New Economics Papers
on Law and Economics
Issue of 2011‒01‒03
four papers chosen by
Jeong-Joon Lee, Towson University

  1. Risk allocation and incentives for private contractors: an analysis of Italian project financing contracts By Rosalba Cori; Cristina Giorgiantonio; Ilaria Paradisi
  2. Determinants of Noneconomic Damages in Medical Malpractice Settlements and Litigations: Evidence from Texas since 1988 By Jun Zhou
  3. Preparing for Basel IV: why liquidity risks still present a challenge to regulators in prudential supervision By Ojo, Marianne
  4. The Structure of Enterprise Law: Interrelationships among contracts, markets, and laws in the bargaining structure of the firm By SHISHIDO Zenichi

  1. By: Rosalba Cori (Presidenza del Consiglio dei Ministri); Cristina Giorgiantonio (Bank of Italy); Ilaria Paradisi (Presidenza del Consiglio dei Ministri)
    Abstract: Based on the economic literature and international comparison, the paper examines the adequacy of the terms of Italian project financing contracts to build and operate public works, and identifies potential areas for improvement. We analyze the main contractual content of the public works construction and management concessions submitted to the Project Financing Technical Unit with a view to monitoring public-private contract partnerships. Overall, the analysis reveals the backwardness of the Italian system and the existence of not insignificant problem areas. The survey supports the need to foster adequate standardization of contracts in Italy aimed, in particular, at ensuring: i) the provision of more appropriate mechanisms for the employment of penalties for breach of contract by the concessionaire, especially in the management phase, and – conversely – of reward mechanisms; ii) the inclusion of clauses relative to the sharing of financing documents by the contracting authorities; iii) appropriate attention to the quantitative elements of the business plan; and iv) the strengthening of supervisory activity of the grantor during the various phases of the contract.
    Keywords: project financing, regulation, risk allocation
    JEL: K12 D86 H83
    Date: 2010–12
  2. By: Jun Zhou (Wirtschaftspolitische Abteilung, University of Bonn)
    Abstract: There have long been claims that compensations for noneconomic damages are random because tort law does not provide clear guidance regarding these compensations. I investigate, in both settled and tried medical malpractice cases, whether noneconomic damage payments are arbitrary and what determines the probability and size of these payments. I find that payments for noneconomic damages are not completely random. They vary, in predictable ways, with observable characteristics of the case. The data suggest similar patterns in non-medical malpractice cases. I end by discussing the implications of my findings for the debate on the efficiency and rationale of noneconomic damage compensation.
    JEL: K13 K32 K41
    Date: 2010–12
  3. By: Ojo, Marianne
    Abstract: This paper considers and assesses various explanations attributed as principal factors of the recent Financial Crisis. In particular, it focuses on two principal regulatory tools which constitute the basis of the framework promulgated by recent Basel Committee's initiatives, that is, Basel III. These two regulatory tools being capital and liquidity requirements. Various conclusions have been put forward to explain what triggered the recent Financial Crisis. This paper aims to explain why the Basel Committee's liquidity requirements and present proposals aimed at addressing liquidity risks, still represent a very modest milestone in efforts aimed at addressing challenges in prudential regulation and supervision. Even though problems attributed to capital adequacy requirements are considered by many authorities to have triggered the recent Crisis, the paper will highlight how runs on banks are triggered by liquidity crises and that liquidity risks cannot be isolated from systemic risks. In so doing, it will incorporate the roles assumed by information asymmetries and market based regulation – hence elaborate on how market based regulation could serve to address problems which trigger liquidity risks. Imperfect knowledge being a factor which is contributory to liquidity crises and bank runs, and market based regulation being essential in facilitating disclosure - since the Basel Committee's focus on banks and prudential supervision cannot on its own, address the challenges encountered in the present regulatory environment. Furthermore, it will address measures and proposals which could serve as bases for future regulatory reforms - as well as criticisms and challenges still encountered by recent Basel Committee initiatives.
    Keywords: capital; liquidity; Basel III; Basel Committee; lender of last resort; banks; insurance; securities; information asymmetry; market based regulation; bail outs; disclosure; moral hazard; Dodd Frank Act; Financial Crisis
    JEL: K2 E52 D8
    Date: 2010–12–22
  4. By: SHISHIDO Zenichi
    Abstract: The firm is an ongoing joint project requiring both financial and human capital. Like other joint projects, the firm cannot maximize added value without achieving an efficient incentive bargain among the indispensable capital providers, i.e., shareholders and creditors as the monetary capital providers, and management and employees as the human capital providers. To stimulate efficient incentive bargaining at the firm level and, consequently, to enhance the efficiency of the whole economy, I will propose a new concept, the “enterprise law,” and define it as any law which will affect the incentive bargaining of the firm. We will draw the whole picture of incentive bargaining at the firm by focusing on the interrelationships and complementarities among contracts, markets, and laws; thereafter we will present some legislative policy implications.
    Date: 2010–12

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