New Economics Papers
on Law and Economics
Issue of 2009‒03‒07
eleven papers chosen by
Jeong-Joon Lee, Towson University

  1. The Case for Virtual Strike.An Appraisal of the Italian Proposal By Antonio Nicita; Matteo Rizzolli
  2. Long-term Energy Supply Contracts in European Competition Policy: Fuzzy not Crazy By Jean-Michel Glachant; Adrien de Hauteclocque
  3. Predicting Market Power in Wholesale Electricity Markets By David Newbery
  4. Finance and Growth: The Role of Islamic Contracts By Ismail, Abdul Ghafar; Tohirin, Achmad
  5. Judicial Review Litigation as an Incentive to Change in Local Authority Public Services in England & Wales By Platt L; Sunkin M; Calvo K
  6. Crime, Expectations and The Deterrence Hypothesis By Matthew Baker; Niklas J. Westelius
  7. The causal effect of institutional quality on outsourcing By Hein Roelfsema; Yi Zhang
  8. Do the English Legal Origin Countries have more dispersed Share Ownership and more developed financial Systems? By Prabirjit Sarkar
  9. Investor protection and share prices: Evidence from statutory rules governing variations of shareholders’ class rights in Russia By Muravyev, Alexander
  10. The Growing Importance of Risk in Regulation By Ojo, Marianne
  11. Do Legal Origins Affect Education and Labor Market Participation of Women? By Jan, Zilinsky

  1. By: Antonio Nicita (University of Siena); Matteo Rizzolli (University of Milan - Bicocca)
    Abstract: In this paper we outline the economic rationale behind the virtual strike, and workers' incentives to use this bargaining solution rather than resorting to standard strike. We show that, from a welfare perspective, a virtual strike always dominates a standard strike and it would be most needed precisely when workers have weaker incentives to adopt it. We then discuss the pros and cons of legally regulating the virtual strike rather than leaving it to self-regulation. Finally, we apply our findings to the analysis of Italy’s draft legislation on virtual strikes.
    Keywords: stoppage strike, virtual strike, penal code, labor law and economics
    JEL: D74 D78 J52 J83 K31 M55
    Date: 2009–03
  2. By: Jean-Michel Glachant; Adrien de Hauteclocque
    Abstract: Long-term supply contracts often have ambiguous effects on the competitive structure, investment and consumer welfare in the long term. In a context of market building, these effects are likely to be worsened and thus even harder to assess. Since liberalization and especially since the release of the Energy Sector Enquiry in early 2007, the portfolio of long-term supply contracts of the former incumbents have become a priority for review by the European Commission and the national competition authorities. It is widely believed that European Competition authorities take a dogmatic view on these contracts and systemically emphasize the risk of foreclosure over their positive effects on investment and operation. This paper depicts the methodology that has emerged in the recent line of cases and argues that this interpretation is largely misguided. It shows that a multiple-step approach is used to reduce regulation costs and balance anti-competitive effects with potential efficiency gains. However, if an economic approach is now clearly implemented, competition policy is constrained by the procedural aspect of the legal process and the remedies imposed remain open for discussion.
    Keywords: Long-term supply contracts, Competition Policy, European Union
    JEL: K21 L42 L44
    Date: 2009–02–02
  3. By: David Newbery
    Abstract: The traditional measure of market power is the HHI, which gives implausible results given the low elasticity of demand in electricity spot markets, unless it is adapted to take account of contracting. In its place the Residual Supply Index has been proposed as a more suitable index to measure potential market power in electricity markets, notably in California and more recently in the EU Sector Inquiry. The paper investigates its value in identifying the ability of firms to raise prices in an electricity market with contracts and capacity constraints and find that it is most useful for the case of a single dominant supplier, or with a natural extension, for the case of a symmetric oligoply. Estimates from the Sector Inquiry seem to fit this case better than might be expected, but suggests an alternative defintion of the RSI defined over flexible output that should give a more reliable relationship.
    Keywords: Residual Supply Index, Cournot equilibrium, Lerner Index, electricity markets, market power
    JEL: D43 K21 L94
    Date: 2009–02–02
  4. By: Ismail, Abdul Ghafar; Tohirin, Achmad
    Abstract: Although, Islamic law has been in existence for more than fourteen hundred years, but its implementation have been subjected to the willingness of the rulers in the passage of history and civilization. Although, the study on financial contracts has been extensively reviewed, the role of Islamic contracts is not highlighted, except those in the historical institutional and contract theory literatures. The study that link finance and growth takes many dimensions. One of the dimensions is law and finance view. In the beginning, the studies that link the former only look at the finance variables and economic variables. Further development analyses the relationship at the system level, i.e. discussion whether bank-based vs. market-based matters on growth. Islamic finance comes up with its distinctive contracts and products of profit-loss sharing. It may give different character and notion in the financial system in particular and in the economic system in general. This paper is aimed at discussing Islamic laws which are relevant to finance. Most importantly the aspect of contracts as foundation for the distinctive Islamic financial products, i.e. the one resembling profit-loss sharing nature containing cooperative spirit, will be analysed to establish a strong connection with financial stability as pre-requisite to achieve the economic growth.
    Keywords: Islamic law; finance; profit-loss sharing
    JEL: K2 G2 K4
    Date: 2009–02
  5. By: Platt L (Institute for Social and Economic Research); Sunkin M (University of Essex); Calvo K (University of Essex)
    Abstract: In this paper we consider the relationship between levels of judicial review litigation and the quality of local government services. The findings indicate that judicial review may be making a positive contribution to local government in England and Wales. The paper also considers the way local government officials perceive judicial review and argues that reactions cannot be wholly understood in terms of incentives. Judicial review makes a positive contribution to public administration at least partly because it promotes values that are central to the ethos of public administration and assists officials in resolving tensions between individual and collective justice.
    Date: 2009–02–26
  6. By: Matthew Baker (Hunter College); Niklas J. Westelius (Hunter College)
    Abstract: Empirical tests of the deterrence hypothesis - the idea that crime can be deterred through changes in the costs or benefits derived from committing crime - typically focus on estimation of the relationship between current crime rates and contemporaneous measures of economic conditions, demographics, and enforcement levels. We argue this approach is misguided because both past behavior and future conditions should impact decisions to commit a crime in the present. Accordingly, we develop an econometric model of aggregate crime rates that includes past behavior and expectations of future conditions. Model estimates suggest that expectations of future conditions are important in determining current crime rates. One implication of this finding is that the long run elasticity of crime rates with respect to policy variables may be orders of magnitude larger than short run elasticities, and depend upon whether the change is permanent or transitory. A second implication of this finding is that credibility and the ability of policy makers to commit are important in thinking about policies designed to deter crime.
    JEL: K4
    Date: 2009
  7. By: Hein Roelfsema; Yi Zhang
    Abstract: This paper empirically investigates the relationship between institutional quality and outsourcing to developing economies. In contrast to cross-sectional studies on institutions, this paper uses panel data for 76 countries over 25 years (1980-2004). Employing panel data helps to show the causal relationship by controlling for the fixed effects and dynamic factors. Using within and IV estimations, we find that there is a positive effect of institutional quality on outsourcing in the lower-middle income countries. The quality of institutions is not an important determinant of outsourcing to either low or high income countries.
    Keywords: Institutional quality, Outsourcing, Developing countries
    JEL: F15 F23 O19 K11 K12
    Date: 2009–02
  8. By: Prabirjit Sarkar
    Abstract: The essence of the legal origin hypothesis is that a country with an English legal origin provides better investor and creditor protection and experiences greater financial development; financial institutions and stock markets flourish, the general public participate more in financing investment projects of companies and so shareholding is less concentrated. The present paper examines this hypothesis on the basis of a cross-country study of 85 countries. We find no evidence of more dispersed share ownership in the English law countries than in other countries with different legal origins irrespective of whether we adjust for the existence of transitional economies and less developed countries present in the sample. Using three indicators of development of banking and other credit institutions and four indicators of stock market developments, we also find no evidence of more developed financial systems in the English law countries. As expected, there is some evidence of lower financial development in the less developed countries and transitional countries. It is not the English law heritage but the security of persons and goods that appears to explain the cross-country variations in financial development.
    Keywords: Law and finance, legal origins, comparative law, share ownership
    JEL: G32 K22 N20 O16 P50
    Date: 2008–12
  9. By: Muravyev, Alexander
    Abstract: This paper uses a quasi-experimental framework provided by recent changes in Russian corporate law to study the effect of investor protection on the value of shares. The legal change analyzed involves the empowerment of preferred (non-voting) shareholders to veto unfavorable changes in their class rights. Based on a novel hand-collected dataset of dual class stock companies in Russia and using the difference-in-difference estimator, the study finds a statistically and economically significant effect of improved protection of preferred shareholders on the value of their shares. The result is robust to several changes in the empirical specification.
    Keywords: investor protection; company law; dual class stock; class rights; Russia
    JEL: G38 K22 G30
    Date: 2009–01–22
  10. By: Ojo, Marianne
    Abstract: This paper traces the developments that have contributed to the importance of risk in regulation. Not only does it consider theories associated with risk, it also discusses explanations as to why risk has become so important within regulatory and governmental circles. Two forms of risk regulation, namely risk based regulation and meta regulation are considered. As well as considering the application of both in jurisdictions such as the UK, the paper places greater focus in discussing the importance of meta regulation in jurisdictions such as Germany, Italy and the US. The preference for meta regulation is based on the premises, not only of the advantages considered in this paper but also on the application of Basel 11 in several jurisdictions. Whilst meta regulation also has its disadvantages, the impact of risk based regulation on the use of external auditors plays a part in the preference for meta regulation.
    Keywords: meta regulation; enforced self regulation;risk; compliance
    JEL: K2
    Date: 2009–03
  11. By: Jan, Zilinsky
    Abstract: Legal origins, interpreted as "highly persistent systems of social control of economic life" have large economic consequences (La Porta, de Silanes, and Shleifer, 2008). This paper examines whether social outcomes (female education and labor participation in particular) are also influenced by the origin of legal institutions. I use two data sources (and time periods) and two measures of education to verify the suspected link between female labor market participation, education and legal origins. Controlling for average GDP in the last 10 years, barriers to starting a business, corruption, public spending on health and distinct measures of cultural attitudes to women, I find that women tend to participate in the labor market at significantly lower rates in countries with English and French legal origins and at higher rates in countries with the legal system of German origin (although this effect is generally not significant). Girls are more likely to finish primary education in German legal origin countries (and less likely in countries with the English legal origin). Female-to-male literacy ratios are lower in countries where abuse of women is widespread but I find that legal origins are poor predictors of the prevalence of abuse.
    Keywords: female education; labor force; legal origins; institutions
    JEL: O10 K00 J23
    Date: 2009–01

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