New Economics Papers
on Law and Economics
Issue of 2005‒05‒07
28 papers chosen by
Jeong-Joon Lee, Towson University

  1. Megan's Law Symposium - Presented Paper By Robert Del Tufo
  2. The Zoning of Group Homes for the Disabled...Zeroing in on a Reasonable Accommodation By Elizabeth Leamon
  3. "NO, NO, NO, NO!": Three Sons of Connecticut Who Opposed the Chinese Exclusion Acts By Henry Cohn; Harvey Gee
  4. Reauthorizing Discipline for the Disabled Student: Will Congress create a better balance in the Individuals with Disabilities Education Act (IDEA)? By Lauren Zykorie
  5. Defending an Unjust System: How Johnson v. Bush Upheld Felon Disenfranchisement and Perpetuated Voter Inequality in Florida By Nathan Litwin
  6. Margin of Appreciation Gone Awry: The European Court of Human Rights' Implicit Use of the Precautionary Principle in Frette v. France to Backtrack on Protection from Discrimination on the Basis of Sexual Orientation By Thomas Stone
  7. Revisiting the Public Policy Exception to the Employment-at-Will doctrine Following Thibodeau v. Design Group One Architects: Applying an Ethic of Care Analysis By Virginia Brown
  8. The Role of Child's Counsel in State Intervention Proceedings: Toward a Rebuttable Presumption in Favor of Family Reunification By Andrew Hoffman
  9. Maintaining the Legitimacy of the High Court:Understanding the "25 Years" in Grutter v. Bollinger By Vijay Sekhon
  10. Identity Theft: Are the Elderly Targeted? By Erin Sylvester
  12. One Man's Junk Mail Is Another Man's Treasure: Proxy Contests and Corporate Governance By Erica Laudano
  13. The Proprietary Foundations of Corporate Law By John Armour; Michael J Whincop
  14. Bankruptcy Law and Entrepreneurship By John Armour; Douglas Cumming
  15. The Capability Concept and the Evolution of European Social Policy By Simon Deakin
  16. Job Protection Laws and Agency Problems Under Asymmetric Information By Schmitz, Patrick W.
  17. The Coordinated Effects of Mergers in Differentiated Products Markets By Kühn, Kai-Uwe
  18. Fiat Money and the Natural Scale of Government By Martin Shubik; Eric Smith
  19. Commodity Money and the Valuation of Trade By Eric Smith; Martin Shubik
  20. Law and behaviours in social dilemmas: testing the effect of obligations on cooperation By Galbiati,Roberto; Vertova,Pietro
  21. Royal Ahold: a failure of corporate governance and an accounting scandal By Jong,Abe de; DeJong,Douglas V.; Mertens,Gerard
  22. Corporate governance convergence: evidence from takeover regulation reforms in Europe By Goergen,Marc; Martynova,Martina; Renneboog,Luc
  23. Contracts, Holdup, and Legal Intervention By Steven Shavell
  24. Agency Problems in Law Enforcement: Theory and Application to the U.S. Coast Guard By kishore gawande; alok k. bohara
  25. Economists’ Topsy-Turvy View of Piracy By Stan Liebowitz
  27. Economic Theories of Settlement Bargaining By Andrew F. Daughety; Jennifer F. Reinganum
  28. An Economic Analysis of Security Policies By Tilman Brück

  1. By: Robert Del Tufo (Skadden, Arps, Slate, Meagher & Flom)
    Abstract: Every State legislature, as well as the District of Columbia and the Federal Government, have enacted "Megan's Law" statutes in an attempt to provide people with information about convicted sex offenders in their communities. These laws are called "Megan's Laws" because the first such law was passed by the State of New Jersey in response to outrage over the death of Megan Kanka, a 7-year old girl who was abducted, raped, and murdered in 1994 by a man who lived across the street from Megan's family. Prior to the murder no one - neither Megan, her family, members of the community, nor local police - was aware that the murderer had twice previously been convicted of sex offenses against young girls, nor was anyone aware that he was living with two other men who also had been convicted of sex offenses. The crime gave impetus to laws for mandatory registration of sex offenders and corresponding community notification.
    Keywords: Megan's Law, Sex Offenders,
  2. By: Elizabeth Leamon (Judicial Clerk, Connecticut Supreme Court)
    Abstract: The Fair Housing Amendments Act ("FHAA") of 1988 mandates reasonable accommodations to provide the disabled equal access to housing. Since its enactment, group homes for the disabled and townships have debated the reach of the federal law over local zoning regulations. Fourteen years after passage of the FHAA the idea of a group home, especially, a group home for recovering addicts, located in a residential neighborhood still meets with formidable resistance. This attitude prevails in spite of research that reveals a group home generates no adverse impact on the community in which it operates. Nonetheless, public opposition to a group home "next door" continues to be a powerful weapon against integration and, ultimately, recovery from substance abuse.
    Keywords: Disability Law,
  3. By: Henry Cohn (None); Harvey Gee (None)
    Abstract: In 1882, with the passage of the initial Chinese Exclusion Act, the United States committed an overt act of discrimination against its resident Chinese population. The Act, signed by then President Chester A. Arthur on May 6, 1882, had an undistinguished and mild official title, promising merely to implement treaty restrictions. However, its practical effect was devastating.
  4. By: Lauren Zykorie (None)
    Abstract: In the past, the disabled student faced educational challenges. In 1970, before the enactment of the Individuals with Disabilities Education Act, only one in five students with disabilities received an education from American public schools. Despite the lack of cost-effectiveness in "consigning disabled children to 'terminal' care in an institution," stereotypes regarding disabled schoolchildren persistently prevented educating disabled students in public schools. Thus, in enacting the Education for All Handicapped Children Act of 1975 (EHA), later renamed the Individuals with Disabilities Education Act (IDEA), Congress mandated an end to the long history of segregation, discrimination, and exclusion of children with disabilities in education. In advocating for the passage of the IDEA, Senator Hubert H. Humphrey (D-MN) argued "too often we keep children whom we regard as 'different' or a 'disturbing influence' out of our schools." Indeed, "special education and disabled children were often considered uneducable, disruptive, and their presence disturbing to children and adults in the school community." Congress intended the IDEA to be the vehicle for challenging these justifications for excluding students with disabilities.
    Keywords: Disabilities, Education,
  5. By: Nathan Litwin (None)
    Abstract: In 2002 the United States District Court for the Southern District of Florida decided the case of Johnson v. Bush. The case was brought by local Florida attorneys and the Brennan Center, a civil rights organization based in New York, on behalf of a class of disenfranchised ex-felons in Florida. The class action challenged Article VI § 4 of Florida's Constitution and additional Florida regulations that denied convicted felons the right to vote. Under the state constitution, disenfranchisement is permanent after commission of a felony unless a pardon is granted by the Governor with the approval of three members of the cabinet. The Plaintiffs asserted that these laws violated the First, Fourteenth, Fifteenth, and Twenty-fourth Amendments of the United States Constitution, Sections 2 and 10 of the Voting Rights Act of 1965, and 42 U.S.C. § 1983. The plaintiff's claims of law were denied and the case is currently on appeal.
    Keywords: Voting Rights,
  6. By: Thomas Stone (None)
    Abstract: In Fretté v. France, the European Court of Human Rights (the Court) confronted the issue of whether France could discriminate on the basis of sexual orientation in its adoption procedures in conformity with the European Convention on Human Rights and Fundamental Freedoms (the Convention) . This Note argues that in determining that France was justified in its discrimination, the Court abused the margin of appreciation principle, by collapsing it into something akin to the precautionary principle, which the European Court of Justice uses to interpret the economic treaties of the European Union. This Note will further argue that even within the context of the precautionary principle as applied by the European Court of Justice, this form of discrimination is not justified, and that this principle is not appropriate in the human rights context. This Note concludes by warning that the European Court of Human Rights' failure to provide an adequate justification for their retreat from human rights principles - that they themselves have proclaimed - represents a dangerous politicization of the Court and a grave threat to the Convention itself.
  7. By: Virginia Brown (University of Connecticut)
    Abstract: In 2002, in Thibodeau v. Design Group One Architects, the Connecticut Supreme Court holds that Connecticut's Fair Employment Practices Act, General Statute § 46a-60, provides immunity to employers who have less than three employees. This case will likely stir up controversy among business and civil liberties groups.
    Keywords: fair employment practice, sex discrimination,
  8. By: Andrew Hoffman (University of Connecticut School of Law)
    Abstract: Should you advocate for John's return home? Lisa? Reid? Who decides the child client's position? What if adults involved in the case disagree as to the child's position? If you decide, how do you determine your client's position? What factors should you consider? How important is the client's expressed preference? What level of understanding of relevant legal proceedings might a six, eight, or fourteen-year-old child possess? How important are family ties? How important are material advantages or disadvantages? How important are ethnicity and culture? How important is socioeconomic status? Does the child have disabilities or unusual medical needs? Is the client's position ephemeral? Is the client's position conditioned on the occurrence or non-occurrence of certain future events?
    Keywords: family reunification, state intervention, child abuse,
  9. By: Vijay Sekhon (University of Connecticut School of Law)
    Abstract: The Supreme Court's decisions in Grutter/Gratz v. Bollinger were among the most anticipated rulings in recent history. Legal scholars, media commentators, and laypeople alike eagerly awaited the release of the Court's decision on whether the use of race in the admissions processes of institutions of higher education would be held constitutional under the Fourteenth Amendment. Given the divided opinion of the American public on the issue of affirmative action in higher education, it was expected that the Court's rulings would ignite fervor amongst individuals on either side of the debate, whichever way the decisions came out
    Keywords: affirmative action, use of race, college admission,
  10. By: Erin Sylvester
    Abstract: A 101-year-old woman's hired caregiver stole nine checks from the woman and then forged her signature, stealing $63,000 in two weeks. A nephew convinced his elderly aunt to trade in her $1.7 million bond portfolio and buy stock in his one-year-old oil and gas firm that had not done any business. A social worker assigned to an elderly woman in a hospital used his position to gain access to her house, mail, and bank accounts. He promised to pay all her bills and then wrote himself checks from her account. These are just three examples of the numerous elderly identity theft victims who must now attempt to reclaim their identity from known and unknown violators.
    Keywords: Identity theft ,
  11. By: Edieth Wu
    Abstract: This article takes a hard look at U.S. history: the political, the social, and the legal landscape after the passage of the 13th, 14th, and 15th Amendments. The author wholeheartedly believes that the Reparations dialogue must continue. Many, including well-educated Americans, are solidly divided on this important issue and have taken the position that Reparations should be buried because American slaves are buried. In spite of the difficulties, we must study and question the societal norms that led to major changes in the United States and forge ahead to find a solution to the issues that adversely affect a major portion of America's citizenry. Reparations have been used internationally as well as domestically and are not novel theories.
    Keywords: reparation,
  12. By: Erica Laudano
    Abstract: Proxy contests traditionally have been viewed as the least efficient means of corporate governance. During the 1960s, such contests were opined to be "the most expensive, the most uncertain, and the least used of the various techniques" available to discipline management and transfer corporate control. This attitude persisted through the 1980s when the cash tender offer dominated the wave of hostile takeovers and acquisitions of publicly held companies. In fact, during the period from 1981 to 1984, there were over 250 tender offers for publicly held U.S. corporations as compared to only some 100 proxy contests. In effect, the ready availability of cash coupled with the relatively short timetables afforded by the Williams Act rendered the tender offer a quicker, more certain alternative to the proxy contest.
    Keywords: proxy contests, corporate governance,
  13. By: John Armour; Michael J Whincop
    Abstract: Recent work in both the theory of the firm and of corporate law has called into question the appropriateness of analysing corporate law as ‘merely’ a set of standard form contracts. This article develops these ideas by focusing on property law’s role in underpinning corporate enterprise. Rights to control assets are a significant mechanism of governance in the firm. Practical circumstances dictate that such rights must be shared. Property law protects the rights of co-owners against each other’s opportunistic attempts to grant entitlements to t hird parties. At the same time, it uses a range of strategies to minimise the costs such protection imposes on third parties. The choice of strategy significantly affects co-owners’ freedom to customise their control-sharing arrangements. This theory is applied to give an account of the ‘proprietary foundations’ of corporate law, which has significant implications for the way in which the subject’s functions are understood and evaluated.
    Keywords: theory of corporate law, shared ownership, property rights
    JEL: D23 G34 K11 K22
  14. By: John Armour; Douglas Cumming
    Abstract: Entrepreneurs, catalysts for innovation in the economy, are increasingly the object of policymakers’ attention. Recent initiatives both in the UK and at EU level have sought to promote entrepreneurship by reducing the harshness of the consequences of personal bankruptcy law. Whilst there is an intuitive link between the two, little attention has been paid to the question empirically. We investigate the link between bankruptcy and entrepreneurship using data on self employment over 13 years (1990-2002) and 15 countries in Europe and North America. We compile a new index of the level of how ‘forgiving’ personal bankruptcy laws are, reflecting the time to discharge. This measure varies over time and across the countries studied. We show that bankruptcy law has a more statistically and economically significant effect on self employment rates relative to GDP growth, MSCI stock returns, and a variety of other legal and economic factors. The results have clear implications for policymakers.
    Keywords: Personal Bankruptcy Law, Entrepreneurship
    JEL: K35 M13
  15. By: Simon Deakin
    Abstract: Amartya Sen’s capability approach has the potential to counter neoliberal critiques of social welfare systems by overcoming the false opposition between security and flexibility. In particular, it can be used to promote the idea of social rights as the foundation of active participation by individuals in the labour market. This idea is starting to be reflected in the case law of the European Court of Justice concerning free movement of persons but its use in the European employment strategy is so far more limited, thanks to the continuing influence of neoliberal ‘activation policies’.
    Keywords: capabilities, welfare state, social rights, European Union law
    JEL: J38 K31
  16. By: Schmitz, Patrick W.
    Abstract: Under symmetric information, a job protection law that says that a principal who has hired an agent today must also employ them tomorrow can only reduce the two parties’ total surplus. The law restricts the principal’s possibilities to maximize their profit, which equals the total surplus, because they leave no rent to the agent. However, under asymmetric information, a principal must leave a rent to the agent, and hence profit maximization is no longer equivalent to surplus maximization. Therefore, a job protection law can increase the expected total surplus by restricting the principal’s possibilities to inefficiently reduce the agent’s rent.
    Keywords: employment protection; job security; labour market rigidities
    JEL: D82 E24 J65 K31
    Date: 2004–12
  17. By: Kühn, Kai-Uwe
    Abstract: The Paper addresses the issue of coordinated effects of mergers in the framework of a differentiated products model. Firms’ assets are product varieties that can be sold individually or entirely transferred to another firm in a merger. We show that under symmetric optimal punishment schemes the highest feasible collusive price declines from any asset transfer to the largest firm as long as the size of the smallest firm is unchanged. In contrast, for fully optimal punishment schemes the prices of firms that get larger increase and those of firms that get smaller decrease. In all cases, however, mergers are unprofitable unless the length of product lines is very asymmetric. We discuss the implications of the analysis for merger policy.
    Keywords: collusion; coordinated effects; joint dominance; mergers; product lines
    JEL: D43 K21 L13 L41
    Date: 2004–12
  18. By: Martin Shubik (Cowles Foundation, Yale University); Eric Smith (Sante Fe Institute)
    Abstract: The competitive market structure of a decentralized economy is converted into a self-policing system treating the bureaucracy and enforcement of the legal system endogenously. In particular we consider money systems as constructs to make agents' economic strategies predictable from knowledge of their preferences and endowments, and thus to support coordinated resource production and distribution from independent decision making. Diverse rule systems can accomplish this, and we construct minimal strategic market games representing government-issued fiat money and ideal commodity money as two cases. We endogenize the provision of money and rules for its use as productive activities within the society, and consider the problem of transition from generalist to specialist production of subsistence goods as one requiring economic coordination under the support of a money system to be solved. The scarce resource in a society is labor limited by its ability to coordinate (specifically, calling for the expenditure of time and effort on communication, computation, and control), which must be diverted from primary production either to maintain coordinated group activity, or to provide the institutional services supporting decentralized trade. Social optima are solutions in which the reduced costs of individual decision making against rules (relative to maintenance of coalitions) are larger than the costs of the institutions providing the rules, and in which the costs of the institutions are less than the gains from the trade they enable to take place.
    Keywords: Bureaucracy, Contract enforcement, Taxes, Money
    JEL: C7 D5 H5 K42
    Date: 2005–04
  19. By: Eric Smith (Sante Fe Institute); Martin Shubik (Cowles Foundation, Yale University)
    Abstract: In a previous essay we modeled the enforcement of contract, and through it the provision of money and markets, as a production function within the society, the scale of which is optimized endogenously by labor allocation away from primary production of goods. Government and a central bank provided fiat money and enforced repayment of loans, giving fiat a predictable value in trade, and also rationalizing the allocation of labor to government service, in return for a fiat salary. Here, for comparison, we consider the same trade problem without government or fiat money, using instead a durable good (gold) as a commodity money between the time it is produced and the time it is removed by manufacture to yield utilitarian services. We compare the monetary value of the two money systems themselves, by introducing a natural money-metric social welfare function. Because labor allocation both to production and potentially to government of the economy is endogenous, the only constraint in the society is its population, so that the natural money-metric is labor. Money systems, whether fiat or commodity, are valued in units of the labor that would produce an equivalent utility gain among competitive equilibria, if it were added to the primary production capacity of the society.
    Keywords: Bureaucracy, Contract enforcement, Taxes, Money
    JEL: C7 D5 H5 K42
    Date: 2005–04
  20. By: Galbiati,Roberto; Vertova,Pietro (Tilburg University, Center for Economic Research)
    Abstract: Laws consist of two components: the 'obligations' they express and the 'incentives' designed to enforce them. In this paper we run a public good experiment to test whether or not obligations have any independent effect on cooperation in social dilemmas. The results show that, for given marginal incentives, different levels of minimum contribution required by obligation determine significantly different levels of average contributions. Moreover, unexpected changes in the minimum contribution set up by obligation have asymmetric dynamic effects on the levels of cooperation: a reduction does not alter the descending trend of cooperation, whereas an increase induces a temporary re-start in the average level of cooperation. Nonetheless, obligations per se cannot sustain cooperation over time.
    JEL: C91 C92 H26 H41 K40
    Date: 2005
  21. By: Jong,Abe de; DeJong,Douglas V.; Mertens,Gerard (Tilburg University, Center for Economic Research)
    Abstract: Royal Ahold (Koninklijke Ahold NV) was one of the major success stories in the 1990s and is one of the major failures, suffering a complete meltdown, in 2003. We investigate the strategy, accounting transparency and corporate governance of Ahold; elements which jointly drive the firm s performance over this period of time. In general, the corporate governance, accounting transparency, strategy and firm performance relationships are complex. There is not a fully specified model available to address the inter-relationships, including the endogeneity problem. The econometrics are difficult and constrained not only by the lack of a fully specified theory but also by data availability. Our clinical study overcomes these problems by providing an in-depth analysis of the inter-relationships among corporate governance, accounting transparency and strategy that lead to Ahold s downfall. We provide insights into these relationships and their complexity that present theory and empirical studies cannot address.
    JEL: F36 G38 K22 M40
    Date: 2005
  22. By: Goergen,Marc; Martynova,Martina; Renneboog,Luc (Tilburg University, Center for Economic Research)
    Abstract: This paper contributes to the research on corporate governance by predicting the effects of European takeover regulation. In particular, we investigate whether the recent reforms of takeover regulation in Europe are leading to a harmonization of the national legislations. With the help of 150 corporate governance lawyers from 30 European countries, we collected the main changes in takeover regulation. We assess whether a process of convergence towards the Anglo-(American) corporate governance system has been started and we find that this is the case. We make predictions as to the consequences of the reforms for the ownership and control. However, we find that, while in some countries the adoption of a unified takeover code may result in dispersed ownership, in others it may further consolidate the blockholder-based system.
    JEL: G3 G34 G38 K2 K22 K40 G32
    Date: 2005
  23. By: Steven Shavell
    Abstract: This article develops the point that the problems associated with contractual holdup may justify legal intervention in theory, and the article relates this conclusion to legal intervention in practice. Contractual holdup is considered for both fresh contracts and for modifications of contracts. The law can in principle alleviate the incentive and risk-bearing problems due to holdup in two ways. One approach is for the law simply to void agreements made in certain circumstances, since that will remove the prospect of profit from holdup. This policy may be desirable when the events that permit holdup are engineered, for these events would not have been instigated if they would not have resulted in enforceable contracts. When situations of need are not engineered (bad weather puts a ship in jeopardy), flat voiding of contracts is undesirable, since contracts for aid in situations of need (to tow a ship) are often socially beneficial. In these circumstances, the policy of controlling the contract price is preferable, as that policy can reduce the problems of holdup but still allow contracts to be made. Both types of legal intervention in contracts and their modifications -- voiding without regard to price and control of price -- are used by courts to counter problems of pronounced holdup. Also, various price control regulations appear to serve the same objective, at least in part, for instance maximum price ordinances for car towing services, emergency price regulations, and the historically important rule of laesio enormis of the Middle Ages.
    JEL: D8 K12
    Date: 2005–05
  24. By: kishore gawande (texas A&M); alok k. bohara (u. new mexico)
    Abstract: We study two issues in the enforcement of public law. The first is whether the system of inspections and penalties set by the regulator is effective. The second is whether a better system of inspections and penalties can be designed, given the institutional constraints under which the regulator must function. We study these issues in the context of oil spill prevention activities of the U.S. Coast Guard (USCG), the agency entrusted with the enforcement of maritime pollution laws. A theoretically optimal contract that mixes penalties based on the amount of pollution ex post with penalties based on the extent of non- compliance ex ante is derived. The effectiveness of USCG inspections and penalties in reducing oil spills is then econometrically studied using micro-level data on a panel of US flag tank vessels. Whether the optimal penalty can potentially improve the effectiveness of compliance inspections in reducing oil spills is examined in the light of the empirical results and recent developments in the economics and public management literature on effective incentive contracting. Among our findings is the potential for combining unilateral incentive-based methods with cooperative methods based on reciprocity in order to solve the complex problem of law enforcement.
    Keywords: Violations; Optimal Penalty; Micro-Panel Data; Oil Spills; Public Policy.
    JEL: K
    Date: 2005–05–03
  25. By: Stan Liebowitz (University of Texas at Dallas)
    Abstract: Although it was once considered inevitable that unauthorized copying would harm copyright owners, it is now understood that this is not necessarily the case. The concept of indirect appropriability played an important role in shaping this newer understanding. In recent years, however, many economists seem to have taken the message from this new understanding too far, seeing gains to the copyright owners from unauthorized copying in every nook and cranny of the economy, when in reality the instances of such gains are likely to be rather limited. The current literature on this subject, which consists mainly of theoretical models, seems to be badly out of kilter. In this paper I attempt to explain some of the problems and try to provide the outlines of what I believe to be a more balanced and nuanced view of copying. It emphasizes the importance of examining various institutional and behavioral details of individual markets, which are often overlooked by researchers.
    Keywords: copyright, indirect appropriability, copying, mp3, downloads
    JEL: K
    Date: 2005–05–03
  26. By: Stan J. Liebowitz (University of Texas at Dallas); Stephen E. Margolis (North Carolina State University)
    Abstract: In 2002, seventeen economists including five Nobel Laureates presented an amicus curiae brief discussing the economics of copyright extension in support of the petitioners in Eldred v. Ashcroft. The economists’ amicus brief was unusual in several respects, not least in that it brought together a group of economists almost as notable for its diversity of opinion (spanning the ideological spectrum from Kenneth Arrow to Milton Friedman) as for its academic distinction. When such a distinguished and broad panel of economists readers would have every reason to believe that the arguments set forth in this document are sound down to the smallest details. Yet this is not the case. Scholars in the fields of law and economics will continue to address the economics of copyright duration in the foreseeable future, so it is important that they understand the imperfections in the economists’ brief. This Article provides a counterweight to the amicus brief, identifying some points the economists ignored, clarifying some discussions they did not quite get right, and providing data that runs counter to some assumptions they made.
    Keywords: Eldred, coypright, sonny bono, lessig
    JEL: K
    Date: 2005–05–03
  27. By: Andrew F. Daughety (Department of Economics and Law School, Vanderbilt University); Jennifer F. Reinganum (Department of Economics and Law School, Vanderbilt University)
    Abstract: We briefly review two basic models of settlement bargaining based on concepts from information economics and game theory. We then discuss how these models have been generalized to address issues that arise when there are more than two litigants with related cases. Linkages between cases can arise due to exogenous factors such as correlated culpability or damages, or they can be generated by discretionary choices on the part of the litigants themselves or by legal doctrine and rules of procedure.
    Keywords: Multiple litigants, externalities, asymmetric information
    JEL: K41 D82 C78
    Date: 2005–04
  28. By: Tilman Brück (German Institute for Economic Research (DIW Berlin))
    Abstract: This paper analyses public policy choices in the security economy from an economic perspective. It discusses the role of public goods for national and global security and identifies the importance of the first- and second-order indirect effects of insecurity on economic activity, which include the behavioural responses of agents and the government to security measures, akin to such effects in insurance economics. Furthermore, key public policy trade-offs are outlined, in particular between security and efficiency, globalisation, equity and freedom. The analysis identifies suitable policy options for raising security in the national and international contexts and in view of these trade-offs. A suitable balance between market and non-market instruments in achieving security should be aimed for to minimise the adverse effects of aiming for higher security. In addition, the public good nature of security implies that international coordination of security policies is important, despite this process being itself fraught with enforcement problems.
    Keywords: collective goods, public policy, regulation, risk, security, terrorism
    JEL: D74 H40 K40
    Date: 2004–11

This issue is ©2005 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.