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on Law and Economics |
| By: | Massenot Baptiste |
| Abstract: | This paper introduces a model of litigation in a growth framework. Investors use litigation to enforce their financial contracts with entrepreneurs. A contest ensues in which both agents hire lawyers to increase their probability of winning the trial. The issue and the cost of the contest determine how much investors are willing to lend. More lawyers are hired when judicial efficiency is lower and damages are higher. Higher judicial efficiency and tighter restrictions on the supply of lawyers benefit the economy, while the impact of higher damages is ambiguous. Some empirical evidence is also presented. |
| Keywords: | contract enforcement; litigation; lawyers; economic development |
| JEL: | K41 O16 |
| Date: | 2010–12 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:10.14&r=law |
| By: | Massenot Baptiste |
| Abstract: | This paper analyzes how the adversarial and inquisitorial evidence collection procedures affect financial development. In investigating the true returns of insolvent entrepreneurs, the adversarial procedure relies on lawyers whereas the inquisitorial procedure relies on judges. Investors are willing to lend more in adversarial than in inquisitorial legal systems if they are richer than entrepreneurs or if lawyers are more productive than judges. Manipulation of evidence by lawyers has an ambiguous impact on finance. The empirical evidence shows that a more inquisitorial procedure is associated with less developed financial markets. |
| Keywords: | adversarial; inquisitorial; financial development; legal origins |
| JEL: | K41 O16 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:10.13&r=law |
| By: | Waters, James |
| Abstract: | This paper adds to the literature on the Sarbanes-Oxley Act's net effects by looking at whether its passage was associated with a change in innovation and patenting. Its effects are separated into temporary uncertainty and changes in long term investment incentives in a dynamic programming problem faced by innovators who learn over time about SOX's effect. Innovation is found to fall under uncertainty for potential losses that are low relative to the potential profits. As companies learn, innovation rates readjust to SOX's long term persistent effect. We examine US patenting in stem cell technologies from 2001 to 2009 for SOX related changes. To reduce the dependence of our estimates on timing assumptions, we look for changes over the whole period. We firstly use a rolling break test with a single break point with Monte Carlo correction to p-values for search process endogeneity and MLE bias. Secondly, we run a hidden Markov model allowing for multiple states in the patent process and transitions between the states. We find a large and statistically significant change at a date consistent with a SOX effect under both testing methods. A three state hidden Markov model finds subsequent correction consistent with the theoretical model. Four competing explanations are found to account incompletely for the observed data. |
| Keywords: | Sarbanes-Oxley; investment; innovation; patents |
| JEL: | K2 O31 D92 |
| Date: | 2011–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:28072&r=law |