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on Law and Economics |
| By: | Jerome Sgard |
| Abstract: | It is argued that the successive regimes for restructuring sovereign debts, since the early 20th century have been shaped by the articulation of three institutional functions: information gathering and economic expertise, then third-party mediation, lastly policy enforcement, also called conditionality. Whereas these functions where integrated within the Fund during the 1980s’ debt crisis, mediation has now been outsourced, under the pressure of the demand by the private sector for a thorough judicialisation of the restructuring process. That is, its inscription within rather rigid procedural rules which would provide much more protection against the interests and the intervention of the sovereigns, especially G7 governments. Two responses to this demand have been formulated: the creation of a supra-national “bankruptcy court”, as envisaged in the SDRM proposal put forward by the IMF in 2001; and the reliance upon national courts, specifically those in which jurisdiction the initial debt contracts had been signed. This latter option corresponds to the contract-based approach to sovereign defaults based on Collective Action Clauses, which was eventually adopted in spring 2003. It is defended that outsourcing third-party mediation makes the IMF considerably much weaker, as it remains with only two functions and no consistent rules of interaction with its traditional partners – private investors and the government of debtor countries. |
| Keywords: | sovereign debts; judicialisation; multilateralism; IMF; conditionality |
| JEL: | F33 F34 K33 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2004-21&r=law |
| By: | Berggren, Niclas (The Ratio Institute); Jordahl, Henrik (Uppsala University) |
| Abstract: | We present new evidence on how generalized trust is formed. Unlike previous studies, we look at the explanatory power of economic institutions, we use newer data, we incorporate more countries, and we use instrumental variables to handle the causality problem. A central result is that legal structure and security of property rights (area 2 of the Economic Freedom Index) increase trust. The idea is that a market economy, building on voluntary transactions and interactions with both friends and strangers within the predictability provided by the rule of law, entails both incentives and mechanisms for trust to emerge between people. |
| Keywords: | social capital; trust; economic freedom; rule of law; property rights; legal system |
| JEL: | K42 O40 Z13 |
| Date: | 2005–01–14 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0064&r=law |
| By: | Buttwill, Klas (Department of Economics); Wihlborg, Clas (Copenhagen Business School) |
| Abstract: | Failure of projects and firms are an inherent element of growth. Economic growth requires that old activities are phased out to make room for new ones, and that economic resources are reallocated from activities that are no longer profitable. In an economy where most firms are financed by debt to a substantial extent, insolvencies inevitably play an important role in restructuring. Insolvency leads to formal bankruptcy when legal procedures are employed to liquidate the insolvent firm’s assets in order to pay stakeholders fully or partially according to a priority established in law or contracts. In some countries legal procedures exist for restructuring as well as for liquidation. In other countries the restructuring of an insolvent firm is handled informally through negotiation. The economic roles of insolvency procedures are discussed (in Section 2) with an emphasis on dynamic aspects. In discussing the efficiency of insolvency procedures (in Section 3) we distinguish between ex ante and ex post efficiency. Since efficiency ultimately must be evaluated in terms of its dynamic effects, simple efficiency criteria are not easily identified. Formal insolvency procedures in different countries are classified (in Section 4) as more or less creditor or debtor oriented. Legal approaches can also be classified as more or less contractual or statutory. The important interdependence between formal and informal procedures is discussed in Section 5.Thereafter we turn in Section 6 to the empirical evidence on bankruptcy and restructuring in a number of countries with substantial differences in legal approaches to insolvency. We ask in Section 7 what explains the relatively high bankruptcy frequency in Sweden in an international comparison. Is the high frequency an indication of efficiency of procedures or does it indicate that viable firms are forced into bankruptcy unnecessarily? |
| Keywords: | Bankruptcy; Insolvency; Restructuring; Contracting |
| JEL: | G33 K22 |
| Date: | 2005–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0065&r=law |
| By: | Philip E. Strahan |
| Abstract: | We examine empirically how legal origin, creditor rights, property rights, legal formalism, and financial development affect the design of price and non-price terms of bank loans in almost 60 countries. Our results support the law and finance view that private contracts reflect differences in legal protection of creditors and the enforcement of contracts. Loans made to borrowers in countries where creditors can seize collateral in case of default are more likely to be secured, have longer maturity, and have lower interest rates. We also find evidence, however, that ?Coasian? bargaining can partially offset weak legal or institutional arrangements. For example, lenders mitigate risks associated with weak property rights and government corruption by securing loans with collateral and shortening maturity. Our results also suggest that the choice of loan ownership structure affects loan contract terms. |
| JEL: | K0 G2 O5 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11052&r=law |
| By: | Price Fishback |
| Abstract: | Between 1869 and the early 1900s state governments regulated safety in mines and factories and reformed the liability for accidents. Reformers sought to reduce workers' risks and ensure that those involved in accidents received reasonable medical care and compensation for lost earnings. Yet large employers often wielded significant clout. This paper explores the extent to which large employers, measured by average number of employees, subverted the safety reform process, including the adoption of safety legislation, its scope, and the resources devoted to enforcement. The findings vary by industry. In coal mining large employers followed a defensive strategy, limiting the breadth of regulation, pressing for regulations that were enforced more against workers than against employers, and weakening enforcement. In manufacturing, on the other hand, safety regulations were introduced earlier in states with larger average establishment sizes. Reformers may have succeeded in imposing regulations on large manufacturing employers. However, the finding is also consistent with large firms working to raise rivals' costs and the analytical narratives suggest that manufacturing employers at times shaped the legislation to their benefit and that the regulations were often poorly enforced. |
| JEL: | N3 N4 K2 H7 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11058&r=law |