New Economics Papers
on Law and Economics
Issue of 2011‒02‒05
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Personal Bankruptcy Law, Wealth and Entrepreneurship: Theory and Evidence from the Introduction of a "Fresh Start" By Frank M. Fossen
  2. Anti-piracy policy and quality differential in markets for information goods By Francisco Martínez-Sánchez; Javier M. López Cuñat
  3. Global Justice By Risse, Mathias
  4. The Impact of Improving Access to Justice on Conflict Resolution: Evidence from Peru By Yuri Suarez Dillon Soares; Maria Michaela Sviatschi; Raul Andrade; Jimena Montenegro
  5. Contract Law and Development By Aristotelis Boukouras

  1. By: Frank M. Fossen
    Abstract: A personal bankruptcy law that allows for a "fresh start" after bankruptcy reduces the individual risk involved in entrepreneurial activity. On the other hand, as risk shifts to creditors who recover less of their credit after a debtor's bankruptcy, lenders may charge higher interest rates or ration credit supply, which can hamper entrepreneurship. Both aspects of a more forgiving personal bankruptcy law are less relevant for wealthy potential entrepreneurs who still risk losing their wealth, but tend not to face higher interest rates because they provide collateral. This paper illustrates these effects in a model and tests the hypotheses derived by exploiting the introduction of a "fresh start" policy in Germany in 1999 as a natural experiment, based on representative household panel data. The results indicate that the insurance effect of a more forgiving personal bankruptcy law exceeds the interest effect and on balance encourages less wealthy individuals to enter into entrepreneurship.
    Keywords: Personal bankruptcy law, insolvency, entrepreneurship, fresh start
    JEL: K35 G33 L26
    Date: 2011
  2. By: Francisco Martínez-Sánchez (Universidad de Alicante); Javier M. López Cuñat (Universidad de Alicante)
    Abstract: In this paper we analyze the strategic decisions of the government, the incumbent and the pirate in a market where the good is piratable. We show that deterred or accommodated piracy can occur in equilibrium, but pure monopoly cannot occur for any anti-piracy policy. We also show that the initial quality differential between the original and the pirated product is essential to explain the effects of an increase in the quality of pirated product on both the level of piracy and the optimal monitoring rate. Assuming a one-stage entry process and a sufficiently high quality differential, we prove that the incumbent always prefers to move first and make a credible commitment to a price. However, this is not true with a two-stage entry process.
    Keywords: for-profit piracy, quality, monitoring, price competition.
    JEL: K42 L13 L86
    Date: 2011–01
  3. By: Risse, Mathias (Harvard Kennedy School)
    Abstract: Increasing political and economic interconnectedness draws much philosophical attention to the question of the conditions under which such stringent claims arise. Do claims of justice arise only among those who share membership in a state? Alternatively, do they arise among all those who are jointly subject to the global political and economic order? Or do they apply among all human beings simply because they are human? Inquiries into global justice differ from those into international justice precisely by not limiting inquiry to what states should do. They may well also question the very moral acceptability of states, and explore alternative arrangements. This article surveys the recent philosophical debate on global justice.
    Date: 2011–01
  4. By: Yuri Suarez Dillon Soares (Interamerican Development Bank, Washington, DC); Maria Michaela Sviatschi (Interamerican Development Bank, Washington, DC); Raul Andrade (GRADE, Lima, Peru); Jimena Montenegro
    Abstract: During the 1990s Peru greatly expanded access to formal judicial services in underserved districts through the construction and staffing of justice modules—physical structures which housed courts, prosecutors and public defenders. The intervention was designed to improve judicial coverage for populations located far from important urban centers where most of the courts are located. Using a specialized survey and matching techniques, we find that improving access to formal justice significantly shifts the resolution of conflicts away from informal mechanisms and toward the newly provided formal mechanisms; increases the use of complementary services, such as the use of lawyers; improves the perception of residents regarding social mores and the law; and ultimately marginally reduces the incidence of self-reported conflicts. We find evidence that the treatment also improves outcomes for residents in the area of child support conflicts, although in other types of conflicts we find no impact on outcomes.
    Keywords: Public Policy Evaluation, Justice, Court Efficiency, Difference in Differences, Propensity Score Matching, Peru
    JEL: O1 C1
    Date: 2010–12
  5. By: Aristotelis Boukouras (Georg-August-University Göttingen)
    Abstract: We relate the design of contract law to the process of development. In this paper, contract law defines which private agreements are enforceable (i.e. are binding and enforced by courts) and which are not. Specically, we consider an economy where agents face a hold-up problem (moral hazard in teams). The resulting time-inconsistency problem leads to inefficiently low levels of effort and trading among agents. The solution to this problem requires a social contract which meets two conditions: (i) an economywide delegate (judge) responsible for the enforcement of the social contract and (ii) a set of non-enforceable private contracts (regulation). However, because this mechanism is costly, its effectiveness depends on the aggregate production of the economy. To capture the interaction between contract enforcement and development, we introduce a multiperiod economy and show that, in the early stages of development, the mechanism is infeasible. The appearance of enforcement institutions and regulation is delayed for the later stages. At this point of time, the hold-up problem is solved and this spurs economic growth further. Finally, the relationship between economic development and the evolution of contract law may be non-monotonic, which may explain why empirical studies fail to find a robust relationship between the two.
    Keywords: contract law; development; enforcement institutions; hold-up; institutional agent; regulation; social contract
    JEL: D02 D82 D86 K12 O12 O31 O43
    Date: 2011–01–20

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