New Economics Papers
on Law and Economics
Issue of 2008‒04‒29
fourteen papers chosen by
Jeong-Joon Lee, Towson University

  1. Control Rights over Intellectual Property: Corporate Venturing and Bankruptcy Regimes By Sudipto Bhattacharya; Sergei Guriev
  2. Contractual Corporate Governance By Goergen, M.; Renneboog, L.D.R.
  3. Cross-Border Mergers & Acquisitions Policy in Service Markets By Norbäck, Pehr-Johan; Persson, Lars
  4. From Illegal to Legal: Estimating Previous Illegal Experience among New Legal Immigrants to the United States By Jasso, Guillermina; Massey, Douglas S.; Rosenzweig, Mark R.; Smith, James P.
  5. Contracting in the Shadow of the Law By Surajeet Chakravarty; W. Bentley MacLeod
  6. National Cultures and Soccer Violence By Edward Miguel; Sebastián M. Saiegh; Shanker Satyanath
  7. A Note on the Social versus Private Value of Suits when Care is Bilateral By Thomas J. Miceli
  8. Does Membership in International Organizations Increase Governments’ Credibility? Testing the Effects of Delegating Powers By Axel Dreher; Stefan Voigt
  9. Settlement in Merger Cases: Remedies and Litigation By Bertrand Chopard; Thomas Cortade; Andreea Cosnita
  10. Methodology of study of corruption in higher education By Osipian, Ararat
  11. Misdeeds in the US higher education: Illegality versus corruption By Osipian, Ararat
  12. Methodology of research on corruption in education By Osipian, Ararat
  13. Higher education corruption in the world media: Prevalence, patterns, and forms By Osipian, Ararat
  14. Building encroachments By Matteo Rizzolli

  1. By: Sudipto Bhattacharya (NLondon School of Economics, and CEPR); Sergei Guriev (Stockholm School of Economics, Stockholm; Centre for Economic and Financial Research (CEFIR), Moscow, and CEPR)
    Abstract: We develop a theory of control rights in the context of licensing interim innovative knowledge for further development, which is consistent with the inalienability of initial innovator's intellectual property rights (IPR). Control rights of a downstream development unit, a buyer of the interim innovation, arise from his ability to prevent the upstream research unit from forming financial coalitions at the ex interim stage of bargaining, over the amount and structure of licensing fees as well as the mode of licensing, either based on trade secrets or via patenting. We model explicitly the equilibrium choice of the financial structure of licensing fees and show that the innovator's financial constraint is more likely to bind when the value of her innovation is low. By constraining the flexibility of the upstream unit regarding her choice of the mode of licensing of her interim knowledge, the controlling development unit is able to reduce the research unit's payoffs in such contingencies. This incentivises the research unit to expend costly e¤ort ex ante to generate more productive interim innovations. We show that such interim control rights can be renegotiation-proof.
    JEL: D23 K12 O32
    Date: 2008–04
  2. By: Goergen, M.; Renneboog, L.D.R. (Tilburg University, Center for Economic Research)
    Abstract: Companies have the choice to deviate from their national corporate governance standards by opting into another system. They can do so via contractual devices ? such as cross-border mergers and acquisitions, (re)incorporations, and cross-listings ? which enable firms to choose their preferred level of investor protection and regulation. This paper reviews these three main contractual governance devices, their effect on value, and whether their adoption by firms induces a race to the bottom or a race to the top. Indeed, firms may opt for less shareholder-orientation or investor protection (shareholder-expropriation hypothesis) rather than for more stringent rules that require firms to focus on shareholder value (bonding hypothesis).
    Keywords: Contractual corporate governance;corporate governance regulation;cross-border mergers and acquisitions;cross-listings;reincorporations;shareholder protection;creditor protection;spillover effects.
    JEL: G3 G34 G32 G38 K2
    Date: 2008
  3. By: Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: We provide facts showing that in service markets: (i) restrictions on foreign direct investment (FDI) are under reform, (ii) cross-border Mergers & Acquisitions dominate as the entry mode of FDI, and (iii) there is often a high market concentration. Based on these facts, we present a model for analyzing cross-border M&A policy in liberalized service markets taking into account efficiency and market power effects. Our findings suggest that a merger policy, but not a discriminatory policy towards foreigners, seems warranted. Moreover, policies ensuring competition for domestic target firms seem warranted. In this vein, harmonization of the EU takeover regulations may particularly benefit assets owners in countries with many target firms.
    Keywords: Services; Mergers and Acquisitions; Investment Liberalization; Foreign Direct Investments; Ownership
    JEL: F23 K21 L13 O12
    Date: 2008–04–08
  4. By: Jasso, Guillermina (New York University); Massey, Douglas S. (Princeton University); Rosenzweig, Mark R. (Yale University); Smith, James P. (RAND)
    Abstract: This paper develops a framework for estimating previous illegal experience among annual cohorts of new legal immigrants to the United States – using public-use administrative microdata alone, survey data alone, and the two jointly – and provides estimates for the FY 1996 cohort of new immigrants, based on both administrative and survey data. Our procedures enable assessment of type of illegal experience, including entry without inspection, visa overstay, and unauthorized employment. We compare our estimates of previous illegal experience to estimates that would be obtained using administrative data alone; examine the extent of previous illegal experience by country of birth, immigrant class of admission, religion, and geographic residence in the United States; and estimate multivariate models of the probability of having previous illegal experience. To further assess origins and destinations, we carry out two kinds of contrasts, comparing formerly illegal new legal immigrants both to fellow immigrants who do not have previous illegal experience and also to the broader unauthorized population, the latter using estimates developed by DHS (2002), Passel (2002), and Costanzo et al. (2002).
    Keywords: illegal immigration, legal immigration, administrative data, survey data
    JEL: F22 C42 K42
    Date: 2008–04
  5. By: Surajeet Chakravarty; W. Bentley MacLeod
    Abstract: Economic models of contract typically assume that courts enforce obligations on the basis of verifiable events. As a matter of law, this is not the case. This leaves open the question of optimal contract design given the available remedies that are enforced by a court of law. This paper shows that standard form construction contracts can be viewed as an optimal solution to this problem. It is shown that a central feature of construction contracts is the inclusion of governance covenants that shape the scope of authority, and regulate the ex post bargaining power of parties. Our model also provides a unified framework for the study of the legal remedies of mistake, impossibility and the doctrine limiting damages for unforeseen events developed in the case of Hadley vs. Baxendale.
    JEL: D02 K12 L23
    Date: 2008–04
  6. By: Edward Miguel; Sebastián M. Saiegh; Shanker Satyanath
    Abstract: Can some acts of violence be explained by a society's "culture"? Scholars have found it hard to empirically disentangle the effects of culture, legal institutions, and poverty in driving violence. We address this problem by exploiting a natural experiment offered by the presence of thousands of international soccer (football) players in the European professional leagues. We find a strong relationship between the history of civil conflict in a player's home country and his propensity to behave violently on the soccer field, as measured by yellow and red cards. This link is robust to region fixed effects, country characteristics (e.g., rule of law, per capita income), player characteristics (e.g., age, field position, quality), outliers, and team fixed effects. Reinforcing our claim that we isolate cultures of violence rather than simple rule-breaking or something else entirely, there is no meaningful correlation between a player's home country civil war history and soccer performance measures not closely related to violent conduct.
    JEL: K0 O57 Z1
    Date: 2008–04
  7. By: Thomas J. Miceli (University of Connecticut)
    Abstract: This paper re-examines the social versus private value of lawsuits when both injurers and victims can take care. The basic conclusions of that literature remain valid in this context: the private and social values generally differ, and there is no necessary relationship between them, meaning that there may be either too many or too few suits. Introducing the possibility of victim care does, however, alter the calculation of the deterrent effect of lawsuits. In particular, because allowing suits tends to reduce the incentives for victims to invest in precaution, the social value of prohibiting suits increases in direct relation to the productivity of victim care in lowering accident risk.
    Keywords: Accidents, deterrence, lawsuits, litigation costs, social versus private value
    JEL: K13 K40 K41
    Date: 2008–04
  8. By: Axel Dreher (KOF Swiss Economic Institute, ETH Zurich); Stefan Voigt (MACIE (Marburg Center for Institutional Economics), Marburg, Germany)
    Abstract: This paper analyzes whether nation-state governments can increase their credibility by becoming members of international organizations. Credibility is an important asset because it determines the real interest rate and is expected to have an important impact on investment and growth. It is hypothesized that the degree of delegation to international organizations can improve the credibility of nation-state governments. This hypothesis is tested by introducing three new indicators for international delegation. On the basis of panel data for up to 136 countries and the time period from 1984 to 2004, membership in international organizations is significantly and robustly linked with better credibility, here proxied for by country risk ratings. Two more results stand out: the longer a country has had a high level of membership, the higher its credibility, ceteris paribus; and: the credibility-enhancing effect is strongest in countries whose domestic institutions are weak.
    Keywords: Delegation of Competence, Credibility, Dilemma of the Strong State, International Organizations
    JEL: F02 F21 H11 K33 P26
    Date: 2008–04
  9. By: Bertrand Chopard; Thomas Cortade; Andreea Cosnita
    Abstract: This paper performs a pre-trial settlement analysis for the negotiation of asset divestitures in merger control cases. Taking into account the asymmetric information between the competition agency and the merging firms concerning the true competition impact of the merger, we examine the impact on the likelihood of settlement divestiture and the divestiture amount in equilibrium of various factors, such as the transfer rate of the merger’s cost savings, the severity of the appeal court, as well as the bargaining power of the merging partners in the sale of the divested assets.
    Keywords: out-of-court settlement, merger control, divestitures, asymmetric information
    JEL: K21 L41 D82
    Date: 2008
  10. By: Osipian, Ararat
    Abstract: Higher education in the U.S. may be characterized by complexity and plurality of forms. The Ivy League universities and those trying to replicate them, or so-called “wanna be” universities, coexist with numerous large public institutions, four-year colleges and community colleges. While the former are actively involved in business-driven projects in research and services, the latter are quite distant from these processes. Nevertheless, all of them serve the industries, first of all by training professionals for these industries. In this sense community colleges are not less linked to businesses than major research universities. Curriculum in community colleges is tailored to meet the demands of specific industries and more so often local labor markets. Woshburn (2005) presents the negative sides of the impact of industries on the academia in the book titled University Incorporated: The Corporate Corruption of American Higher Education. This book would be of high interest for policymakers, managers, and theorists. While policymakers, university administrators, and business managers will appreciate good description of forms of cooperation of industries and universities as well as problems that such cooperation creates or exacerbates and some of the prescriptions, offered by the author, theorists will find wealth of material on which to build some concepts and theories of social and ethical responsibility versus commercialization and perhaps even some interesting niches for possible corrupt activities in higher education.
    Keywords: corruption; education; methodology; university
    JEL: K42 I22
    Date: 2007–01–01
  11. By: Osipian, Ararat
    Abstract: Corruption in higher education has long been neglected as an area of research in the US. The processes of decentralization, commoditization, and privatization in higher education rise questions of accountability, transparency, quality, and access. Every nation solves problems of access, quality, and equity differently. Thus, although prosecuting corruption in higher education is part of the legal process in every country, the ways in which legal actions are undertaken differ. This paper addresses the question: How is corruption in higher education understood and defined in legal cases, what particular cases receive more attention, and how these cases correlate with the major educational reforms, changes, and socio-economic context in the nation? Specifically, it analyses records of selected legal cases devoted to corruption in the US higher education. Decentralized financing of higher education anticipates cost sharing based in part on educational loans. The US higher education sector grows steadily, and so do opportunities for abuse, including in educational loans. The rapid expansion of education sector leaves some grey areas in legislation and raises issues of applicability of certain state and federal laws and provisions to different forms of misconduct, including consumer fraud, deception, bribery, embezzlement, etc. Higher Education Act, False Claims Act, and Consumer Protection Act cover corruption as related to the state and the public sector; corruption as related to client, business owner, and an agent; and corruption as related to consumer-business relations. However, the legal frame is simplistic, while the system of interrelations in the higher education industry is rather complex.
    Keywords: bribery; corruption; deception; fraud; higher education; law; loans; US
    JEL: I28 K42 I22
    Date: 2007–11–01
  12. By: Osipian, Ararat
    Abstract: The book Battling Corruption in America’s Public Schools by Segal (2004) is well written, easy to read, very interesting and provocative, and offers to the reader a wealth of detailed information of corrupt cases in the system of public schooling as well as an overview of corrupt practices overall. The major contribution of the book is in its description of corruption and unsuccessful actions to prevent it as well as prescriptions that in the author’s opinion may help fight corruption. This makes the book groundbreaking research in the field of educational corruption, and corruption in public secondary education in particular. However, the book cannot be viewed as a revolutionary work. It is explained first of all by the absence of theoretical and methodological contributions to the interdisciplinary field of corruption, as well as by the lack of sophisticated theoretical lenses and frameworks applied in researching the topic. It is obvious that deeper theoretical developments are needed.
    Keywords: bribery; corruption; education; fraud; methodology
    JEL: K42 I22
    Date: 2007–01–01
  13. By: Osipian, Ararat
    Abstract: Corruption in higher education is a newly emerging topic in the field of education research. There is a phenomenal growth in the number of media reports on corruption in higher education over the last decade. However, the rigorous systematic research on education corruption is virtually nonexistent. This paper considers corruption in higher education as reflected in the world media, including such aspects of corruption as its prevalence, patterns, and dominating forms. It follows publications in the specialized and the non-specialized media outlets in the United States, the United Kingdom, and the Russian Federation. The publications are grouped depending on the particular problem they address. This criterion has been chosen as best addressing the issue of corruption internationally. Socio-economic context of educational reforms and changes in each country leaves its print on major forms of corruption in higher education. The findings help to determine which aspects of corruption in higher education should be given more consideration in the future research and which ones might be prioritized, as well as how the national systems of higher education can be improved.
    Keywords: corruption; higher education; media; Russia; UK; US
    JEL: I23 I21 K42
    Date: 2007–11–15
  14. By: Matteo Rizzolli
    Abstract: Property law usually reacts to encroachments with ejectment. Building encroachments differ, as restoring landowner’s property claims implies the reversal of often large costs sustained by the builder. The authority faces thus the following dilemma: either it stands by the landowner and faces the social costs of undoing significant investments, or it defends the investment of the builder at the cost of neglecting landowner’s claims. To address building encroachments, national property laws have deployed interestingly different remedies that range from a property rule in favor of the landowner to a property rule in favor of the builder with a variety of liability rules in between. The paper models the builder-owner conflict after the theory of optional law (Ayres, 2005), it frames different national solutions into a common analytical setting and it evaluates the different laws in their relative allocative and distributive outcomes. Moreover the paper offers support to the idea that property law may implement put-option types of remedies.
    Keywords: building encroachments, adverse possession, comparative law and economics, property, land law, optional law, property rules, liability rules
    JEL: K11
    Date: 2008–04

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