Common drawbacks

Alternative Dispute Resolution programs have not fared well in many of the developing

countries. One problem with many community-based systems is that norms controlling dispute resolution can contradict national laws.

In Bangladesh village justice systems often recognize oral divorces despite a 1962 law requiring that all divorces be in writing. A second problem with community systems is that those deciding the cases are often biased against women, poor people, and other underprivileged groups.

Training, outreach, and legal awareness programs can help solve these problems. But these programs cannot solve the larger problem of incentives. In most developing and transition economies the courts are not strong enough to enforce contracts requiring that disputes be submitted for alternative dispute resolution or that the losing party pay the resulting award. Alternative dispute resolution can succeed only if claimants and defendants have incentive to make it work. In Argentina, Colombia, and Peru any firm that fails to arbitrate a dispute after agreeing to do so or refuses to pay an award—quickly becomes known as an unreliable business partner. Thus a firm’s concern about its reputation provides a powerful incentive to participate in alternative dispute resolution and respect the outcome.