New Economics Papers
on Law and Economics
Issue of 2008‒07‒20
eleven papers chosen by
Jeong-Joon Lee, Towson University

  2. Common Law and Civil Law as Pro-Market Adaptations By Benito Arruñada; Veneta Andonova
  3. The Institutional Approach in the Economic Thought of Carlo Cattaneo By Maurizio Mistri
  4. Power over Prosecutors Corrupts Politicians: Cross Country Evidence Using a New Indicator By Anne van Aaken; Lars P. Feld; Stefan Voigt
  5. A Note on Competing Merger Simulation Models in Antitrust Cases: Can the Best Be Identified? By Oliver Budzinski
  6. Crime, Poverty and Police Corruption in Developing Countries By Jens Chr. Andvig; Odd-Helge Fjeldstad
  7. A European Perspective on Recent Trends in U.S. Climate Policy By Moslener, Ulf; Sturm, Bodo
  8. Disclosure Quality, Cost of Capital, and Investors’ Welfare By Gao, Pingyang
  9. Keynesian Beauty Contest, Accounting Disclosure, and Market Efficiency By Gao, Pingyang
  11. Variable Probabilities of Suit and Liability Rules By Sébastien ROUILLON (GREThA)

  1. By: Robert Howse
    Abstract: The concept of “odious debt” regroups a set of equitable considerations that have often been raised in the context of political transitions. This paper explores the grounds of the “odious debt” concept in international law and points out that obligation to repay debt has never been accepted as absolute, and has been frequently qualified by a range of equitable considerations, some of which may be regrouped under the concept of “odiousness.” Due to the complexity and variety of transitional contexts, there is no single legal forum for the adjudication or settlement of claims of odiousness. Depending on context, such claims might appropriately be raised in bilateral or multilateral negotiations, or they could be adjudicated in domestic litigation. However, invocation of the concept of odious debt in multiple forums risks inconsistent decisions. Thus, the examination of considerations of odiousness by a single special transitional tribunal may be an attractive solution.
    Date: 2007
  2. By: Benito Arruñada; Veneta Andonova
    Abstract: We argue that in the development of the Western legal system, cognitive departures are the main determinant of the optimal degree of judicial rule-making. Judicial discretion, seen here as the main distinguishing feature between both legal systems, is introduced in civil law jurisdictions to protect, rather than to limit, freedom of contract against potential judicial backlash. Such protection was unnecessary in common law countries, where free-market relations enjoyed safer judicial ground mainly due to their relatively gradual evolution, their reliance on practitioners as judges, and the earlier development of institutional checks and balances that supported private property rights. In our framework, differences in costs and benefits associated with self-interest and lack of information require a cognitive failure to be active.
    Keywords: Legal systems, judiciary, institutional development, behavior, enforcement
    JEL: K40 N40 O10
    Date: 2008–06
  3. By: Maurizio Mistri (University of Padua)
    Abstract: This paper analyzes the contributions to political economy of Carlo Cattaneo as an ante litteram institutionalist scholar. Carlo Cattaneo has been an original thinker with a polyhedricity of cultural interests. From a point of view of political economy, we can say that Cattaneo was influenced by the concept of sociality. He studied the human action framed in his social and relational dimensions. Cattaneo was aware that the development of society needed to be seen as the result of complex interactive and often conflicting forces. Carlo Cattaneo has been interested in forces that generate change in social and economic structures. One of these forces is the human intelligence -to day we say knowledge- which is at basis of his value theory. Another important force is the action of the enterpreneurs, who are the engines of economic progress. Cattaneo devoted a particulr attention to links between law and economic activities. In the paper the role of laws on economic trajectories is discussed, with a special attention to the effects of Israeli interdictions.
    Keywords: technological change, institutions, knowledge
    JEL: D83 K2
    Date: 2008–07
  4. By: Anne van Aaken; Lars P. Feld; Stefan Voigt (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: It is hypothesized that prosecution agencies that are dependent on the executive have less incentives to prosecute crimes committed by government members which, in turn, increases their incentives to commit such crimes. Here, this hypothesis is put to an empirical test focusing on a particular kind of crime, namely corruption. In order to test it, it was necessary to create an indicator measuring de jure as well as de facto independence of the prosecution agencies. The regressions show that de facto independence of prosecution agencies robustly reduces corruption of officials.
    Keywords: Corruption, Prosecution Agencies, Judicial Independence and Positive Constitutional Economics
    JEL: H11 K40 K42
    Date: 2008
  5. By: Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: Advanced economic instruments like simulation models are enjoying an increased popularity in practical antitrust. There is hope that they – being quantitative predictive economic evidence – can substitute for qualitative structural analysis and lead to unambiguous results. This paper demonstrates that it can be theoretically impossible to identify the most appropriate simulation model for any given merger proposal. Due to the inevitable necessity to reduce real-world complexity and multi-parameter character of merger cases, the comparative fit of proposed merger simulation models with mutually incompatible predictions can be the same. This is valid even if an ideal antitrust procedure is assumed. This insight is important regarding two aspects. First, the scope for partisan economic evidence cannot be completely eroded in merger control. Second, simulation cannot eliminate or substitute for qualitative reasoning and economically informed common sense.
    Keywords: merger simulation, merger control, antitrust, economic evidence
    JEL: L40 C15 K21 A11
    Date: 2008
  6. By: Jens Chr. Andvig; Odd-Helge Fjeldstad
    Abstract: Crime and the fear of being hit by crime and small-scale violence are key economic and social problems in most developing countries, not least felt strongly by the poor. Extensive corruption in the police, experienced or perceived, contributes seriously to the problem. A key question raised in the paper is: How is police corruption linked to the wider processes of development - including crime, violence and poverty? The paper examines (i) how and why corruption may arise in the daily routines of the police and whether it may have impacts on crime rates; (ii) empirical indications of whether the police may be more corrupt than other groups of public officials; (iii) how and why police corruption may vary across countries; and (iv) the wider impacts of police corruption on development
    Keywords: Corruption Crime Police Poverty JEL classification: D73, K42, O17
    Date: 2008
  7. By: Moslener, Ulf; Sturm, Bodo
    Abstract: Without participation of the United States, the world’s largest emitter of greenhouse gases, mitigation of global climate change seems hardly conceivable. Despite the U.S. rejection of the Kyoto Protocol and the reluctance of the Bush administration to engage in Post-Kyoto negotiations, recent developments suggest that the U.S. position towards climate policy might change in the medium run. This study provides an overview on current trends in U.S. climate policy. Besides the main elements of national climate policy proposals and state-level initiatives the climate contents in the U.S. presidential candidates’ agendas are outlined. Based on this overview recent trends in U.S. climate policy are related to the European approach to combat climate change. Furthermore, we elaborate on the aspects which may be important for Europe to design its own domestic and international climate policy in order to achieve the long-term goal of stabilizing greenhouse gas concentrations.
    Keywords: environmental regulation, climate policy, emissions trading
    JEL: H73 K32 N50 Q58
    Date: 2008
  8. By: Gao, Pingyang
    Abstract: It is widely believed that disclosure quality improves investors’ welfare by reducing cost of capital in a competitive market. This paper examines this conventional wisdom by studying a production economy in which disclosure influences a firm’s investment decisions. I demonstrate three points. First, cost of capital could increase with disclosure quality when new investment is sufficiently elastic. Second, there are plausible conditions under which disclosure quality reduces the welfare of current and/or new investors. Finally, cost of capital is not a sufficient statistic for the effects of disclosure quality on the welfare of either current or new investors. These results may help interpret the mixed empirical findings on the relation between disclosure quality and cost of capital, inform the empirical efforts to measure the economic consequences of accounting disclosure, and add to the ongoing debate on the reform of financial reporting and disclosure regulation.
    Keywords: Cost of Capital; Disclosure;Welfare; Real Effect
    JEL: K2 G2 M4
    Date: 2008–01
  9. By: Gao, Pingyang
    Abstract: This paper examines the market efficiency consequences of accounting disclosure in the context of stock markets as a Keynesian beauty contest, an influential metaphor originally proposed by Keynes (1936) and recently formalized by Allen, Morris, and Shin (2006). In such markets, public information plays an additional commonality role, biasing stock prices away from the consensus fundamental value toward public information. Despite this bias, I demonstrate that provisions of public information always drive stock prices closer to the fundamental value. Hence, as a main source of public information, accounting disclosure enhances market efficiency, and transparency should not be compromised on grounds of the Keynesian-beauty-contest effect.
    Keywords: Keynesian Beauty Contest; Public Information; Coordination; Market Efficiency
    JEL: K2 M4 E3
    Date: 2007–06
    Abstract: The aim of this study is to confirm empirically the implications of the theory about the law-finance-growth nexus. In order to verify the predictions of the theory, a panel data including three different types of data is used. All the data are referred to Italian provinces. The empirical analysis shows that between firms’ growth and financial development there is a first-order relationship, while between firms’ growth and legal enforcement as measured by the efficiency of the judicial system there is a second-order relationship.
    Keywords: enforcement; judicial efficiency; financial development; firm’s growth
    JEL: G20 K4
    Date: 2008
  11. By: Sébastien ROUILLON (GREThA)
    Abstract: This note provides an additional argument in favour of the use of a negligence rule in tort law. When the probability of suit varies among injurers and is not observable by the judge, the judge will fail to implement the socially optimal level of care using a strict liability rule (for this implies to set damages equal to harm multiplied by the inverse of the probability of suit). However, he can still implement it using a negligence rule, subject to the condition that he chooses the negligence standard properly (for if damages are set large enough, potential injurers will comply with the standard, regardless their probability of suit).
    Keywords: Liability, asymmetric information
    JEL: D82 K13
    Date: 2008

This issue is ©2008 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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