New Economics Papers
on Law and Economics
Issue of 2011‒07‒27
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Using Forward Contracts to Reduce Regulatory Capture By Felix Höffler; Sebastian Kranz
  2. Environmental Enforcement in Decentralised Governance Systems: Toward a Nationwide Level Playing Field By Eugene Mazur
  3. Curb your premium! evaluating state intervention in medical malpractice insurance By Sofia, AmaralGarcia; Veronica, Grembi
  4. Addressing the inadequacies of private law in the regulation of contracts – during and post contract formation periods By Ojo, Marianne
  5. The Deterrence Effects of U.S. Merger Policy Instruments By Clougherty, Joseph A.; Seldeslachts, Jo

  1. By: Felix Höffler (Max Planck Institute for Research on Collective Goods, Bonn); Sebastian Kranz (University of Bonn, Department of Economics)
    Abstract: A fully unbundled, regulated network fi?rm of unknown efficiency level can undertake unobservable effort to increase the likelihood of low downstream prices, e.g., by facilitating downstream competition. To incentivize such effort, the regulator can use an incentive scheme paying transfers to the ?firm contingent on realized downstream prices. Alternatively, the regulator can propose to the ?firm to sell the following forward contracts: the fi?rm pays the downstream price to the owners of a contract, but receives the expected value of the contracts when selling them to a competitive fi?nancial market. We compare the two regulatory tools with respect to regulatory capture: if the regulator can be bribed to suppress information on the underlying state of the world (the basic probability of high downstream prices, or the type of the firm), optimal regulation uses forward contracts only.
    Keywords: Incentive regulation, regulatory capture, virtual power plants
    JEL: K23 L94 L43 L51
    Date: 2011–05
  2. By: Eugene Mazur
    Abstract: This report analyses approaches to managing environmental compliance monitoring and enforcement in several OECD countries with decentralised systems of environmental governance. It focuses principally on strategies and instruments for promoting consistency in the implementation of national environmental law. The report reviews in detail the experience of Spain, Sweden, Switzerland and the United States and draws on examples from several other countries. Three programmatic elements of environmental enforcement are key to ensuring its consistency: the targeting of compliance monitoring; the selection of an enforcement instrument and the timeliness of noncompliance response; and the size of monetary penalties for non-compliance. Accurate and complete information on the performance of sub-national and local competent authorities is an important prerequisite for the evaluation of nationwide consistency of enforcement. To address these issues, OECD countries employ a range of mechanisms of institutional interaction: “vertical” (between different administrative levels) as well as “horizontal” (between competent authorities at the same level). The report presents multiple examples of the application of each mechanism in different decentralised systems. It analyses these good practices and suggests several ways to use them to ensure consistency in the implementation of the main elements of enforcement programmes.
    Keywords: compliance assurance, environmental authorities, environmental enforcement, decentralised governance
    JEL: K32 K42 O57 Q58
    Date: 2011–05–31
  3. By: Sofia, AmaralGarcia; Veronica, Grembi
    Abstract: Using data of Italian public healthcare providers over years 2001 through 2008, we evaluate the impact of two policies adopted by Italian Regions (i.e., States) to cope with increasing medical malpractice costs using a Difference-in-Difference specification. We assess the impact of the policies on premiums paid and legal expenditures. The first policy consisted in collecting information and monitoring both compensation requests and any legal action related to a medical malpractice claim against a public healthcare provider. The second policy is a switch from private to public insurance for damages up to 500,000 euros combined with a centralized-regional contracting out in the private insurance market for damages in excess of 500,000 euros. Both policies represent attempts to cope with multiple agency problems within the public sector. Our results show that the impact of central monitoring in malpractice claims trend can reduce up to 29% the premiums paid for the treated providers, while the effect is obviously stronger for public insurance (41%). We control for the effects of the latter also on the trend of legal expenditures as proxy for common pool behaviors which do not result from our data. Validity tests show that our results are not driven by a decreasing trend affecting the insurance expenditures of the analyzed units before the policies’ introduction.
    Keywords: Medical Errors; Medical Malpractice Premium; Legal Expenditures; Difference in Difference.
    JEL: K32 G22 I18
    Date: 2011–07
  4. By: Ojo, Marianne
    Abstract: It has been argued that weaknesses inherent in Private Law rules, which contribute to its inability to effectively regulate contracts, are in part, attributed to its generality as well as inflexibility in adapting to individual situations. Whilst self-regulation, a constituent of the standard setting system which private law supplements, offers advantages which include proximity (in that self regulatory organisations are considered closer to the industry being regulated), flexibility, and a high level of compliance with rules, it will be highlighted in this paper that some other models of regulation, are capable of conferring greater flexibility, compliance, enforcement and accountability. The setting of standards with „an adequate degree of specificity in order to provide effective guidance, as well as the lack of expertise in choosing between standards are amongst some of the challenges which the Private Law of Contract is confronted with. This paper aims to highlight and demonstrate why an interaction with public regulation, as well as an incorporation of substantive equality principles, will be required to address these weaknesses of Private Law. Further, it illustrates how through the evolvement of self regulation, and the interaction of self regulation with public regulation, Private Law has also evolved in its interaction with public regulation.
    Keywords: regulation; implied contracts; Equity; undue influence; economic duress; bargaining power; self regulation; accountability; legal certainty
    JEL: K2 G3 D8 G28
    Date: 2011–07–17
  5. By: Clougherty, Joseph A.; Seldeslachts, Jo
    Abstract: We estimate the deterrence effects of U.S. merger policy instruments with respect to the composition and frequency of future merger notifications. Data from the Annual Reports by the U.S. DOJ and FTC allow industry based measures over the 1986-1999 period of the conditional probabilities for eliciting investigations, challenges, prohibitions, court-wins and court-losses: deterrence variables akin to the traditional conditional probabilities from the economics of crime literature. We find the challenge-rate to robustly deter future horizontal (both relative and absolute) merger activity; the investigation-rate to slightly deter relative-horizontal merger activity; the court-loss-rate to moderately affect absolute-horizontal merger activity; and the prohibition-rate and court-win-rate to not significantly deter future horizontal mergers. Accordingly, the conditional probability of eliciting an antitrust challenge (i.e., remedies and prohibitions) involves the strongest deterrence effect from amongst the different merger policy instruments.
    Keywords: antitrust; deterrence; merger policy
    JEL: K21 L40 L49
    Date: 2011–07

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