Choosing ADR or litigation

We model the decision by two contestants to select one of two conflict resolution forums in which to address their conflict; alternative dispute resolution (ADR) or litigation. Given a forum, we represent the parties' behavior by a Tullock contest. Because of the additional constraints disputants face in courts, we assume that the cost structure of providing effective legal arguments is higher under litigation. Paradoxically, litigation may be procedurally more efficient in equilibrium. The final choice of the parties is based on their respective utility and we show that a tension may arise with procedural efficiency. Finally, we also show that the timing of the decision of the conflict resolution mechanism (before or after the conflict arises) affects the choices the parties make.