New Economics Papers
on Law and Economics
Issue of 2007‒09‒16
seven papers chosen by
Jeong-Joon Lee, Towson University

  1. Economics Against Human Rights By Manuel Couret Branco
  2. Mergers and collusion with asymmetric capacities By Emilie Dargaud
  3. A Theory of Employment Guarantees: Contestability, Credibility and Distributional Concerns By Arnab K. Basu; Nancy H. Chau; Ravi Kanbur
  4. Corruption and Democracy By Michael T. Rock
  5. Patents and Antitrust: Application to Adjacent Markets By Nicholas Economides; William N. Hebert;
  6. Informational externalities and informational sharing in class action suits By Deffains, Bruno; Langlais, Eric
  7. Structural Remedies in Merger Regulation in a Cournot Framework By Andrei Medvedev

  1. By: Manuel Couret Branco (Department of Economics, University of Évora)
    Abstract: It is said that economics value individual and economic freedom and from that many hastily conclude that mainstream economics value human rights. The purpose of this paper is to show that on the contrary mainstream economics is fundamentally contradictory with many human rights especially Economic, Social and Cultural Rights. The main reason for this is that mainstream economics and human rights have trouble in communicating, the latter speaking the rights language and the former the needs language. Within the needs language, capability to pay is the key question whereas within the rights language, entitlement is. If in the first case exclusion and inequality are acceptable in the second case the only acceptable situation is the one characterized by inclusion and equality. In other words goods and services can be unequally distributed, rights cannot. For this reason one cannot count on the market alone to ensure economic, social and cultural rights. Therefore, considering the introduction of different logics into the economic equation as unbearable interferences with economic logic, mainstream economics stands against human rights. In order to give a better illustration of this contradiction the particular conflicts between economics and the right to work, the right to water and the right to social security will be presented. The main conclusion of this paper is that in order to favour human rights economics should either suffer a paradigmatic revolution or accept to play just a supporting role in the process of global development.
    Keywords: Human Rights, Economic Theory, Social Utility, Rights-Approach, Right to Work, Social Security
    JEL: A1 B4 H4 H5 I3 J8 K0
    Date: 2007
  2. By: Emilie Dargaud (GATE CNRS)
    Abstract: When it examines the risk of coordinated effects, an antitrust authority will usually compare the situation where the merger is accepted with an attendant risk of collusion with the benchmark case in which competition is present ex-post. The main objective of this paper is to show that the antitrust authority must take into account the possibility for firms to collude if a merger is rejected. In fact, firms can have incitations to make collusion ex-post (after a rejection of a merger) whereas they would not make collusion ex-ante. All the papers on mergers and collusion tend to look at a minimal discount factor threshold for collusion to be sustained. This article does not only suggest necessary and sufficient conditions for collusion to be enforced but it also analyses the choice which firms have as to whether to collude. We consider an industry with cost-asymmetric firms and we study the analysis of collusion under leniency programmes.
    Keywords: leniency programme, merger, oligopoly supergame
    JEL: K42 L11 L41
    Date: 2007–04
  3. By: Arnab K. Basu (College of William and Mary); Nancy H. Chau (Cornell University and IZA); Ravi Kanbur (Cornell University)
    Abstract: Both raw intuition and past experience suggest that the success of an employment guarantee scheme (EGS) in safeguarding the welfare of the poor depends both on the wage it promises, and the ease with which any worker can gain access. An EGS is thus at once a wage guarantee and a rationing device. We chart the positive and normative limits of such an EGS as an efficiency improving and poverty alleviating policy reform in a canonical labor market setting. At its core, an EGS provides an aggregate, not just EGS, employment target. Given the target, the EGS wage and access can be fine-tuned to deliver outcomes ranging from a contestable labor market to a simple universal unemployment benefit. The credibility of any such target, however, is shown to be triggered endogenously by a host of factors: the distributional concerns of the planner, private sector productivity, the prevalence of market power and the need for public works. Paradoxically, the outcome with a planner who cares only about efficiency can be less efficient than the outcome with a planner whose social welfare function also gives weight to poverty!
    Keywords: employment guarantees, employment targeting, credibility, distribution concern
    JEL: I38 J21 K31 O12
    Date: 2007–08
  4. By: Michael T. Rock
    Abstract: What is the impact of democracy on corruption? In most models, analysts assume a negative relationship, with more democracy leading to less corruption. But recent theoretical developments and case evidence support an inverted U relationship between corruption and democracy. By drawing on a panel data set covering a large number of countries between 1996 and 2003, substantial empirical support is found for an inverted U relationship between democracy and corruption. The turning point in corruption occurs rather early in the life of new democracies and at rather low per capita incomes.
    Keywords: corruption, electoral democracy, consolidated democracy, rule of law, government effectiveness
    JEL: O12 D72 D73 H11 H77 K42
    Date: 2007–08
  5. By: Nicholas Economides (Stern School of Business, New York University); William N. Hebert (Calvo & Clark LLP);
    Abstract: We examine the intersection of patents and antitrust where a patent holder uses the monopoly power it possesses in the market for a patented product to exclude competitors in an adjacent market and attempt to monopolize or monopolize the adjacent market. The present scheme for awarding patents cannot judge when the issuance of a patent will lead to the appropriate balance between innovation and efficiency. Where a patent holder’s invention uses an interface with adjacent products, the patent holder may be tempted to extend its patent monopoly into adjacent markets that depend upon the interface with the patented invention. Economic theory suggests that it is inappropriate to immunize a patent holder from antitrust liability when it attempts to extend its patent monopoly into adjacent markets, because it could decrease consumer surplus. Courts have expressed their reluctance to scrutinize a patent holder’s innovations and design changes, because of the potential benefits of the innovations and their reluctance to second-guess the marketplace. However, applying traditional antitrust principles, courts have found that monopolists could be liable for unlawfully extending their monopoly positions into adjacent markets in the areas of computer peripherals and software applications; aftermarkets for replacement parts, service and maintenance of durable goods; design changes to medical devices; and changes in drug formulas. While the patent laws provide a spur to innovation by granting limited monopoly rights, the antitrust laws curb the excessive reach of these monopoly rights by acting as a check on excessive expansion of the scope of the patent grant.
    Keywords: patents, antitrust, adjacent markets, complementarity, innovation, efficiency, aftermarkets
    JEL: K21 Q31 Q34 L42 L40 L12
    Date: 2007–08
  6. By: Deffains, Bruno; Langlais, Eric
    Abstract: When several plaintiffs file individually a lawsuit against the same tortfeasor, the resolution of the various cases through repeated trials produces positive informational externalities, which benefit to the later plaintiffs (since there exist precedents, jurisprudence...). Thus, the first filers may have an incentive to initiate a class action as far as it enables the various plaintiffs to share their information. This feature has not been stressed in the literature, and in contrast strategic uses of class actions have been studied in more details (Che (1996), Marceau and Mongrain (2003)). In this paper, we elaborate on a basic strategic model of litigation settlement, focusing on the interactions between the characteristics of the discovery process (as a general technology of production of evidences) in mass tort litigation, those of the compensation rules set by Courts, and the structure of litigation costs, in order to study when a class action fails to occur, and when sequential trials are more likely. We consider the case of a perfect discovery process. We provide sufficient conditions under which a class action is formed. We show that when victims have heterogeneous claims, the compensatory damages rule awarded by Courts is of major importance for the formation of the class action, whatever the degree of heterogeneity: all else equal, there always exists a degree of \textit{damage averaging} under which the class action occurs. We also show that when contingent fees are used to reward attorneys' services, plaintiffs become neutral to the arrival of new information on their case.
    Keywords: Mass Tort Class Action; information sharing; repeated litigation; contingent fees.
    JEL: K41 K36 K13 K0 K40 K32
    Date: 2007–09–01
  7. By: Andrei Medvedev (Centre for Competition Policy, University of East Anglia)
    Abstract: To prevent possible abuse of market power, an antitrust agency can force merging firms to divest some of their assets. The divested assets can be sold via auction either to existing competitors or to a new entrant. Divestiture of assets extends the range of parameters when a merger satisfies a consumer surplus standard and should be approved. If the agency takes a more active stance toward the selection of a purchaser of the assets (e.g. to exclude an incumbent from the auction), then it could lead to a favourable outcome for consumers and merging firms.
    Keywords: Merger regulation, structural remedies, divestiture
    JEL: D43 K21 L51
    Date: 2007–08

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