New Economics Papers
on Law and Economics
Issue of 2011‒02‒19
seven 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. The Impact of Potential Labor Supply on Licensing Exam Difficulty in the US Market for Lawyers By Mario Pagliero
  3. Criminal Networks: Who is the Key Player? By Liu, Xiaodong; Patacchini, Eleonora; Zenou, Yves; Lee, Lung-Fei
  4. Rewarding innovation efficiently: Research spill-overs and exclusive IP rights By Vincenzo Denicol; Luigi A. Franzoni
  5. Financing obstacles among euro area firms: Who suffers the most? By Annalisa Ferrando; Nicolas Griesshaber
  6. Public opinion’s involvement and interests on environmental issues By Natalia Melgar; Máximo Rossi
  7. Great expectations, predictable outcomes and the G20's response to the recent global financial crisis By Ojo, Marianne

  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<br /> 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: Mario Pagliero (Department of Economics and Public Finance "G. Prato", University of Torino)
    Abstract: Entry into licensed professions requires meeting competency requirements, typically assessed through licensing examinations. In the market for lawyers, there are large differences in the difficulty of the entry examination both across states and over time. The paper explores whether the number and quality of individuals attempting to enter the profession (potential supply) affects the difficulty of the entry examination. The empirical results show that a larger potential supply leads to more difficult licensing exams and lower pass rates. This implies that licensing partially shelters the legal market from supply shocks.
    Keywords: occupational licensing, legal market, bar exam, minimum standards, entry regulation
    JEL: L4 L5 J44 K2
    Date: 2011–02
  3. By: Liu, Xiaodong (University of Colorado at Boulder); Patacchini, Eleonora (La Sapienza University of Rome, EIEF and CEPR.); Zenou, Yves (Stockholm University, Research Institute of Industrial Economics (IFN) and GAINS); Lee, Lung-Fei (The Ohio State University)
    Abstract: We analyze delinquent networks of adolescents in the United States. We develop a theoretical model showing who the key player is, i.e. the criminal who once removed generates the highest possible reduction in aggregate crime level. We also show that key players are not necessary the most active criminals in a network. We then test our model using data on criminal behaviors of adolescents in the United States (AddHealth data). Compared to other criminals, key players are more likely to be a male, have less educated parents, are less attached to religion and feel socially more excluded. They also feel that adults care less about them, are less attached to their school and have more troubles getting along with the teachers. We also find that, even though some criminals are not very active in criminal activities, they can be key players because they have a crucial position in the network in terms of betweenness centrality.
    Keywords: Crime; bonacich centrality; betweenness centrality; network characteristics; crime policies
    JEL: A14 D85 K42 Z13
    Date: 2011–02–11
  4. By: Vincenzo Denicol (Indira Gandhi Institute of Development Research); Luigi A. Franzoni (Indira Gandhi Institute of Development ResearchInstitute of Economic Growth)
    Abstract: We investigate the conditions for the desirability of exclusive intellectual property rights for innovators as opposed to weak rights allowing for some degree of imitation and ex-post competition. The comparison between the two alternatives reduces to a specific "ratio test," which suggests that strong exclusive IP rights are preferable when competition from potential imitators is weak, the innovation attracts large R&D investments, and research spill-overs are small.
    Keywords: Kaplow test, research spill-overs, patents and trade secrets, independent invention defense, mandatory licensing
    JEL: K21
    Date: 2011–01
  5. By: Annalisa Ferrando (European Central Bank, DG-Economics, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Nicolas Griesshaber (Berlin Graduate School of Social Sciences (BGSS), Unter den Linden 6, 10099 Berlin, Germany.)
    Abstract: In this study we investigate the determinants of financing obstacles using survey data on a sample of around 5000 firms from the euro area countries. This completely new survey – started at the end of 2009 - gives us the opportunity to test whether firm characteristics such as size, age, economic branch, financial autonomy and ownership are valid predictors of financing obstacles also during the recent financial crisis. Our results show that only age and ownership are robust explanatory variables for firms’ perceived financing obstacles while mixed results are found for size and economic branches. JEL Classification: E22, G30, G10, O16, K40.
    Keywords: Financial Crisis, Financing Constraints, Small and Medium-Sized Enterprises, Survey Data.
    Date: 2011–02
  6. By: Natalia Melgar (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República); Máximo Rossi (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)
    Abstract: The aim of this study is to extend previous findings by showing that involvement in environmental issues is shaped by personal attributes such as education and the subjective income but also by country characteristics. The dataset for this research comes from the 2005 World Value Survey and the 2008 Latin-barometer survey that allow us to consider a large and heterogeneous set of countries. The contributions of the paper are three-fold. Firstly, we provide clear evidence that the economic performance plays a relevant role, one direct consequence of this finding is that policies that change the macroeconomic arena would also change people’s attitudes. Secondly, we find that environmental quality could be considered as a luxury good by richer people because people’s attitudes depend not only on their income but also on the economic performance. Finally, richer people are aware of the availability of resources and of the quality of the institutions, hence their behavior changes depending on the characteristics of the country: in relatively poorer countries (where there are fewer resources), they tend to participate more than richer people that live in relatively richer countries.
    Keywords: environmental economics, environmental quality, income, human development, cross-country research
    JEL: K32 O12 O13 Q50 Q56
    Date: 2010–11
  7. By: Ojo, Marianne
    Abstract: The meeting of the Governors and Heads of Supervision on the 12 September 2010, their decisions in relation to the new capital framework known as Basel III, as well as the endorsement of the agreements reached on the 26 July 2010, once again, reflect the typical situation where great expectations with rather unequivocal, and in a sense, disappointing results are delivered. The outcome of various consultations by the Basel Committee on Banking Supervision, consultations which culminated in the present Basel III framework, also reflect the focus on measures aimed at addressing problems attributed to Basel II, that is, measures aimed at mitigating pro cyclicality. This is rather astonishing given one critical lesson which has been drawn from the recent Financial Crisis: namely, that capital measures on their own, were and are insufficient in addressing and averting the Financial Crisis. Furthermore, banks which have been complying with capital adequacy requirements could still face severe liquidity problems. As well as an increase of the minimum common equity requirement from 2% to 4.5%, the recent agreement and decisions of the Governors and Heads of Supervision also include the stipulation that banks hold a capital conservation buffer of 2.5% - hence consolidating the stronger definition of capital (as agreed in the previous meeting held by the Governors and Heads of Supervision earlier in July 2010).
    Keywords: pro cyclicality; liquidity; capital; Basel III; countercyclical; forward looking provisioning; financial regulation; financial crises
    JEL: K2 D8 E3
    Date: 2011–02

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