New Economics Papers
on Law and Economics
Issue of 2009‒09‒19
six papers chosen by
Jeong-Joon Lee, Towson University

  1. Economic Growth, Law and Corruption: Evidence from India By Sambit Bhattacharyya; Raghbendra Jha
  2. Attempts to Dodge Drowning in Data. Rule- and Risk-Based Anti Money Laundering Policies Compared By Brigitte Unger; Frans van Waarden
  3. Earnings Inequality and Coordination Costs: Evidence from U.S. Law Firms By Luis Garicano; Thomas Hubbard
  4. Property Rights and EconomicDevelopment By Timothy Besley; Maitreesh Ghatak
  5. What Discourages Participation in the Lay Judge System (Saiban’in Seido) of Japan? Interaction between the Secrecy Requirement and Social Networks. By Yamamura, Eiji
  6. The role of the IASB and auditing standards in the aftermath of the 2008/2009 Financial Crisis By Ojo, Marianne

  1. By: Sambit Bhattacharyya; Raghbendra Jha
    Abstract: In Is corruption influenced by economic growth? Are legal institutions such as the ‘Right to Information Act (RTI) 2005’ in India effective in curbing corruption? Using a novel panel dataset covering 20 Indian states and the periods 2005 and 2008 we estimate the causal effects of economic growth and law on corruption. To tackle endogeneity concerns we use forest share to total land area as an instrument for economic growth. We notice that forest share is a positive predictor of growth. This is in line with the view that forestry contributes positively to economic growth. To capture the effect of law on corruption we use the ‘difference-in-difference’ estimation method. Our results indicate that economic growth reduces overall corruption as well as corruption in banking, land administration, education, electricity, and hospitals. Growth however has little impact on corruption perception. In contrast the RTI Act reduces both corruption experience and corruption perception. Our basic result holds after controlling for state fixed effects and various additional covariates. It is also robust to alternative instruments and outlier sensitivity tests.
    Keywords: Economic Growth; Law; Corruption
    JEL: D7 H0 K4 O1
    Date: 2009
  2. By: Brigitte Unger; Frans van Waarden
    Abstract: Both in the US and in Europe anti money laundering policy switched from a rule- to a risk-based reporting system in order to avoid over-reporting by the private sector. However, reporting increased in most countries, while the quality of information decreased. Governments drowned in data because private agents feared sanctions for not reporting. This ``crying wolf'' problem. (Takats 2007) did not happen in the Netherlands, where the number of reports diminished but information quality improved. Reasons for this can be found in differences in legal institutions and legal culture, notably the contrast between US adversarial legalism and Dutch cooperative informalism. The established legal systems also provide for resistance to change. Thus lowering sanctions in order to reduce over-reporting may not be a realistic option in a legal system which traditionally uses deterrence by fierce criminal and private legal sanctions. Furthermore, a risk-based approach may not be sustainable in the long run, as litigation may eventually replace a risk-based approach again by a rule-based one, now with precise rules set by the courts.
    Keywords: money laundering, anti money laundering policy, risk based regulation, rules, standards, comparison of legal systems, tort law
    JEL: K00 K13 K14 K20 K41 H41 L51
    Date: 2009–08
  3. By: Luis Garicano; Thomas Hubbard
    Abstract: Earnings inequality has increased substantially since the 1970s. Using evidence from confidential Census data on U.S. law offices on lawyers’ organization and earnings, we study the extent to which the mechanism suggested by Lucas (1978) and Rosen (1982), a scale of operations effect linking spans of control and earnings inequality, is responsible for increases in inequality. We first show that earnings inequality among lawyers increased substantially between 1977 and 1992, and that the distribution of partner-associate ratios across offices changed in ways consistent with the hypothesis that coordination costs fell during this period. We then propose a “hierarchical production function” in which output is the product of skill and time and estimate its parameters, applying insights from the equilibrium assignment literature. We find that coordination costs fell broadly and steadily during this period, so that hiring one’s first associate leveraged a partner’s skill by about 30% more in 1992 than 1977. We find also that changes in lawyers’ hierarchical organization account for about 2/3 of the increase in earnings inequality among lawyers in the upper tail, but a much smaller share of the increase in inequality between lawyers in the upper tail and other lawyers. These findings indicate that new organizational efficiencies potentially explain increases in inequality, especially among individuals toward the top of the earnings distribution.
    Date: 2009–09
  4. By: Timothy Besley; Maitreesh Ghatak
    Abstract: This chapter develops a unified analytical framework, drawing on and extending theexisting literature on the subject, for studying the role of property rights in economicdevelopment. It addresses two fundamental and related questions concerning therelationship between property rights and economic activity. (i) What are themechanisms through which property rights affect economic activity? (ii) What arethe determinants of property rights? In answering these, it surveys some of the mainempirical and theoretical ideas from the extensive literature on the topic.
    Keywords: Property rights, Economic development.
    JEL: K11 O17 P14
    Date: 2009–02
  5. By: Yamamura, Eiji
    Abstract: The lay judge system, a quasi-jury system, was introduced in Japan from May 2009. This paper attempts to analyze Japanese people’s attitude towards this system by examining whether they show a willingness to serve as a lay judge. The major findings from regression analysis are: (1) In general, people with a spouse inclined to adopt a negative attitude about serving as a lay judge. This tendency is, however, not observed in large cities. (2) Long-time residents and homeowners are more likely to have a negative attitude about serving as a lay judge. These results show that a tightly knitted interpersonal social network discourages people from serving as a lay judge. Because of the life time secrecy obligation and the penalty provisions for those who break this obligation, people with closer interpersonal ties are under greater pressure and strains, leading to larger psychological cost. The obligation and its penalty should be eased to improve people’s attitudes about serving as a lay judge.
    Keywords: Lay judge system; Social network; Secrecy requirement
    JEL: K40 K23 I28
    Date: 2009–09–08
  6. By: Ojo, Marianne
    Abstract: This paper considers areas in which the regulation and enforcement of accounting standards, and auditing standards in particular, have contributed to the recent global financial crisis. As well as the impact of such standards on pro cyclicality, the level of success achieved by international standard setters such as the Basel Committee for Banking Supervisors, relates to how effectively the accounting and audit standard setting is implemented. Collaboration between authorities such as CESR (Committee of European Securities Regulators), CEBS (Committee of European Banking Supervisors), and CEIOPS (Committee of European Insurance and Occupation Pensions Supervisors), as identified by the Report of the High Level Group on Financial Supervision in the EU, is also vital in determining how far the IASB is able to achieve its goals. As well as identifying the importance of convergence in contributing towards high quality audits and the consistent application of auditing and accounting standards, this paper also acknowledges the difficulties and challenges encountered in attempting to achieve a convergent framework. Furthermore, through a discussion of recommendations aimed at consolidating transparency and accounting, as proposed by the G20, ways in which accounting standards, and consequently the IASB, could contribute further to the improvement of transparency and accountability of the framework for fair value measurements and evaluation, are considered. However some factors still present sources of obstacles to the IASB’s attempts to realise the proposals put forward by the G20. This paper not only attempts to address such factors, but also to suggest ways in which the IASB, to an extent, could realise its goals. The IASB at present, has no enforcement mechanism. Enforcement actions are carried out at national level in various EU member states. Through a consideration of two enforcement regimes in Europe, namely, Germany and the UK, two related standards which govern enforcement in Europe, principles on which harmonisation of the institutional oversight systems in Europe may be achieved , and the vital contribution made by CESR and EFRAG (the European Financial Reporting Advisory Group), this paper will consider how enforcement could be implemented by the IASB at European level. Enforcement at European level is also important having regards to results of the peer review, which was carried out by CESR’s peer pressure group, the Review Panel, in July 2009.
    Keywords: regulation; auditors; standards; IASB; EFRAG; 2008/09 Financial Crisis
    JEL: K2 E0 G3 M4
    Date: 2009–09–07

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