New Economics Papers
on Law and Economics
Issue of 2009‒03‒14
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Democracy and reforms By Amin, Mohammad; Djankov, Simeon
  2. Standard Breach Remedies, Quality Thresholds, and Cooperative Investments By Alexander Stremitzer
  3. The Case for Mandatory Ownership Disclosure By Schouten, Michael C.
  4. Judicial Discretion and Sentencing Behavior By Freeborn, Beth; Hartmann, Monica
  5. The Housing Crisis and Bankruptcy Reform: The Prepackaged Chapter 13 Approach By Posner, Eric A; Zingales, Luigi

  1. By: Amin, Mohammad; Djankov, Simeon
    Abstract: The authors use a sample of 147 countries to investigate the link between democracy and reforms. Democracy may be conducive to reforms, because politicians have the incentive to embrace growth-enhancing reforms to win elections. By contrast, authoritarian regimes do not have to worry as much about public opinion and may undertake reforms that are painful in the short run but bring future prosperity. This paper tests these hypotheses, using data on micro-economic reforms from the World Bank's Doing Business database. These data do not suffer the endogeneity issues associated with other datasets on changes in economic institutions. The results provide robust support for the claim that democracy is good for growth-enhancing reforms.
    Keywords: Parliamentary Government,Legal Products,Labor Policies,Public Sector Corruption&Anticorruption Measures,Emerging Markets
    Date: 2009–02–01
  2. By: Alexander Stremitzer
    Abstract: When investments are non-verifiable, inducing cooperative investments with simple contracts may not be as difficult as previously thought. Indeed, modeling “expectation damages” close to legal practice, we show that the default remedy of contract law induces the ?rst best. Yet, in order to lower informational requirements of courts, parties may opt for a "specific performance" regime which grants the breached-against buyer an option to choose "restitution" if the tender’s value falls below some (arbitrarily chosen) quality threshold. In order to implement this regime, no more information needs to be verifiable than is implicitly assumed in Che and Hausch (1999).
    Keywords: breach remedies, incomplete contracts, cooperative investments.
    JEL: K12 L22 J41 C70
    Date: 2008–12
  3. By: Schouten, Michael C.
    Abstract: The use of equity derivatives to conceal economic ownership of shares (“hidden ownership”) is increasingly drawing attention from the financial community, as is the exercise of voting power without corresponding economic interest (“empty voting”). Market participants and commentators have called for expansion of ownership disclosure rules, and policymakers on both sides of the Atlantic are now contemplating how to respond. Yet, in order to design appropriate responses it is key to understand why we have ownership disclosure rules in the first place. This understanding currently appears to be lacking, which may explain why we observe divergent approaches between countries. The case for mandatory ownership disclosure has also received remarkably little attention in the literature, which has focused almost exclusively on mandatory issuer disclosure. Perhaps this is because most people assume that ownership disclosure is a good thing. But why is such information important, and to whom? This paper aims to answer these fundamental questions, using the European disclosure regime as an example. First, the paper identifies two main objectives of ownership disclosure: improving market efficiency and corporate governance. Next, the paper explores the various mechanisms through which ownership disclosure performs these tasks. This sets the stage for an analysis of hidden ownership and empty voting that demonstrates why these phenomena are so problematic.
    Keywords: ownership disclosure; market efficiency; corporate governance; monitoring; hidden ownership; empty voting; hedge fund activism
    JEL: K20 G38 K22 G34 G10 G30
    Date: 2009–03–08
  4. By: Freeborn, Beth; Hartmann, Monica
    Abstract: This research studies the impact of changes to federal judicial discretion on criminal sentencing outcomes. The Feeney Amendment to the 2003 PROTECT Act restricted federal judges’ ability to impose sentences outside of the U.S. Sentencing Guidelines and required appellate courts to review downward departures. Using data on all federal sentences between 1999 and 2004, we examine the effect of the Feeney Amendment on the downward departures rate and prison sentence. We control for type of offense, district of sentencing, criminal history, and demographic characteristics of the offender, in order to isolate the changes in judicial sentencing due to the implementation of the Feeney Amendment. Our results suggest that the Feeney Amendment reduced the probability of a downward departure by 5% and increased prison sentences by two months. There is no evidence that judges adjust sentences in an effort to circumvent the intentions of the Feeney Amendment.
    Keywords: Federal Sentencing Guidelines; criminal justice
    JEL: K40 K14
    Date: 2009–01–10
  5. By: Posner, Eric A; Zingales, Luigi
    Abstract: The housing crisis threatens to destroy hundreds of billions of dollars of value by causing homeowners with negative equity to walk away from their houses. A house in foreclosure is worth 30 to 50 percent less than a house that a homeowner either retains or sells on the market, and a foreclosed house damages neighboring property values as well. We advocate a reform of Chapter 13 that would allow homeowners to strip down the value of their mortgages in a prepackaged bankruptcy. Such a plan would give homeowners an incentive to keep or resell their homes, thus reducing the market value loss of homes while protecting the effective value of creditors’ interests. Two further key elements of the plan are that it uses prices based on the average house price in a particular ZIP code, which reduces moral hazard; and it is automated, requiring only a rubber stamp by a bankruptcy judge or other official, thus preserving judicial resources. Other plans, including that of the Obama administration, are compared.
    Keywords: bankruptcy; chapter 13; housing
    JEL: K35
    Date: 2009–03

This issue is ©2009 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.