New Economics Papers
on Law and Economics
Issue of 2006‒03‒05
seven papers chosen by
Jeong-Joon Lee, Towson University

  1. Debt maturity of Italian firms By Silvia Magri
  2. The Legal Issues Surrounding Free and Open Source Software: Challenges and Solutions for the Government of Québec By Pierre-Paul Lemyre; Richard Willemant
  3. The Welfare Effects of Discrimination in Insurance By Rob van der Noll
  4. Liability Rules under Evidentiary Uncertainty By Claude Fluet
  5. Informal Credit Markets, Judicial Costs and Consumer Credit: Evidence from Firm Level Data By Charles Grant; Mario Padula
  6. Institutions and Transition By Peter Murrell
  7. Corruption in Tax Administration: Lessons from Institutional Reforms in Uganda By Odd-Helge Fjeldstad

  1. By: Silvia Magri (Banca d’Italia)
    Abstract: In this paper we test different theories on debt maturity that can be ascribed to either the demand or the supply side of the market. Firm risk, asymmetric information, agency costs are all aspects that should be considered in the analysis. We also include leverage in the firm decision process regarding debt maturity, relying on a simultaneous equations approach. Among Italian industrial firms, theories based on lenders using debt maturity to address information problems and default risk seem to have strong explanatory power. The demand side of the market appears to be less important in determining debt maturity. The role of the supply side of the market is confirmed when considering legal enforcement of loan contracts. Where legal enforcement is low, the negative consequences of asymmetric information are worse for lenders and this explains why they give more importance to asymmetric information proxies in determining debt maturity.
    Keywords: corporate finance, debt maturity, legal enforcement
    JEL: G32 K40 L14
    Date: 2006–01
  2. By: Pierre-Paul Lemyre; Richard Willemant
    Abstract: The Government of Québec is slowly but surely turning its attention to the issue of free and open source software in response to the interest shown by Québec’s software industry and the attention paid to the phenomenon by governments around the world. This openness is easy to understand given an environment in which online service provision to citizens must be enhanced while minimizing expenditures on technology, curtailing service providers’ control over the administration, and promoting the development of the information society in Québec. Nonetheless, as we see in the news, adoption of this new attitude toward to software development is not always immune to legal challenges. Consequently, the manner in which Québec law interacts with free and open source software, as well as the associated risks, assume a particular significance.<P> The analysis we present here reveals that the law, as it currently stands in Québec, appears adequate to effectively address the various legal issues inherent in the use of free and open source software. First of all, no legal rule seems to be incompatible with the validity of free and open source licences, despite that fact that few of them were designed with the Québec legal system in mind. Moreover, both federal copyright rules and Québec regulations affecting contractual liability allow the authors and users of free and open source software to effectively preserve the freedom of computer code, which is typically the purpose of free and open source licences.<P>Nonetheless, it remains the case that some legal risks are associated with free and open source software. These risks may arise from the formalism requirements included in the Copyright Act, prior violations of intellectual property rights by third parties, or simply from the broader contractual protection afforded to licensors. Consequently, integrating free and open source software into the technology strategy of the Government of Québec requires setting up some initiatives to allow these risks to be mitigated as much as possible and to enable the management of those risks that cannot be completely eliminated. <P>
    Date: 2006–02–01
  3. By: Rob van der Noll (CPB Netherlands Bureau for Economic Policy, and Erasmus Universiteit Rotterdam)
    Abstract: We study an insurance model characterized by a continuum of risk types, private information and a competitive supply side. We use the model to investigate the welfare effects of discrimination (also known as risk selection). We postulate that a test is available that determines whether an applicant's risk exceeds a treshold. Excluding the highest risks softens adverse selection, but constitutes a welfare loss for the high risks. In contrast to a lemons market intuition, we find that aggregate surplus decreases when risk aversion is high. When risk aversion is low however, discrimination increases aggregate surplus.
    Keywords: insurance; adverse selection; risk selection; discrimination
    JEL: D82 K29
    Date: 2006–01–20
  4. By: Claude Fluet
    Abstract: I consider the efficiency of liability rules when courts obtain imperfect information about precautionary behavior. I ask what tort rules are consistent with socially efficient precautions, what informational requirements the evidence about the parties' behavior must satisfy, what decision rules courts should apply when faced with imperfectly informative evidence, whether these decision rules can be formulated in terms of the legal concept of standard of proof, and whether some general characterization of the efficient standard can be given. I show that court judgments provide appropriate incentives to exert care if they signal that the party prevailing at trial most likely exerted due care, neither more nor less.
    Keywords: Basket Tort, negligence, moral hazard, imperfect information, standard of proof
    JEL: D8 K4
    Date: 2006
  5. By: Charles Grant (University of Reading); Mario Padula (University of Salerno and CSEF)
    Abstract: How does the punishment for default affect repayment behavior? We use administrative data provided by the leading Italian lender of unsecured credit to the household sector to investigate the effect of two potentially important factors: judicial efficiency and the availability of informal credit from family and friends. By making economic assumptions we can place upper and lower bounds on these effects. We find that the availability of informal credit reduces repayment, while variation in court enforcement has no significant effect. Moreover, households with access to informal credit are more likely to borrow from our lender
    Keywords: Households Borrowing, Informal Credit Markets, Asymmetric Information
    JEL: D14 K42 O17
    Date: 2006–02–01
  6. By: Peter Murrell (Department of Economics, University of Maryland)
    Abstract: Prepared for The New Palgrave Dictionary of Economics, 2nd Edition, this essay examines the evolution of both institutions and economists' thinking on institutions during transition. Early in transition, institutions were virtually ignored in the majority of normative prescriptions, but were central in the evolutionary-institutional approach. Later, after events influenced intellectual developments, institutions were at the center of analysis. Growth is strongly related to institutional construction. Transition countries built institutions speedily but with marked variation across countries. Legal systems and independent governmental agencies were sources of institutional growth, while government bureaucracies and informal mechanisms detracted from institutional growth. In China, reforms addressed problems that institutions usually do, but in unusual ways.
    Keywords: Institutions, transition, evolutionary-institutional, shock therapy, gradualism, China, law
    JEL: P2 P3 N4 O17 K0
    Date: 2006–02
  7. By: Odd-Helge Fjeldstad
    Abstract: Over the past two decades many developing countries have implemented comprehensive reforms of their tax administrations in order to increase revenue and curb corruption. This paper examines recent experiences in the fight against corruption in the Uganda Revenue Authority (URA). It argues that the technocratic remedies supported by donors have underplayed the degree to which progress in tax administration depends upon a thorough 'cultural change' in the public service. The motives of individual actors are often inextricably tied to the interests of the social groups to which they belong. In the URA patronage runs through networks grounded on ties of kinship and community origin. As such, people recognize the benefits of large extended families and strong kinship ties, even as their social and economic aspirations may be indisputably modern. This implies that such social relations may undermine formal bureaucratic structures and positions. If these problems, which are rooted in social norms and patterns of behavior rather than administrative features, are overlooked, the result may be to distort incentives. As a consequence, the government's commitment to reforming the tax administration may also be undermined.
    Keywords: Corruption Incentives Social norms Tax administration Tax evasion Uganda
    JEL: D73 H26 H30 J33 K42 Z13
    Date: 2005

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