New Economics Papers
on Law and Economics
Issue of 2006‒09‒11
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Shareholder Protection: A Leximetric Approach By Mathias Siems; Priya Lele
  2. 'Capacitas': Contract Law and the Institutional Preconditions of a Market Economy By Simon Deakin
  3. The Core of Pure Economic Loss By Guiseppe Dari-Mattiacci; Hans-Bernd Schäfer
  4. Limiting Limited Liability By Guiseppe Dari-Mattiacci
  5. The Economics of Adoption of Children from Foster Care By Mary Eschelbach Hansen; Bradley A. Hansen

  1. By: Mathias Siems; Priya Lele
    Abstract: In this paper we build a new and meaningful shareholder protection index for five countries and code the development of the law for over three decades. At-tributing and comparing legal differences by numbers is contrary to the tradi-tional way of doing comparative law and the use of a quantitative methodology to account for variations across legal systems has been subjected to some searching criticisms. However, we believe that with a cautious approach, it has the potential to open new vistas of research in the area of comparative law and as such should not be shunned. This paper provides an illustration of the inter-esting possibilities that diligent quantification of legal rules ('leximetrics') pro-vides for comparing variations across time series and across legal systems. For instance, our study finds, that in all of our panel countries shareholder protec-tion has been improving in the last three decades; that the protection of minority against majority shareholders is considerably stronger in 'blockholder countries' as compared to the non-blockholder countries and that convergence in share-holder protection is taking place since 1993 and is increasing since 2001. Fi-nally, our examination of the legal differences between the five countries does not confirm the distinction between common law and civil law countries.
    Keywords: Shareholder protection, leximetrics, numerical comparative law, law and fi-nance, La Porta et al., LLSV, coding, comparative company law, comparative corporate law, comparative corporate governance, legal origins, legal development, convergence
    JEL: G00 G30 G38 K00 K22 N20 N40 P50
    Date: 2006–06
  2. By: Simon Deakin
    Abstract: Capacity may be defined as a status conferred by law for the purpose of empowering persons to participate in the operations of a market economy. This paper argues that because of the confining influence of the classical private law of the nineteenth century, we currently lack a convincing theory of the role of law in enhancing and protecting the substantive contractual capacity of market agents, a notion which resembles the economic concept of 'capability' as developed by Amartya Sen. Re-examining the legal notion of capacity from the perspective of Sen's 'capability approach' is part of a process of understanding the preconditions for a sustainable market order under modern conditions.
    Keywords: contract law, capacity, capability approach
    JEL: K12 K31
    Date: 2006–06
  3. By: Guiseppe Dari-Mattiacci (ACLE, Universiteit van Amsterdam, and George Mason University, Arlington, Virginia, USA); Hans-Bernd Schäfer (Hamburg University, Hamburg, Germany; and George Mason University, USA)
    Abstract: Should loss of earnings be compensated? The established law and economics wisdom considers pure economic loss as a transfer of wealth from the victim to a third party, whose earnings increase as a consequence of the accident. Such transfers do not amount to a social loss and, hence, should not be compensated. We revisit these arguments and show that the social loss should be calculated by taking into account that: (a) pure economic loss often involves impairment costs resulting from the fact that valuable resources cannot be temporarily used; and (b) the third-party earnings come at the cost of increased capacity. This increased capacity mitigates the expected harm and, hence, is a form of precaution. By taking into account these factors, we show that most pure economic loss cases do result in a socially relevant loss. In addition, we argue that the absence of a social loss is a necessary, but not sufficient, condition for the denial of compensation. The victim (or a third party) may have actually paid for protection against purely private losses. Thus, compensation should be awarded irrespective of whether national law treats the case under tort or contract (where compensation is undisputed). Finally, we offer considerations on the optimal design of liability rules.
    Keywords: economic loss; financial loss; tort; damage; compensation
    JEL: K13
    Date: 2006–08–09
  4. By: Guiseppe Dari-Mattiacci (ACLE, Universiteit van Amsterdam, and George Mason University, Arlington, Virginia, USA)
    Abstract: Limited liability may result in inefficient accident prevention, because a relevant portion of the expected harm is externalized on victims. This paper shows that under some restrictive conditions further limiting liability by means of a liability cap can improve caretaking.
    Keywords: insolvency; judgment proof; liability; bankruptcy; liability cap
    JEL: K13 K32 L59
    Date: 2006–08–09
  5. By: Mary Eschelbach Hansen; Bradley A. Hansen (Department of Economics, American University)
    Abstract: Federal initiatives since 1996 have intensified the efforts of states to achieve adoption for children in foster care with the case goal of adoption. For many waiting children, the path to adoption is long. We offer an economic analysis of adoption from foster care, with an emphasis on the reasons why it may be so difficult to achieve the goal of adoption for all waiting children. We then estimate the determinants of adoptions from foster care across the states using data for fiscal years 1996 and 1997. Adoption assistance subsidy rates stand out as the most important determinant of adoptions from foster care, followed by utilization of alternatives such as intercountry adoption. Adoptive matching on the basis of race does not appear to prevent adoptions from foster care in the aggregate, leaving flaws in the matching process (such as a lack of information and difficulty utilizing the ICPC) as a primary reason why children wait.
    Keywords: children, adoption, financial incentives
    JEL: D1 R2 K3
    Date: 2005–09

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