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on Law and Economics |
| By: | Elisabetta Iossa (Brunel University); Giuliana Palumbo (Bank of Italy) |
| Abstract: | Credit purchases of consumer goods are commonly made upon terms governed by an agreement between the lender and the seller. This type of purchase is generally subject to a legal principle of joint responsibility under which the lender and the seller are jointly liable to the consumer for breach of the sale contract by the seller. We study the rationale for this principle in situations where market failure arises because consumers under estimate the risk of product failure - for example due to selle rmisrepresentation - and it is difficult to enforce seller responsibility. We show that joint responsibility increases welfare and reduces the incentives of sellers to misrepresent the quality of their products. |
| Keywords: | consumer credit, lender liability, misrepresentation, overoptimism, product failure |
| JEL: | D18 G28 K13 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_598_06&r=law |
| By: | Petra Brhlikova; Andeas Ortmann |
| Abstract: | We study the conditions under which it is rational for a representative entrepreneur to start a nonprofit firm. Taking as point of departure a model of entrepreneurial choice proposed by Glaeser and Shleifer (2001), we analyze consequences of weak enforcement of the non-distribution constraint on entrepreneurial choice and price and quality of the product. We find that the nonprofit organizational form becomes unequivocally more attractive to entrepreneurs if enforcement of the non-distribution constraint is weak. We also nd that the quality delivered by nonprofit firms is lower under weak enforcement than that of the nonprofit firm under strict enforcement, but higher than the quality delivered by a for-prot rm. We discuss the implications and limitations of our results. |
| Keywords: | Entrepreneurial choice, Nonprofit, For-profit, Non-distribution constraint, Enforcement |
| JEL: | D2 L2 L31 K42 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp299&r=law |
| By: | Jay Pil Choi |
| Abstract: | This paper investigates how different damage rules in patent infringement cases shape competition when intellectual property rights are probabilistic. I develop a simple model of oligopolistic competition to compare two main liability doctrines that have been used in the US to assess infringement damages – the unjust enrichment rule and the lost profit rule. It also points out the logical inconsistency in the concept of the “reasonable royalty rates” when intellectual property rights are not ironclad. |
| Keywords: | probabilistic intellectual property rights, damage rules, reasonable royalty rates |
| JEL: | D80 K40 L10 L40 O30 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1778&r=law |
| By: | Carmine Guerriero (University of Cambridge) |
| Abstract: | This paper analyzes the effects of supervisors’ (i.e., regulators and judges) selection rules on regulated prices. A checks and balances’ regulatory review process strengthens the role of the judicial power and election increases the populism of implicitly motivated supervisors. Election arises when the risk related to expropriation of sunk investments and the inter-party distance are lower. Employing U.S. electric power market’s data, the empirical evidence strongly confirms these predictions. Indeed, when treated as endogenous, only the election of administrative law judges and not the one of regulators significantly lowers the level of electricity rates. Moreover a more effective supervision technology shows a marginal negative effect on regulated rates as well. |
| Keywords: | Election, Agency, Judges, Regulation, Electricity |
| JEL: | K23 L51 Q43 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.109&r=law |
| By: | Anna Alberini (University of Maryland); Stefania Tonin (University of Venice-IUAV); Margherita Turvani (University of Venice-IUAV); Aline Chiabai (Fondazione Eni Enrico Mattei) |
| Abstract: | We use conjoint choice questions to investigate people’s preferences for income and reductions in mortality risks delivered by contaminated site remediation policies. Our survey is self-administered using the computer by residents of four cities in Italy with severely contaminated sites. We estimate the Value of a Statistical Life to be about €5.6 million for an immediate risk reduction. If the risk reduction takes place 20 years from now, however, the implied VSL is about €1.26 million. The discount rate implicit in the responses to the conjoint choice questions is about 7%. People are willing to pay for permanent risk reductions, but not just any amount. Risk reductions in the nearer future are valued more highly than risk reductions in the more distant future. We also find that the VSL is “individuated,” in the sense that it depends on observable individual characteristics of the respondents, familiarity with contaminated sites, concern about the health effects of exposure to toxicants, having a family member with cancer, perceived usefulness of possible government actions, and the respondent’s beliefs about the goals of government remediation programs. Additional questions suggest that respondents discount lives, and do so at a discount rate in the ballpark of that implicit in their risk v. money tradeoffs. |
| Keywords: | Value of a Statistical Life, Latent Risk Reductions, Individual Discount Rates, Conjoint Choice Questions, Contaminated Sites, Remediation |
| JEL: | J17 I18 K32 Q51 Q53 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2006.113&r=law |
| By: | Dominique Demougin; Claude Fluet |
| Abstract: | We analyze the design of legal principles and procedures for court decision-making in civil litigation. The objective is the provision of appropriate incentives for potential tort-feasors to exert care, when evidence about care is imperfect and may be distorted by the parties. Efficiency is shown to be consistent with courts adjudicating on the basis of the preponderance of evidence standard of proof together with common law exclusionary rules. Inefficient equilibria may nevertheless also arise under these rules. Directing courts as to the assignment of the burden of proof is then useful as a coordination device. Alternatively, burden of proof guidelines are unnecessary if courts are allowed a more active or inquisitorial role, by contrast with that of passive adjudicator. |
| Keywords: | Evidentiary rules, standard of proof, burden of proof, inquisitorial, adversarial, discovery, deterrence |
| JEL: | D8 K4 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:lacicr:0633&r=law |