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on Law and Economics |
| By: | Miller, Marcus; Smith, Jennifer C |
| Abstract: | An ‘efficiency wage’ model developed for Western economies is reinterpreted for Soviet Russia assuming that it was the Gulag not unemployment that acted as a ‘worker-discipline device’. Archival data now available allows for a basic account of the dynamics of the Gulag to be estimated. When this is combined with a dictatorship wishing to maximise the ‘investible surplus’ subject to an efficiency wage incentive constraint, what does it imply? That to secure resources for investment or war, consumption must be compressed; and making the Gulag harsher helps reduce incentive problems in the workplace. This is the cruel logic of coercion. But this economic rationale for the Gulag does not, we find, encompass randomised mass terror. Why did Stalin’s system of coercion ultimately fail? The paper concludes with comparisons of Western and Soviet systems from an efficiency wage perspective. |
| Keywords: | asymmetric information; efficiency wage; Labour-discipline; Soviet Gulag |
| JEL: | D82 P23 P26 P27 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6621&r=law |
| By: | Simon Schropp (IUHEI, The Graduate Institute of International Studies, Geneva) |
| Abstract: | This paper constitutes an attempt to reframe and eventually deflate the ongoing “compliance-vs.-rebalancing” debate which has permeated WTO scholarship for the last 10 years. At face value, this controversy circles around object and purpose of WTO enforcement and the legal nature of dispute panels’ recommendations: Compliance advocates maintain that the objective of WTO enforcement is to induce compliance with DSB panel/AB rulings, and to deter future violations of the Agreement, while rebalancing advocates detect an inherent “pay-or-perform” logic in WTO enforcement. In the paper we examine the shortcomings of each approach separately. Our main criticism, however, concerns the substance of the entire debate. We find that scholars on both sides of the compliance/rebalancing controversy put an unduly rigid emphasis on the subsequent issues of WTO enforcement and the interpretation of the wording of the dispute settlement understanding. They thereby neglected systemic issues of contracting, viz. the nature of contractual entitlements, the need for trade policy flexibility mechanisms and the optimal design of the appropriate remedies. We redefine and recalibrate the compliance/rebalancing controversy along the lines of the nature of the WTO contract. This results in to three key findings: First, none of the two schools of thought succeeds in giving an accurate picture of the WTO treaty. Second, the two perspectives actually portray two strikingly different concepts of the WTO contract, and therefore have been at cross-purposes from the very beginning. This implies a third finding: The two schools of thought essentially describe different facets of the same complex WTO contract. Hence, they have hardly been at loggerheads at all, and are actually complementing each other in important aspects. We lay out a unified research agenda that practitioners, economists, trade lawyers, and international relations scholars alike can accept. The agenda may contribute to reconciling the two opposing views and help WTO scholarship tackle the real systemic issues of the WTO Agreement. |
| Keywords: | WTO, dispute settlement, incomplete contracts, remedies, enforcement |
| JEL: | F02 F13 F51 F53 K33 K42 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heiwp29-2007&r=law |
| By: | Alma Cohen; Rajeev Dehejia; Dmitri Romanov |
| Abstract: | This paper investigates empirically whether financial incentives, and in particular governmental child subsidies, affect fertility. We use a comprehensive, nonpublic, individual-level panel dataset that includes fertility histories and detailed individual controls for all married Israeli women with two or more children from 1999-2005, a period with substantial variation in the level of governmental child subsidies but no changes in eligibility and coverage. We find a significant positive effect on fertility, with the mean level of child subsidies producing a 7.8 percent increase in fertility. The positive effect of child subsidies on fertility is concentrated in the bottom half of the income distribution. It is present across all religious groups, including the ultra-Orthodox Jewish population whose religious principles forbid birth control and family planning. Using a differences-in-differences specification, we find that a large, unanticipated reduction in child subsidies that occurred in 2003 had a substantial negative impact on fertility. Overall, our results support the view that fertility responds to financial incentives and indicate that the child subsidy policies used in many countries can have a significant influence on incremental fertility decisions. |
| JEL: | D1 H31 I38 J13 K36 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13700&r=law |
| By: | Lucian A. Bebchuk; Martijn Cremers; Urs Peyer |
| Abstract: | We investigate the relationship between CEO centrality -- the relative importance of the CEO within the top executive team in terms of ability, contribution, or power -- and the value and behavior of public firms. Our proxy for CEO centrality is the fraction of the top-five compensation captured by the CEO. We find that CEO centrality is negatively associated with firm value (as measured by industry-adjusted Tobin's Q). Greater CEO centrality is also correlated with (i) lower (industry-adjusted) accounting profitability, (ii) lower stock returns accompanying acquisitions announced by the firm and higher likelihood of a negative stock return accompanying such announcements, (iii) higher odds of the CEO’s receiving a “lucky†option grant at the lowest price of the month, (iv) greater tendency to reward the CEO for luck in the form of positive industry-wide shocks, (v) lower likelihood of CEO turnover controlling for performance, and (vi) lower firm-specific variability of stock returns over time. Overall, our results indicate that differences in CEO centrality are an aspect of firm management and governance that deserves the attention of researchers. |
| JEL: | D23 G32 G38 J33 J44 K22 M14 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13701&r=law |
| By: | Lucian A. Bebchuk; Zvika Neeman |
| Abstract: | We model how lobbying by interest groups affects the level of investor protection. In our model, insiders in existing public companies, institutional investors (financial intermediaries), and entrepreneurs who plan to take companies public in the future, compete for influence over the politicians setting the level of investor protection. We identify conditions under which this lobbying game has an inefficiently low equilibrium level of investor protection. Factors that operate to reduce investor protection below its efficient level include the ability of corporate insiders to use the corporate assets they control to influence politicians, as well as the inability of institutional investors to capture the full value that efficient investor protection would produce for outside investors. The interest that entrepreneurs (and existing public firms) have in raising equity capital in the future reduces but does not eliminate the distortions arising from insiders' interest in extracting rents from the capital public firms already have. Our analysis generates testable predictions, and can explain existing empirical evidence, regarding the way in which investor protection varies over time and around the world. |
| JEL: | D72 G20 G30 K22 O16 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13702&r=law |
| By: | John R. Graham; Si Li; Jiaping Qiu |
| Abstract: | This paper is the first to study the effect of financial restatement on bank loan contracting. Compared with loans initiated before restatement, loans initiated after restatement have significantly higher spreads, shorter maturities, higher likelihood of being secured, and more covenant restrictions. The increase in loan spread is significantly larger for fraudulent restating firms than other restating firms. We also find that after restatement, the number of lenders per loan declines and firms pay higher upfront and annual fees. These results are consistent with the view that banks use tighter loan contract terms to overcome risk and information problems arising from financial restatements. |
| JEL: | G21 G32 K22 K42 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13708&r=law |
| By: | Metin M. Cosgel (University of Connecticut) |
| Abstract: | There appear to be two seemingly contradictory images of economic change in the Islamic World and mixed evidence on whether Islamic societies have been open or conservative against modern ideas, technological advancements, and legal developments. Whereas a conservative attitude has been dominant in some societies and time periods, Muslims were at the forefront of scientific, technological, and legal developments in others. Rather than rely on ad hoc assumptions about the attitudes and characteristics of societies or the inherent qualities of new developments, this paper explains attitudes towards change by studying the political economy of the relationship between the rulers and the legal community. I extend recent theories of endogenous institutional change to develop a framework based on how rulers and legal community reacted to new developments immediately and how their strategic interaction unleashed an endogenous process toward change in the long run. Using this framework, I identify conditions under which new ideas, technologies, and legal developments have resulted in immediate change in Islamic societies. I also examine the process of change in the long run, whether and how immediate outcomes could be sustained over time as strategic interaction continued repeatedly. |
| JEL: | C7 D02 D7 H1 H3 K4 N4 O0 |
| Date: | 2007–09 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2007-47&r=law |
| By: | Jin, Songqing; Deininger, Klaus |
| Abstract: | This paper is motivated by the emphasis on secure property rights as a determinant of economic development in recent literature. The authors use village and household level information from about 800 villages throughout China to explore whether legal reform increased protection of land rights against unauthorized reallocation or expropriation with below-average compensation by the state. The analysis provides nation-wide evidence on a sensitive topic. The authors find positive impacts, equivalent to increasing land valu es by 30 percent, of reform even in the short term. Reform originated in villages where democratic election of leaders ensured a minimum level of accountability, pointing toward complementarity between good governance and legal reform. The paper explores the implications for situations where individuals and groups hold overlapping rights to land. |
| Keywords: | Common Property Resource Development,Municipal Housing and Land,Access to Finance,Political Economy,Land and Real Estate Development |
| Date: | 2007–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4447&r=law |
| By: | Alfredo Burlando (Boston University); Alberto Motta (University di Padova) |
| Abstract: | We consider a model of law enforcement where homogenous, risk neutral, and corruptible inspectors are responsible for monitoring citizens who may have committed criminal acts. A welfare maximizing, budget constrained government can implement appropriate wage policies to prevent collusion, but we find that governments characterized by high administrative costs in administrating fines, or by a low ability to spot and prosecute corruption, may prefer to let corruption happen. By allowing citizens to avoid all monitoring by reporting their own violations first, the government is able to increase welfare by hiring fewer inspector, and in some instances by shifting from a regime of corruption to a regime where there is none. Moreover, self reporting fully eliminates any deadweight losses that arise from the incentive schemes when inspectors are risk averse. In order for self-reporting to have these effects, it is necessary that the government maintains also an optimal incentive scheme for its inspectors. |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:pad:wpaper:0063&r=law |
| By: | Camille Chaserant |
| Abstract: | Continental Law defines the employment contract by the notion of « subordination » of the employee to the employer. Since Simon (1951), economics defines authority as the opportunity for the employer to postpone the selection of the tasks the employee should perform. This paper shows that these definitions do not fit. It proposes to use the framework of option pricing in order to interpret Simon’s model and to analyze the economic conceptions of authority, flexibility and renegotiation. When states are not verifiable, the economic concept of employment contract is a specific case of the broader set of sale contracts. It can be formalized as a spot contract paired with a call option on the worker tasks. Therefore, the economic formalization of the employment contract does not implement what lawyers define as an employment relationship. The economic formalization of the subordination notion used by Law is still to be done. |
| JEL: | D86 K31 G12 J41 |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2007-28&r=law |
| By: | Pierre-Cyrille Hautcoeur; Nadine Levratto |
| Abstract: | This paper aims at giving an explanation of the changes in the number of bankruptcies during the second part of the 19th century and the beginning of the 20th. We firstly study the evolution of the French insolvency law and then we introduce some regional aspects. We indeed observe that the court of the District of the Seine is more tolerant than the others; however this kind of use of the law will spread in the other courts until the reform in 1889 that creates the judicial liquidation. The special analysis permits us to show that the changes in the law do not explain the total variations of the total amount of bankruptcies. The local practices and, thus, the way the judicial agents act are also essential in the explanation. |
| Keywords: | Bankruptcy, Code de commerce, 19th century |
| Date: | 2007 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2007-35&r=law |
| By: | James E. Prieger (Pepperdine University School of Public Policy); Wei-Min Hu (Peking University Shenzhen Graduate School of Business) |
| Abstract: | Our study extends the empirical literature on whether vertical restraints are anticompetitive. We focus on exclusive contracting in platform markets, which feature indirect network effects and thus are susceptible to applications barriers to entry. Theory suggests that exclusive contracts in vertical relationships between the platform provider and software supplier can heighten the entry barriers. We test these theories in the home video game market. We measure the impact on hardware demand of the indirect network effects from software. We find that although network effects are present, the marginal exclusive game contributes virtually nothing to console demand. Thus, allowing exclusive vertical contracts in platform markets need not lead to a market structure dominated by one system protected by a hedge of complementary software. Our investigation suggests that bargaining power enjoyed by the best software providers and the skewed distribution of game revenue prevents the foreclosure of rivals through exclusive contracting. |
| Keywords: | antitrust, vertical restrictions, exclusive contracts, platform markets, home video game industry, software and hardware markets, two-sided markets |
| JEL: | L14 K21 L42 |
| Date: | 2007–11 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0746&r=law |
| By: | Nicholas Economides (Stern School of Business, New York University); Ioannis Lianos (University College London, Faculty of Laws) |
| Abstract: | We analyze and contrast the US and EU antitrust standards on mixed bundling and tying. We apply our analysis to the US and EU cases against Microsoft on the issue of tying new products (Internet Explorer in the US, and Windows Media Player in the EU) with Windows as well as to cases brought in Europe and in the United States on bundling discounts. We conclude that there are differences between the EC and US antitrust law on the choice of the relevant analogy for bundled rebates (predatory price standard or foreclosure standard) and the implementation of the distinct product and coercion test for tying practices. The second important difference between the two jurisdictions concerns the interpretation of the requirement of anticompetitive foreclosure. It seems to us that in Europe, consumer detriment is found easily and it is not always a requirement for the application of Article 82, or at least that the standard of proof of a consumer detriment for tying cases is lower than in the US. |
| Keywords: | tying, bundling, foreclosure, requirement contracts, monopolization, Microsoft, predatory pricing |
| JEL: | K12 L12 L13 L41 L42 L63 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:net:wpaper:0747&r=law |
| By: | Ilie, Livia; Horobet , Alexandra; Popescu , Corina |
| Abstract: | Competition ensures competitive prices. In this respect, the liberalisation of the EU energy markets is a must. The regulatory framework for the energy markets should be properly designed and implemented by the member states in order to ensure enough competition. This paper aims to analyse the status quo of the EU energy markets in terms of regulatory framework and degree of competition and to recommend improvements of the system in order to balance the issues of competition, energy security and environment protection in the EU energy markets. |
| Keywords: | Energy market; regulation; competition; energy security; climate change |
| JEL: | K2 L5 Q4 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:6419&r=law |
| By: | Torres, Fernando |
| Abstract: | In corporate restructuring under Chapter 11, an asset valuation is a central task for both legal and financial reasons. In the area of intangible assets, however, generally accepted accounting principles (GAAP) do not reflect internally-generated assets such as brands, trademarks, and other intellectual property. In practice, arbitrary rules of thumb are used to fill this gap, and closure, liquidation, financing, and restructuring decisions are made on this basis. This paper reports the progress that has been made so far in developing theoretical and empirical bases to improve trademark valuation in corporate restructuring. The model and the applied results have been incorporated since 2006 in some of the most significant corporate restructuring cases in the U.S. The econometric study of trademark values in liquidation and reorganization presented is based on new data being generated as a result of self-regulatory changes in financial accounting –specifically those brought about over the last six years by FASB’s statements 141 and 142 (as well as the international IFRS-3 standard). The new accounting framework for business combinations requires acquiring entities to perform a detailed purchase price allocation that segregates the values attributable to trademarks and other IP from general Goodwill. Publicly traded companies generally disclose these itemized values in their SEC filings. Recently, we have begun building a database of pre-merger revenue information in combination with specific trademark value allocations from a variety of acquisitions occurring in both liquidation and going concern contexts. Our initial results are consistent with the severe reduction in value that has come to be expected, but reflect a statistically significant non-linearity that has substantial financial impact in large cases. |
| Keywords: | trademarks; valuation; intellectual property; bankruptcy; restructuring |
| JEL: | K20 O34 L59 K11 M21 |
| Date: | 2007–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:6538&r=law |