New Economics Papers
on Law and Economics
Issue of 2007‒11‒24
ten papers chosen by
Jeong-Joon Lee, Towson University

  1. Conflict of laws as constitutional form: Reflections on the International Trade Law and the Biotech Panel Report By Christian Joerges
  2. Constitutional patriotism: Canada and the European Union By John Erik Fossum
  3. Taking Constitutionalism Beyond the State By Neil Walker
  4. Measuring Europeanisation of public communication: The question of standards By Hans-Jörg Trenz
  5. Death, Happiness, and the Calculation of Compensatory Damages By Andrew J. Oswald; Nattavudh Powdthavee
  6. On the Inverse Relationship between Unemployment and Absenteeism: Evidence from Natural Experiments and Worker Heterogeneity By René Fahr; Bernd Frick
  7. Implications of Unprofitable Horizontal Mergers: A Re-Interpretation of the Farrell-Shapiro-Framework By Oliver Budzinski; Jürgen-Peter Kretschmer
  8. Bankruptcy: Is It Enough to Forgive or Must we Also Forget? By Piero Gottardi; Ronel Elul
  9. Competing Complements By Ramon Casadesus-Masanell; Barry Nalebuff; David B. Yoffie
  10. Economic Analysis of the Legal Regulation of Religion in the USA and Germany By Jusic , Asim

  1. By: Christian Joerges
    Abstract: Hardly anywhere is the trend towards a perfection of transnational governance arrangements and their legalization more visible than in international trade. Governance arrangements established through and alongside WTO law are both practically important and theoretically challenging. They do not just organise international trade relations. They also affect national and regional (European) regulatory policies partly directly, partly more indirectly. How can we explain and how should we evaluate their emergence? The WTO system of 1994, which replaced the GATT of 1947, responded to the ever increasing importance of non-tariff barriers to trade. These barriers reflect regulatory concerns especially in the fields of health and safety, consumer and environmental protection. There importance for WTO member is such that they cannot simply be abandoned for the sake of free trade. This is why the responses the new international trade system institutionalised by special agreements concerning non-tariff barriers to free trade such as the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) and the Agreement on Technical Barriers to Trade (TBT) reflect a politicisation of international trade. Can we conclude that international markets have been re-regulated and that international trade law ensures their social embeddedness? The paper seeks yardsticks for an answer to these questions in the debates on transnational constitutionalism. It submits that constutionalisation can and should be based on a conflict-of approach. For its elaboration of this suggestion, the paper first contrasts the jurdification of transnational governance at the European and the international level. It then discusses the WTO panel report on the Biotech dispute. It concludes that the legalisation and judicialisation in that case have remained thin. What can be observed is a political rather than a social and legal embeddedness of markets.
    Keywords: international trade; legitimacy; multilevel governance; national autonomy; risk regulation; WTO
    Date: 2007–05–15
  2. By: John Erik Fossum
    Abstract: The purpose of this paper is to discuss the question of allegiance in complex multinational and poly-ethnic entities, with specific focus on the EU and Canada. Constitutional patriotism is a mode of attachment that is conducive to respect for and accommodation of difference and plurality. How thick does this form of allegiance need to be to work in highly diverse societies? I consider what might be understood as the minimum requirements for this form of allegiance to serve the necessary integrative needs for a community, and how accommodating of difference and diversity that constitutional patriotism may be understood to be. Note that this latter point is not only about the scope for voicing dissent; it is also about the prospects for exit (understood in a communal and/or territorial sense). Some claims for difference are simply very difficult to accommodate within a common framework. With exit being an available option, the conditions for fostering loyalty and effecting voice change. Constitutional patriotism, as nationalism, is a mode of attachment that is based on a particular constellation of exit, voice, and loyalty. I try to discern what kind of constellation(s) of exit, voice, and loyalty that sits best with constitutional patriotism, including how different/similar to nationalism this is. After that I try this out on the EU and Canada. The focus is on three sets of dimensions which help shed light on each entity’s particular understanding of constitutional patriotism and the underlying constellation of exit, voice and loyalty. I examine what these cases tell us about the role of rights in promoting/fostering constitutional patriotism, through focus on each entity’s Charter. Further, I look at each entity’s commitment to difference/diversity through examining their respective multiculturalism policies. I seek to identify the philosophy of allegiance underpinning each entity’s policy framework so as to establish whether these are informed by the spirit of constitutional patriotism. An important concern is to establish whether the policies are essentially reflective of respect for difference/diversity or are simply a more subtle form of integration. This should be considered together with the final point, that of exit options. The focus is on democratic provisions for territorial exit. Is constitutional patriotism based on an approach to territorial exit that is different from or similar to that of nationalism?
    Keywords: democracy; EU Charter of Fundamental Rights; European citizenship; identity; normative political theory
    Date: 2007–07–15
  3. By: Neil Walker
    Abstract: In recent years, the idea that constitutional modes of government are exclusive to states has become the subject of sustained challenge. This is due to the development in regional and global sites of regulatory institutions and practices which meet criteria normally associated with constitutional governance, as well as to the growing tendency towards the affirmative or critical conceptualisation of these existing or alternative post-state institutions and practices in constitutional terms. The aim of the essay is threefold. It asks why taking constitutionalism beyond the state might be viewed as an innovation worthy of comment and in need of explanation and justification, a question that requires us to engage with the definition of constitutionalism and with the contestation surrounding that definition. Secondly, and on the basis of these definitional concerns and conclusions, it specifies and elaborates upon the main dimensions of constitutionalism and of its post-state development. Thirdly, and joining the concerns of the first two sections, it seeks to identify the key current tensions – or antinomies – surrounding the growth of post-state constitutionalism with a view to identifying what is vitally at stake in the future career of this concept.
    Keywords: constitution building; law; legitimacy; treaty reform
    Date: 2007–07–15
  4. By: Hans-Jörg Trenz
    Abstract: The emergence of a pan-European public sphere as a correlate of democratic governance in the EU is held to be difficult, if not impossible. This has shifted the research agenda to the Europeanisation of public and media communication. The European public sphere light is observed by measuring different degrees of Europeanisation of existing national media spheres. In applied research however, the notion of Europeanisation remains often very fuzzy and contested. The new agenda of Europeanisation has so far been mainly applied as a pragmatic research strategy. As such, it still lacks theoretical grounding and methodological coherence. For this purpose, the article raises the question of standards. Following a proposal of Johan Olsen, a distinction is made between the what, how and why of Europeanisation. This regards first of all the necessity to set diagnostic standards for designating the different phenomena of what is changing. Second, methodological standards must be set, which indicate how to measure the Europeanisation of public and media communication. Finally, public sphere research must critically address the question of evaluative standards to determine why Europeanisation takes place and when it can be considered to be a sufficient indicator for assessing a public sphere of a new quality.
    Keywords: European public space; Europeanization; governance; identity; legitimacy; media
    Date: 2007–11–15
  5. By: Andrew J. Oswald (University of Warwick and IZA); Nattavudh Powdthavee (IoE, University of London)
    Abstract: This paper studies the mental distress caused by bereavement. The largest emotional losses are from the death of a spouse; the second-worst in severity are the losses from the death of a child; the third-worst is the death of a parent. The paper explores how happiness regression equations might be used in tort cases to calculate compensatory damages for emotional harm and pain-and-suffering. We examine alternative well-being variables, discuss adaptation, consider the possibility that bereavement affects someone’s marginal utility of income, and suggest a procedure for correcting for the endogeneity of income. Although the paper’s contribution is methodological, and further research is needed, some illustrative compensation amounts are discussed.
    Keywords: bereavement, damages, happiness, compensation, well-being, GHQ scores
    JEL: D1 I3 I31 K0
    Date: 2007–11
  6. By: René Fahr (University of Cologne and IZA); Bernd Frick (University of Paderborn and IAAEG)
    Abstract: Although an inverse relationship between sickness absence and unemployment has been documented in a number of studies using either quarterly or annual data from different countries with varying institutional frameworks, it is not yet clear whether this empirical regularity is due to changes in the individual costs of absence when unemployment increases (incentive effect) or, alternatively, to changes in the composition of the workforce over the business cycle (selection effect). In order to provide evidence to evaluate the relative importance of both effects we first investigate the effects of changes in the unemployment benefit entitlement system with monthly absence data for East and West Germany for the years 1991-2004. Second, we analyze the impact of differences in the costs of unemployment on the annual absence rates of workers in different sickness insurance funds using state-level annual absence rates for the years 1993-2004. We find clear evidence in favor of an incentive effect.
    Keywords: absenteeism, unemployment, selection effect, incentive effect, natural experiment
    JEL: J63 K31 M51
    Date: 2007–11
  7. By: Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Jürgen-Peter Kretschmer (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: We demonstrate that the popular Farrell-Shapiro-framework (FSF) for the analysis of mergers in oligopolies relies regarding its policy conclusions sensitively on the assumption that rational agents will only propose privately profitable mergers. If this assumption held, a positive external effect of a proposed merger would represent a sufficient condition to allow the merger. However, the empirical picture on mergers and acquisitions reveals a significant share of unprofitable mergers and economic theory, moreover, demonstrates that privately unprofitable mergers can be the result of rational action. Therefore, we extend the FSF by explicitly allowing for unprofitable mergers to occur with some frequency. This exerts a considerable impact on merger policy conclusions: while several insights of the original FSF are corroborated (f.i. efficiency defence), a positive external effect does not represent a sufficient condition for the allowance of a merger anymore. Applying such a rule would cause a considerable amount of false positives. In addition, we conclude that the FSF need to be explicitly complemented by a freedom of competition principle in order to make it workable as a basis for an economics-based merger policy.
    Keywords: oligopoly theory, horizontal merger policy, profitability of mergers, freedom of competition, antitrust
    JEL: L13 L41 K21 D43
    Date: 2007
  8. By: Piero Gottardi (Dipartimento di Scienze Economiche, Università di Venezia); Ronel Elul (Federal Reserve Bank of Philadelphia)
    Abstract: In many countries, lenders are not permitted to use information about past defaults after a specified period of time has elapsed. We model this provision and determine conditions under which it is optimal. We develop a model in which entrepreneurs must repeatedly seek external funds to finance a sequence of risky projects under conditions of both adverse selection and moral hazard. We show that forgetting a default makes incentives worse, ex-ante, because it reduces the punishment for failure. However, following a default it is generally good to forget, because by improving an entrepreneur’s reputation, forgetting increases the incentive to exert effort to preserve this reputation. Our key result is that if agents are sufficiently patient, and low effort is not too inefficient, then the optimal law would prescribe some amount of forgetting — that is, it would not permit lenders to fully utilize past information. We also argue that forgetting must be the outcome of a regulatory intervention by the government — no lender would willingly agree to ignore information available to him.
    Keywords: Bankruptcy, Information, Incentives, Fresh Start
    JEL: D86 G33 K35
    Date: 2007
  9. By: Ramon Casadesus-Masanell (Harvard Business School); Barry Nalebuff (Yale School of Management); David B. Yoffie (Harvard Business School)
    Abstract: In Cournot's model of complements, the producers of A and B are both monopolists. This paper extends Cournot's model to allow for competition between complements on one side of the market. Consider two complements, A and B, where the A+B bundle is valuable only when purchased together. Good A is supplied by a monopolist(e.g., Microsoft) and there is competition in the B goods from vertically differentiated suppliers (e.g., Intel and AMD). In this simple game, there may not be a pure-strategy equilibria. In the standard case where marginal costs are weakly positive, there is no pure strategy where the lower quality B firm obtains positive market share. We also consider the case where A has negative marginal costs, as would arise when A can expect to make upgrade sales to an installed base. When profits from the installed base are sufficiently large, a pure strategy equilibrium exists with two B firms active in the market. Although there is competition in the complement market, the monopoly Firm A may earn lower profits in this environment. Consequently, A may prefer to accept lower future profits in order to interact with a monopolist complement in B.
    Keywords: AMD, complementors, complements, co-opetition, equilibrium non-existence, installed base, Intel, Microsoft, pricing.
    JEL: C72 D43 K21 L13 L15 M21
    Date: 2007–08
  10. By: Jusic , Asim
    Abstract: In this paper I analyze the legal regulation of religion in the US and Germany from rational choice perspective and the perspective of new institutional economics and constitutional political economy. Focus of the analysis is on the constitutional framework, legal status and funding of religious institutions and the establishment and free exercise jurisprudence of the US Supreme Court and German Federal Constitutional Court. I conclude that, as predicted by economics of religion, the legal regulation of religion in the US is more economically efficient in the sense that it motivates religious vitality and private religious funding however, this vitality benefits mostly strict churches and sects. On the other hand, legal regulation of religion in Germany, while establishing the de facto monopoly of the traditional religions, lowering religious vitality and translating, via legal system, religious norms into cultural ones, achieves another goal that is also economically efficient: it reduces overgrazing of moral goods and stabilizes social norms, which in turn reduces state transaction costs.
    Keywords: Law and Economics; Comparative Constitutional Law; Economics of Religion
    JEL: Z12 K00 K19
    Date: 2007–11–22

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