent in most cases and develop new rules in cases without clear precedent. Finally, disputants benefit from published explanations due to the effect on the probability of winning their case. This argument provides a theoretical mechanism for why some arbitration systems produce legal rules even without a central authority.
Keywords: legal hierarchy, legal authority, formal model, precedent, arbitration
JEL Classification: D02, J52, K40, P48
Suggested Citation: Suggested Citation