New Economics Papers
on Law and Economics
Issue of 2009‒07‒11
ten papers chosen by
Jeong-Joon Lee, Towson University

  1. Signaling, Learning and Screening Prior to Trial: A Theory of Preliminary Injunctions By Thomas D. Jeitschko; Byung-Cheol Kim
  2. The Economic Costs of Court Decisions Concerning Dismissals in Japan: Identification by Judge Transfers By Hiroko Okudaira
  3. When No Law is Better than a Good Law By Bhattacharya, Uptal; Daouk, Hazem
  4. Punishment – and beyond By Bruno S. Frey
  5. Legal Innovation in European Contract Law: Within and Beyond the (Draft) Common Frame of Reference By Florian Möslein
  6. Civil society and EU constitution-making: Towards a European social constituency? By Hans-Jörg Trenz, Nadine Bernhard; Erik Jentges
  7. Regional federalisation with a cosmopolitan intent By Kjartan Koch Mikalsen
  8. European citizenship after Martinez Sala and Baumbast: Has European law become more human but less social? By Agustín José Menéndez
  9. The Culture of Fear and Control in Costa Rica (I): Crime Statistics and Law Enforcement By Sebastian Huhn
  10. The role of external auditors in corporate governance: agency problems and the management of risk By Ojo, Marianne

  1. By: Thomas D. Jeitschko (Department of Economics, Michigan State University); Byung-Cheol Kim (School of Economics, Georgia Institute of Technology)
    Abstract: The decision to request a preliminary injunction-a court order that bans a party from certain behavior until its lawfulness is ascertained in a final court ruling at trial-is an important litigation instrument in many areas of the law including antitrust, copyright, patents, trademarks, employment and labor relations as well as contracts. The process of filing for a preliminary injunction and the court's ruling on such a request generates information that can affect possible settlement decisions. We consider these implications when there is uncertainty about both the plaintiff’s damages as well as the merits of case in the eyes of the court. Both plaintiff and defendant revise their beliefs about the case strength in dispute once they observe the court's ruling on preliminary injunctive relief. We study how such learning affects the likelihood of settlement. A precursor to this analysis is the study of the strategic role of preliminary injunctions as a means to signal the plaintiff's willingness to settle.
    Keywords: preliminary injunction, learning, signaling, screening, litigation, settlement.
    JEL: D8 K21 K41 K42
    Date: 2009–06
  2. By: Hiroko Okudaira
    Abstract: The goal of this paper is to detect the degree to which court decisions control the stringency of employment protection and to investigate how such judicial discretion affects labor market performance. However, identification difficulty arises because court decisions are volatile against economic and social conditions. This paper overcomes the endogeneity problem by exploiting the triennial judge transfer system in Japan, or the exogenous allocation of judges to prefectures. A key finding is that the prefecture employment rate is reduced by approximately 1.4% if a prefecture receives more pro-worker judgments than pro-employer ones in a given year.
    Date: 2009–03
  3. By: Bhattacharya, Uptal; Daouk, Hazem
    Abstract: This paper argues, both theoretically and empirically, that sometimes no securities law may be better than a good securities law that is not enforced. The first part of the paper formalizes the sufficient conditions under which this happens for any law. The second part of the paper shows that a specific securities law - the law prohibiting insider trading - may satisfy these conditions. The third part of the paper takes this prediction to the data. We find that the cost of equity actually rises when some countries enact an insider trading law, but do not enforce it.
    Keywords: insider trading, cost of capital, emerging markets, securities law, enforcement, International Development, G15, G18, K22, K42,
    Date: 2009–06–16
  4. By: Bruno S. Frey
    Abstract: This paper argues that the “Economics of Crime” concentrates too much on punishment as a policy to fight crime, which is unwise for several reasons. There are important instances in which punishment simply cannot reduce crime. Several feasible alternatives to punishment exist, such as offering positive incentives or handing out awards for law abiding behavior. These alternative approaches tend to create a positive sum environment. When people appreciate living in a society that is to a large extent law abiding, they are more motivated to observe the law.
    Keywords: Crime, Punishment, Incentives, Motivation, Framing, Broken Window Theory
    JEL: K42 O31
    Date: 2009–06
  5. By: Florian Möslein
    Abstract: The Europeanization of contract law has continuously developed over the past 25 years. It is now at a defining stage, with the Draft Common Frame of Reference (DCFR) recently being published. This article is not primarily concerned with the substance of this instrument, but with the process of legal innovation it might trigger. The hypothesis is that the adoption of such a rulebook will have a significant impact on the future development of European contract law. Yet the nature and likely effects of such impact are difficult to predict, given that functions, elements and purposes of the new instrument still need to be identified and defined. In any event, the DCFR will modify the pattern of future legal change in European contract law. The crucial question is: Will it provide a dynamic framework for legal innovation?
    Keywords: European law; Europeanization; acquis communautaire; comparative law
    Date: 2009–02–15
  6. By: Hans-Jörg Trenz, Nadine Bernhard; Erik Jentges
    Abstract: The EU constitutional process has ascribed a new role to civil society not only as a partner in governance but also as a constituent of the emerging EU polity. Civil society appears in this process primarily as the structure of voice that is articulated in relation to EU governance and that claims to represent European citizens. The article proposes an analytical framework and a methodology of how to analyze civil society as ‘social constituency’. The research agenda is linked to the intermediary and the representative function of organised civil society as a transmission belt of legitimatory discourse on the EU. In order to reconstruct how interests, identities and normative ideas relating to the legitimacy of an EU constitutional order are contested within national politics, our research draws on a survey of German civil society organisations in three sectors: a) consumer interest organisations, b) churches and religious organisations, and c) gender equality groups.
    Keywords: civil society; constitution building; discourse; Germany; governance; legitimacy; polity building; treaty reform
    Date: 2009–06–15
  7. By: Kjartan Koch Mikalsen
    Abstract: This paper deals with the issue of institutionalising a legal pacifistic international order. While Kant’s idea of perpetual peace serves as the point of departure, it is argued that in order to find a proper institutional arrangement one would have to look beyond the two notions found in Kant: the voluntary federation and the world state. In line with proponents of the world state, the author argues that the federative model is not only inconsistent with the idea of an international civil condition, but also is inadequate in empirical terms. At the same time, strong reasons can be raised against various world state conceptions. Against David Held’s idea of a ‘cosmopolitan democratic community’ it is argued that a world state could not become a relevant arena for democratic politics due to the lack of a robust civic solidarity at the global level. When it comes to more moderate ideas of world government, such as Otfried Höffe’s ‘minimal world state’, the traditional problem of despotism is held up, although in an untraditional way. Less than being a problem related to size, it is a problem related to the fact that a world state would have no external borders. Furthermore, it is argued that the conceptually necessary connection which often is said to exist between the state and any legal order relies on a misleading comparison of anarchic international relations with the original state of nature, conceived of, not as a hypothetical, but as an empirical condition. In so far as the so-called theorem of an international state of nature does not hold, it is argued, in line with Jürgen Habermas, that a peaceful international law-based order coherently can be envisaged as a non-state multi-level system. However, in order live up to the basic principles of Kant’s (liberal) republicanism, such a multi-levelled world order requires that regional unions like the EU and others, evolve into federal states.
    Keywords: democracy; European law; federalism; globalization; governance; institutions; international regimes; multilevel governance; supranationalism
    Date: 2009–06–15
  8. By: Agustín José Menéndez
    Abstract: Martínez Sala and Bambaust have become the leading cases on free movement of persons in Community law. It has become standard to see both rulings as heralding a ‘civic’ turn of European integration, by expanding the personal scope of the freedom of personal movement from workers to citizens, and thus redefining the value basis of the law of the European Union. This would prove again the emancipatory potential of Community law, closely related to its redrawing the economic and political boundaries of Europe, and getting rid of discriminatory obstacles in the way of citizens’ freedom. This paper contests this interpretation. It shows why Martínez Sala and Baumbast are not epochal judgments, but logical extensions of the pre-Maastricht case of the Court. Furthermore, it reveals why and how Martínez Sala and Baumbast have radicalised the processes of Europeanisation of what used to be exclusive national competences, and the judicialisation of decision-making processes where representative institutions used to have the exclusive word. This has rather negative consequences, both in terms of the democratic legitimacy of the Union and the distributive consequences of Community law. European law may have become more humane only at the expense of its being less social, to the extent it imports a non-solidaristic logic into provinces of the legal system before sheltered from economic pressure, and may end up forcing a social retrenchment. The market citizen has not been overcome, but has only been dressed in political clothes.
    Keywords: acquis communautaire; directives; Europeanization; European citizenship; European law; immigration policy; Social Charter; social democracy; social policy; social regulation
    Date: 2009–06–15
  9. By: Sebastian Huhn (GIGA Institute of Latin American Studies)
    Abstract: The Costa Rican talk of crime is fundamentally based on the assumption that crime rates have increased significantly in recent years and that there is today a vast and alarming amount of crime. On the basis of this assumption, fear of crime, the call for the “iron fist,” and drastic law enforcement actions are continually increasing. While crime statistics are the logical basis for the hypothesis on the far-reaching extent of delinquency, they are used in a problematic way in the talk of crime. In this paper I discuss Costa Rican crime statis-tics, their development, and their utilization in the talk of crime against the background of criminological theory. The theses of the paper are that a) the informative value of crime statistics regarding Costa Rican reality is far more questionable than the common utiliza-tion of them implies and b) when they are used as argumentation, these crime statistics do not provide evidence of the oft-proclaimed rising crime wave.
    Keywords: Costa Rica, violence, crime, social order, crime statistics, public discourse
    Date: 2009–07
  10. By: Ojo, Marianne
    Abstract: This paper not only recommends means whereby principal-agent problems could be addressed, but also considers various ways in which the external auditor and audit committees contribute as corporate governance tools. The impact of bank regulations on risk taking and the need for a consideration of ownership structures are amongst other issues which are considered. In acknowledging the issues raised by ownership structures, it considers theories such as the banking theory and corporate governance theory. It also considers other alternatives whereby risk taking could be controlled. In recommending the external auditor’s expertise to address principal agent problems, it draws attention to the audit committee’s roles, both as a vital and complementary corporate governance tool, and also considers recurring problems which still persist with some financial reporting standards. It also highlights the importance of measures which need to be in place if the external auditor’s contribution to corporate governance is to be maximised.
    Keywords: agency; theory; external; auditor; banking; regulation; risk
    JEL: K2 D21 G3 G0 A10 M4
    Date: 2009–07–06

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