New Economics Papers
on Law and Economics
Issue of 2007‒07‒27
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Does Trade Foster Contract Enforcement? By James E. Anderson
  2. Bankruptcy Reform and Credit Cards By Michelle J. White
  3. Consent and Exchange By Oren Bar-Gill; Lucian A. Bebchuk
  4. Dialing While Fishtailing: How Mobile Phones, Hands-Free Laws, and Driving Conditions Interact to Affect Traffic Fatalities By Kolko, Jed
  5. Floss (Free/Libre Open Source Software): A Theme For Cultural Differences Study By Ramanuajm, Padmanabha

  1. By: James E. Anderson (Boston College; NBER)
    Abstract: Contract enforcement is probabilistic, but the probability depends on rules and processes. A stimulus to trade may induce traders to alter rules or processes to improve enforcement. In the model of this paper, such a positive knock-on effect occurs when the elasticity of supply of traders is sufficiently high. Negative knock-on is possible when the elasticity is low. Enforcement strategies in competing markets are complements (substitutes) if the supply of traders is sufficiently elastic (inelastic). The model provides a useful structure of endogenous enforcement that gives promise of explaining patterns of institutional development.
    Keywords: trade, contract enforcement, institutional development
    JEL: F10 O17 K42
    Date: 2007–07–21
  2. By: Michelle J. White
    Abstract: From 1980 to 2004, the number of personal bankruptcy filings in the United States increased more than five-fold, from 288,000 to 1.5 million per year. Lenders responded to the high filing rate with a major lobbying campaign for bankruptcy reform that led to the adoption in 2005 of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which made bankruptcy law much less debtor-friendly. The paper first examines why bankruptcy rates increased so sharply. I argue that the main explanation is the rapid growth in credit card debt, which rose from 3.2% of U.S. median family income in 1980 to 12.5% in 2004. The paper then examines how the adoption of BAPCPA changed bankruptcy law. Prior to 2005, bankruptcy law provided debtors with a relatively easy escape route from debt, since credit card debt and other types of debt could be discharged in bankruptcy and even well-off debtors had no obligation to repay. BAPCPA made this escape route less attractive by increasing the costs of filing and forcing some high-income debtors to repay from post-bankruptcy income. However, because many consumers are hyperbolic discounters, making bankruptcy law less debtor-friendly will not solve the problem of consumers borrowing too much. This is because, when less debt is discharged in bankruptcy, lending becomes more profitable and lenders increase the supply of credit. The paper examines the determinants of an optimal bankruptcy law. It also considers the relationship between bankruptcy law and regulation of lending behavior and discusses proposals that would reduce lenders’ incentives to supply too much credit to debtors who are likely to become financially distressed.
    JEL: G21 G28 G33 K35
    Date: 2007–07
  3. By: Oren Bar-Gill; Lucian A. Bebchuk
    Abstract: In some cases, the law permits a party that unilaterally provides a benefit to another party to recover the estimated value of this benefit. Despite calls for expanding the set of cases to which such a restitution rule applies, the law commonly applies a mutual consent rule under which a party providing another with a benefit cannot obtain any recovery without securing the advance consent of the beneficiary to the transaction. We provide an efficiency rationale for the undesirability of broad use of the restitution rule by identifying significant adverse ex ante effects of the rule that are avoided by the consent requirement. Even assuming that courts' errors in estimating buyer benefits would be unbiased, a restitution rule would strengthen sellers' hand by providing them with a put option that they may but do not have to use. As a result, the restitution rule would encourage inefficient market entry by low-quality sellers that would not contribute to any efficient transactions but would be able to extract payments from buyers seeking to avoid an exchange with them. Furthermore, the restitution rule would discourage efficient market entry by some or all potential buyers of a good or service. Beyond the restitution rule, we extend our analysis to show that similar adverse effects can also arise from other "pricing" rules that provide buyers or sellers with call or put options to force an exchange at a judicially-determined price.
    JEL: C72 C78 D23 K10 K11 K12
    Date: 2007–07
  4. By: Kolko, Jed
    Abstract: Most rich countries in the world and four US states require drivers talking on mobile phones to use hands-free devices. However, previous research has failed to arrive at a consensus on the effect of mobile phones on traffic accidents yet has concluded that the effect of hands-free and hand-held phones on accidents is similar. This paper uses state-level data from 1997-2005 on mobile phone ownership, traffic fatalities, and hands-free laws and finds that (1) mobile phones contribute to traffic fatalities and (2) hands-free laws appear to reduce fatalities. Specifically, mobile phone ownership results in a large and statistically significant increase in traffic fatalities in bad weather or wet road conditions, with no effect in good weather or dry road conditions. Laws requiring drivers to use hands-free technologies while talking reduce traffic fatalities in adverse conditions, and the effect grows stronger and becomes statistically significant the longer the law is in effect, although these longer-term effects are based solely on New York, which in 2001 became the first state to have a hands-free law. The analysis relies on microdata from the Fatality Analysis Reporting System to estimate effects for traffic fatalities in different conditions and to isolate fatalities unlikely to be affected by confounding changes in alcohol policies or graduated licensing laws.
    Keywords: mobile phones; cell phones; traffic fatalities; hands-free laws; driving; safety; accidents
    JEL: I18 L96 K32
    Date: 2007–07–17
  5. By: Ramanuajm, Padmanabha
    Abstract: Geert Hofstede presented statistical evidence purporting to identify intercultural co-operation and its importance for survival in his scholarship work “cultures and organizations”. This article presents a study, which describes how differences in national culture can affect or influence the participation of programmers who produce open source software (OSS). The four important dimensions of national cultures considered by Hofstede model namely Power Distance Index (PDI), Individualism Index (IAV), Masculinity-Feminity Index (MAS) and Uncertainty Avoidance Index (UAI) are selected and correlated with the Geographical Distribution of Developers Index (GDD) for testing the above hypothesis. It is suggested that there exists some correlation between the cultural factors and the demographics of programmers who participate in the open source movement. Finally, the manner in which these cultural factors impinge on the incentives of the programmers who are engaged in open source movement by writing codes for free are also discussed.
    Keywords: Open Source Movement; FLOSS; Culture Difference and Hofstede Model
    JEL: K10 L19 L17 L10 K19
    Date: 2007–07–16

This issue is ©2007 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.