New Economics Papers
on Law and Economics
Issue of 2006‒09‒30
eight papers chosen by
Jeong-Joon Lee, Towson University

  1. Ensuring Compliance: The Case of the Private Rented Sector By Martin Partington; Alex Marsh; Robert Lee; Frank Stephen; Dave Cowan; Helen Carr; Caroline Hunter; Tony Crook
  2. Governing and Governance: A Social Housing Case Study By Dave Cowan; Morag McDermont; Jessica Prendergrast
  3. Studying Labor Market Institutions in the Lab: Minimum Wages, Employment Protection and Workfare By Armin Falk; David Huffman
  4. On Corruption and Institutions in Decentralized Eco By Svetlana Andrianova
  5. Should Insider Trading be Prohibited when Share Repurchases are Allowed? By Andrea Buffa; Giovanna Nicodano
  6. Accounting for the Rise in Consumer Bankruptcies By Igor Livshits; James MacGee; Michele Tertilt
  7. Piracy Accommodation and the Optimal Timing of Royalty Payments By Alan E. Woodfield
  8. Ex Ante Liability Rules in New Zealand's Health and Safety in Employment Act: A Law and Economics Analysis By Paul Gordon; Alan E. Woodfield

  1. By: Martin Partington; Alex Marsh; Robert Lee; Frank Stephen; Dave Cowan; Helen Carr; Caroline Hunter; Tony Crook
    Keywords: regulation, law and economics, governance, compliance, renting
    JEL: K10
    Date: 2006–03
  2. By: Dave Cowan; Morag McDermont; Jessica Prendergrast
    Abstract: This research project concerns the role of members of governing boards of formerly public assets, where these assets are transferred to a private or quasi-public organisation. Members of these governing boards, although drawn from particular constituencies, are meant to be neutral and experts. We use a case study approach and a qualitative methodology. The case study concerns the governing board of a housing association, which was set up to take on the management of properties formerly managed by a local authority (referred to as a 'large-scale voluntary transfer'). The research notes tensions in the notion of neutrality and explores what counts as 'expertise'.
    Keywords: governance; neutral; expertise; housing; representatives; transfer
    JEL: K10
    Date: 2006–06
  3. By: Armin Falk (IZA Bonn and University of Bonn); David Huffman (IZA Bonn)
    Abstract: A central concern in economics is to understand the interplay between institutions and labor markets. In this paper we argue that laboratory experiments are a powerful tool for studying labor market institutions. One of the most important advantages is the ability to implement truly exogenous institutional change, in order to make clear causal inferences. We exemplify the usefulness of lab experiments by surveying evidence from three studies, each of which investigates a different, crucial labor market institution: minimum wage laws, employment protection legislation and workfare.
    Keywords: laboratory experiments, minimum wages, employment protection legislation, workfare
    JEL: I38 K31 J3
    Date: 2006–09
  4. By: Svetlana Andrianova
    Abstract: This paper presents a model of opportunistic behaviour in decentralized economic exchange and considers the impact of inadequate institutional framework of formal contract enforcement on economic performance. It is shown that (i) when the number of cheating traders is sufficiently large, inadequate institutions result in a loss of decentralized trading contracts, (ii) an adequate institutional framework, while being necessary for the attainment of a Pareto optimal outcome, may not be sufficient if traders perceive it as inadequate; and (iii) sufficiently good formal enforcement provisions help deter contractual breach in enviroments with corrupt and powerful enforcers.
    Keywords: Formal contract enforcement; perceptions; transition economies
    JEL: C70 D82 K42
    Date: 2006–09
  5. By: Andrea Buffa; Giovanna Nicodano
    Abstract: This paper considers share repurchases as the way long-term shareholders preserve their ability to use corporate information for speculative purposes when insider trading regulation is enforced. This use of corporate information increases the adverse selection losses of short-term shareholders. Thus, buy-back programs reduce their incentive to invest in stocks that back the most productive technology, leading to a socially inefficient equilibrium. It follows that insider trading should not be banned when share repurchases are allowed.
    Keywords: insider trading, share repurchase, liquidity, securities regulation, corporate information
    JEL: G18 G14 D82 K22
    Date: 2006
  6. By: Igor Livshits (University of Western Ontario); James MacGee (University of Western Ontario); Michele Tertilt (Stanford University)
    Abstract: Personal bankruptcies in the United States have increased dramatically, rising from 1.4 per thousand working age population in 1970 to 8.5 in 2002. We use a heterogeneous agent life-cycle model with competitive financial intermediaries who can observe households' earnings, age and current asset holdings to evaluate several commonly offered explanations. We find that increased uncertainty (income shocks, expense uncertainty) cannot quantitatively account for the rise in bankruptcies. Instead, stories related to a change in the credit market environment are more plausible. In particular, we find that a combination of a decrease in the transactions cost of lending and a decline in the cost of bankruptcy does a good job in accounting for the rise in consumer bankruptcy. We also argue that the abolition of usury laws and other legal changes are unimportant.
    Keywords: consumer bankruptcy; uncertainty; credit markets; stigma
    JEL: E21 E44 G18 K35
    Date: 2006
  7. By: Alan E. Woodfield (University of Canterbury)
    Abstract: This paper generalizes the two-period model of Watt (2000) who demonstrates the possibility of optimal accommodation of a pirate when the royalty rate applying to a creation is uniform and second-period Cournot competition applies. Admitting nonlinear contracts with period-specific royalty rates that leave total payments unchanged, simulation analysis shows that a producer of originals does better to increase the royalty rate in period 1 and decrease the rate to a negative level in period 2, thereby more than offsetting the usual cost advantage available to a pirate. Watt's illustrative examples regarding piracy accommodation (but not piracy exclusion) are overturned when a nonlinear contract is chosen optimally, although accommodation remains optimal in some other cases. Further, where exclusion is impossible under uniform royalties, cases exist where exclusion is feasible under nonlinear royalties. Even so, accommodation may be a preferable strategy.
    Keywords: accommodating copyright piracy; nonlinear royalty contracts
    JEL: D43 K11 L13
    Date: 2006–02–01
  8. By: Paul Gordon; Alan E. Woodfield (University of Canterbury)
    Abstract: In addition to penalties imposed for breaches of statutory duties in the event of workplace accidents involving physical harms, New Zealand's Health and Safety in Employment Act 1992 also provides for penalties where accidents have not occurred. Ordinary negligence rules are ex post in that both an accident and harm must occur before liability accrues, whereas ex ante liability rules create liability for deficient care per se. This paper examines whether liability for breaches of duty that do not give rise to accidents have a useful incentive-enhancing role for health and safety decisions by employers in the New Zealand context when used in conjunction with ex post liability rules. We argue that ex post rules by themselves are insufficient to induce appropriate levels of precaution due to the combined presence of weak penalties and considerable uncertainty surrounding the Courts' required standard of care. Merely augmenting ex post liability with ex ante liability, however, is unlikely to induce desirable levels of employer precautions. Further, more strict ex ante standards than socially optimal precaution levels may be desirable since inspection probabilities, prosecution rates, and penalties for breaches of ex ante standards are relatively low, providing some justification for the relatively stringent safety regulations and required standard of care observed in New Zealand. Nevetheless, a weaker but less uncertain standard may instead induce a small degree of overprecaution, removing the need for ex ante regulations from this particular perspective.
    Keywords: ex ante and ex post liability; safety incentives, health and safety standards; uncertainty
    JEL: K32
    Date: 2006–06–01

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