New Economics Papers
on Law and Economics
Issue of 2008‒04‒12
four papers chosen by
Jeong-Joon Lee, Towson University

  1. Corporate Governance Externalities By Acharya, Viral V; Volpin, Paolo
  2. Contractual Democracy By Gersbach, Hans
  3. Choosing a legal framework for Spanish stock markets, 1800-1936 By Juan Carlos Rojo Cagigal
  4. Integration-through-Law: Contribution to a Socio-history of EU Political Commonsense By Antoine Vauchez

  1. By: Acharya, Viral V; Volpin, Paolo
    Abstract: We argue that the choice of corporate governance by a firm affects and is affected by the choice of governance by other firms. Firms with weaker governance give higher payoffs to their management to incentivize them. This forces firms with good governance to also pay their management more than they would otherwise, due to competition in the managerial labour market. This externality reduces the value to firms of investing in corporate governance and produces weaker overall governance in the economy. The effect is stronger the greater the competition for managers and the stronger the managerial bargaining power. While standards can help raise governance towards efficient levels, market-based mechanisms such as (i) the acquisition of large equity stakes by raiders and (ii) the need to raise external capital by firms can help too, and we characterize conditions under which this happens.
    Keywords: corporate governance; executive compensation; externality; governance standards; ownership structure; regulation
    JEL: G34 J63 K22 K42 L14
    Date: 2008–01
  2. By: Gersbach, Hans
    Abstract: Although they would yield social benefits, some political projects may not be implemented in democracies. Prominent examples are the reform of European labour markets, the reduction of government debt or the reduction of greenhouse gases. We suggest introducing political contracts to make liberal democracy more efficient without altering its fundamental values. Furthermore, such contracts can foster the public's trust in politics. We discuss four archetypes of political contracts and ways of implementing them. We outline the certification and control procedures for political contracts and address the major concerns arising with regard to contractual democracy.
    Keywords: contractual democracy; elections; political contracts
    JEL: D7 H1 H4 K1
    Date: 2008–03
  3. By: Juan Carlos Rojo Cagigal
    Abstract: The paper analyses the legal transfer of formal rules regulating stock markets in Spain between 1800 and 1936. We argue that the transfer of French legislation in the 1830s provoked a “transplant effect”, which generated serious distortions in Spanish financial markets. As a result, Spain developed a unique system in which official French style stock markets coexisted with Anglo-Saxon style free markets and small traditional markets, reminiscent of the ancien regime. This unique schism of systems reflects the result of multiple natural experiments whereby each region constituted its own stock market system. Diverse economic scenarios and path-dependence processes determined different institutional settings. We find that the unparalleled Spanish system was the result of lacking central power, persistence of institutional inertia, and the diversity of Spain´s geographical economy.
    Keywords: Stock markets, Exchanges, Commercial law, Comparative law, Legal origins, Legal transfer, Legal transplant, Rule of law, Spain
    JEL: N23 N24 N43 N44 K20 K22
    Date: 2008–03
  4. By: Antoine Vauchez
    Keywords: Europeanization; European law; European Court of Justice
    Date: 2008–03–15

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