New Economics Papers
on Law and Economics
Issue of 2008‒02‒02
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Plaintiffs exploiting Plaintiffs By Alexander Stremitzer
  2. The Efficient Liability Sharing Factor For Environmental Disasters: Lessons For Optimal Insurance Regulation By Marcel Boyer; Donatella Porrini
  3. Institutional Adaptability and Economic Development: The Property Rights Revolution in Britain, 1700 to 1830 By Gary Richardson; Dan Bogart
  4. What Do Economists Know About Crime? By Angela K. Dills; Jeffrey A. Miron; Garrett Summers
  5. Enforceability of labor law : evidence from a labor court in Mexico By Sadka, Joyce; Kaplan, David S.

  1. By: Alexander Stremitzer
    Abstract: We consider a model of a single defendant and N plaintiffs where the total cost of litigation is fixed on the part of the plaintiffs and shared among the members of a suing coalition. By settling and dropping out of the coalition, a plaintiff therefore creates a negative externality on the other plaintiffs. It was shown in Che and Spier (2007) that failure to internalize this externality can often be exploited by the defendant. However, if plaintiffs make sequential take-it-or-leave-it settlement offers, we can show that they will actually be exploited by one of their fellow plaintiffs rather than by the defendant. Moreover, if litigation is a public good as is the case in shareholder derivative suits, parties may fail to reach a settlement even having complete information. This may explain why we observe derivative suits in the US but not in Europe.
    Keywords: litigation, settlement, bargaining, contracting with externalities, derivative suits, public goods
    JEL: K41 C7 H4
    Date: 2008–01–12
  2. By: Marcel Boyer; Donatella Porrini
    Abstract: Using a structural model of the interactions between governments, firms and insurance companies, we characterise the distortions in environmental liability sharing between firms and insurance companies that the imperfect implementation of government policies implies. These distortions stem from three factors: the presence of moral hazard, the non congruence between firms/insurers objectives and social welfare, and the courts’ imperfect assessment of safety care levels exerted by firms. We characterize cases where the efficient liability sharing factor is above or below its full information perfect implementation level. We derive comparative statics results indicating how sensitive the liability sharing factor is to changes in parameters (parameters that underlie the firm profit level and volatility, the cost of safety care, the monitoring cost, the social cost of public funds, the effectiveness of care in reducing the probability of accident) that are relevant for the characterization of optimal policies (liability sharing, safety care standards) toward environmental protection or the prevention of industrial accidents. We derive policy implications regarding environmental disaster insurance policies. <P>À l’aide d’un modèle structurel des interactions entre les gouvernements, les entreprises et les assureurs, nous caractérisons les distorsions dans le partage des responsabilités entre entreprises et assureurs qu’implique la mise en place imparfaite des politiques gouvernementales. Ces distorsions résultent de trois facteurs : la présence de risque moral, la non-congruence des objectifs des entreprises, des assureurs et de bien-être social, et l’observation imparfaite des efforts de prévention des entreprises par le système judiciaire. Nous dérivons des résultats de statique comparée montrant la sensibilité du facteur de partage des responsabilités à des changements dans les paramètres sous-jacents à la profitabilité, au coût des efforts de prévention, à l’efficacité de ces efforts dans la réduction de la probabilité d’accident, au coût de monitoring, au coût social des fonds publics, et qui sont pertinents à la caractérisation des politiques optimales (partage de responsabilité, standard légal du niveau de prévention) de protection environnementale et de prévention des accidents. Nous en déduisons certaines implications quant aux politiques relatives à l’assurance contre les désastres environnementaux.
    Keywords: Liability sharing, environmental insurance, safety care, moral hazard, principal-agent., Partage de responsabilité, assurance environnementale, effort de prévention, risque moral, principal-agent.
    JEL: D82 G32 K13 K32 Q28
    Date: 2008–01–01
  3. By: Gary Richardson; Dan Bogart
    Abstract: Adaptable property-rights institutions, we argue, foster economic development. The British example illustrates this point. Around 1700, Parliament established a forum where rights to land and resources could be reorganized. This venue enabled landholders and communities to take advantage of economic opportunities that could not be accommodated by the inflexible rights regime inherited from the past. In this essay, historical evidence, archival data, and statistical analysis demonstrate that Parliament increased the number of acts reorganizing property rights in response to increases in the public's demand for such acts. This evidence corroborates a cornerstone of our hypothesis.
    JEL: H1 K0 K1 N0 N43 P1 P10 P14 P16 P20 P26 P48
    Date: 2008–01
  4. By: Angela K. Dills; Jeffrey A. Miron; Garrett Summers
    Abstract: In this paper we evaluate what economists have learned over the past 40 years about the determinants of crime. We base our evaluation on two kinds of evidence: an examination of aggregate data over long time periods and across countries, and a critical review of the literature. We argue that economists know little about the empirically relevant determinants of crime. Even hypotheses that find some support in U.S. data for recent decades are inconsistent with data over longer horizons or across countries. This conclusion applies both to policy variables like arrest rates or capital punishment and to less conventional factors such as abortion or gun laws. The hypothesis that drug prohibition generates violence, however, is generally consistent with the long times-series and cross-country facts. This analysis is also consistent with a broader perspective in which government policies that affect the nature and amount of dispute resolution play an important role in determining violence.
    JEL: K0
    Date: 2008–01
  5. By: Sadka, Joyce; Kaplan, David S.
    Abstract: The authors analyze lawsuits involving publicly-appointed lawyers in a labor court in Mexico to study how a rigid law is enforced. They show that, even after a judge has awarded something to a worker alleging unjust dismissal, the award goes uncollected 56 percent of the time. Workers who are dismissed after working more than seven years, however, do not leave these awards uncollected because their legally-mandated severance payments are larger. A simple theoretical model is used to generate predictions on how lawsuit outcomes should depend on the information available to the worker and on the worker ' s cost of collecting an award after trial, both of which are determined in part by the worker ' s lawyer. Differences in outcomes across lawyers are consistent with the hypothesis that firms take advantage both of workers who are poorly informed and of workers who find it more costly to collect an award after winning at trial.
    Keywords: Public Sector Corruption & Anticorruption Measures,Information Security & Privacy,Legal Products,Microfinance,Bankruptcy and Resolution of Financial Distress
    Date: 2008–01–01

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