New Economics Papers
on Law and Economics
Issue of 2005‒12‒14
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Doping in Contest-Like Situations By Matthias Kräkel
  2. Workplace surveillance, privacy protection, and efficiency wages By Patrick W. Schmitz
  3. Should Contractual Clauses that Forbid Renegotiation Always be Enforced? By Patrick W. Schmitz
  4. The Creation of the Rule of Law and the Legitimacy of Property Rights : The Political and Economic Consequences of a Corrupt Privatization By Karla Hoff; Joseph E. Stiglitz
  5. Friedrich August von Hayek (1899-1992) By Ludwig van den Hauwe

  1. By: Matthias Kräkel
    Abstract: Individuals who compete in a contest-like situation (for example, in sports, in promotion tournaments, or in an appointment contest) may have an incentive to illegally utilize resources in order to improve their relative positions. We analyze such doping within a tournament game between two heterogeneous players. Three major e.ects are identified which determine a player’s doping decision — a cost e.ect, a likelihood e.ect and a windfall-profit e.ect. Moreover, we discuss whether the favorite or the underdog is more likely to be doped, the impact of doping on overall performance, the influence of increased heterogeneity on doping, the welfare implications of doping, and possible prevention of doping.
    Keywords: contest, doping, drugs, fraud in research, tournament
    JEL: J3 K42 M5
    Date: 2005–05
  2. By: Patrick W. Schmitz
    Abstract: Consider an employer who wants her employee to work hard. As is well known from the e.ciency wage literature, the employer must pay the (wealth-constrained) employee a positive rent to provide incentives for exerting unobservable e.ort. Alternatively, the employer could make effort observable by costly workplace surveillance. It is argued that a privacy protection law preventing surveillance may increase the total surplus. While such a law reduces the employer’s profit, this loss can be overcompensated by the employee’s gain, because the employer invests in surveillance not only to implement higher effort, but also to reduce the employee’s rent.
    Keywords: Privacy protection laws; workplace surveillance; moral hazard
    JEL: K31 J83
    Date: 2005–09
  3. By: Patrick W. Schmitz
    Abstract: Recent work in the field of mechanism design has led some researchers to propose institutional changes that would permit parties to enter into nonmodifiable contracts, which is not possible under current contract law. This paper demonstrates that it may well be socially desirable not to enforce contractual terms that explicitly prevent renegotiation, even if rational and symmetrically informed parties have deliberately signed such a contract. The impossibility to prevent renegotiation can constrain the principal’s abilities to introduce distortions in order to reduce the agent’s rent, so that the first-best benchmark solution will more often be attained.
    Keywords: Contract modification; Renegotiation; Moral hazard
    JEL: K12
    Date: 2005–09
  4. By: Karla Hoff (The World Bank); Joseph E. Stiglitz (Columbia University)
    Abstract: How does the lack of legitimacy of property rights affect the dynamics of the creation of the rule of law? The authors investigate the demand for the rule of law in post-communist economies after privatization under the assumption that theft is possible, that those who have "stolen" assets cannot be fully protected under a change in the legal regime toward rule of law, and that the number of agents with control rights over assets is large. They show that a demand for broadly beneficial legal reform may not emerge because the expectation of weak legal institutions increases the expected relative return to stripping assets, and strippers may gain from a weak and corrupt state. The outcome can be inefficient even from the narrow perspective of the asset-strippers.
    Keywords: ???
    Date: 2005–12–01
  5. By: Ludwig van den Hauwe
    Abstract: This paper is the sequel to the Chapter (30) about F. A. von Hayek which I authored for the 1999 first edition of the Elgar Companion to Law and Economics (ed. J. Backhaus). A special section has been added entitled 'An application of Hayekian law and economics: the comparative analysis of alternative monetary and banking regimes'.
    Keywords: Hayek, Law and Economics, monetary and banking regimes, business cycle theory
    JEL: K
    Date: 2005–12–06

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