I begin by posing a question that reads like the setup for a very nerdy joke: How are arbitral awards and money alike?
The answer is that both have value only because we all think that they have value. Lord Mustill once observed that the only really significant difference between an arbitrator and a judge is that, when a judge speaks, you can hear the distant clanking of chains. Although they are empowered by a range of public and private enactments, arbitrators are private citizens without access to the coercive power of the state. Why, then, do we think of arbitral awards as possessing legally binding force, and not just, for example, the moral authority accorded the pronouncements of a village elder? The answer is no more and no less than this: arbitral awards have binding force because a sufficiently broad implicit coalition of like-minded parties, lawyers, judges, and legislators believe that they do. To put it differently, the effectiveness of an arbitral award is a social fact, not a legal inevitability. Consequently, arbitral authority itself is an act of collective imagination, and to be pro-arbitration is to collude in that act of imagination. Each act of faith buttresses the reality of arbitral authority.
A terminological note before proceeding: I use the phrase “arbitral authority” to refer to the arbitrators’ power to bind the parties by issuing an award that is legally enforceable. This conception of authority is inextricable from the notion of arbitrators’ (and arbitration’s) legitimacy.