New Economics Papers
on Law and Economics
Issue of 2011‒08‒29
five papers chosen by
Jeong-Joon Lee, Towson University

  1. The Consistency of Merger Decisions in a Developing Country: The South African Competition Commission By Richard J. Grimbeek; Sunel Grimbeek; Steven F. Koch
  2. The use of violence ini llegal markets: evidence from mahogany trade in the Brazilian Amazon By Ariaster B. Chimeli; Rodrigo R. Soares
  3. Access to justice and entrepreneurship: evidence from Brazil’s Special Civil Tribunals By Guilherme Lichand; Rodrigo R. Soares
  4. Prohibition of parallel Imports as a hard core Restriction of Article 4 of Block Exception Regulation for vertical Agreements: European Law and Economics By Zevgolis, Nikolaos; Fotis , Panagiotis
  5. Common Law vs. Civil Law: Which System Provides More Protection to Shareholders and Creditors and Promotes Financial Development By sarkar, prabirjit

  1. By: Richard J. Grimbeek (Department of Economics, University of Pretoria); Sunel Grimbeek (Department of Economics, University of Pretoria); Steven F. Koch (Department of Economics, University of Pretoria)
    Abstract: Merger decisions made by the South African Competition Commission from April 2002 to March 2010 are analyzed to empirically identify the factors, which have historically in uenced prohibition, conditional approval and unconditional approval. The key explanatory variables are linked to provisions of the 1998 Competition Act, as well as the timing of merger notications, such that the analysis provides insight into the consistency of merger decisions with respect to the legal requirements specied in the Act. Although the legislation includes standard economic concerns, it also includes a provision for advancing public interests and development concerns. Initial results point to diering behaviour over the time period, which suggests that the Commission is inconsistent; however, the majority of those inconsistencies are removed, once additional measures of market contestibility are included in the analysis. The nal results suggest that the Commission is less likely to approve mergers that they link to markets that are less contestable. Furthermore, in addition to protecting competition, the Commission is simultaneously protecting other public interests. Therefore, our research supports the hypothesis that the Commission consistantly applies its legislative remit.
    Keywords: South African Competition Commission, Merger Decisions
    JEL: K21 L40 D78
    Date: 2011–08
  2. By: Ariaster B. Chimeli (Ohio University); Rodrigo R. Soares (Department of Economics PUC-Rio)
    Abstract: Agents operating in illegal markets cannot resort to the justice system to guarantee property rights, to enforce contracts, or to seek protection from competitors’ improper behaviors. In these contexts, violence is used to enforce previous agreements and to fight for market share. This relationship plays a major role in the debate on the pernicious effects of the illegality of drug trade. This paper explores a singular episode of transition of a market from legal to illegal to provide a first piece of evidence on the causal effect of illegality on systemic violence. Brazil has historically been the main world producer of big leaf mahogany (a tropical wood). Starting in the 1990s, policies restricting extraction and trade of mahogany, culminating with prohibition, were implemented. First, we present evidence that large scale mahogany trade persisted after prohibition, through misclassification of mahogany exports as “other tropical timber species.” Second, we document relative increases in violence after prohibition in areas with: (i) higher share of mahogany exports before prohibition; (ii) higher suspected illegal mahogany activity after prohibition; and (iii) natural occurrence of mahogany. We believe this is one of the first documented experiences of increase in violence following the transition of a market from legal to illegal.
    Keywords: illegal markets, violence, homicide, mahogany, Brazil Jel Codes: K42, O13, O17, Q58
    Date: 2011–08
  3. By: Guilherme Lichand (Harvard University); Rodrigo R. Soares (Department of Economics PUC-Rio)
    Abstract: Entrepreneurship is usually indentified as an important determinant of aggregate productivity and long-term growth. The determinants of entrepreneurship, nevertheless, are not entirely understood. A recent literature has linked entrepreneurship to the development of the justice system. This paper contributes to this literature by evaluating the role of access to justice in determining the incidence of entrepreneurship. We explore the creation of Special Civil Tribunals in the Brazilian state of São Paulo during the 1990s. Special Civil Tribunals increased the geographic presence of the justice system, simplified judicial procedures, and increased the speed of adjudication of disputes. Using census data, and difference-in-differences and instrumental variable strategies, we find that implementation of Special Civil Tribunals led to increased entrepreneurship, defined as the probability that individuals are employers or selfemployed. Results are particularly strong and robust for the case of self-employment, and do not seem to be related to other changes in infrastructure or public good provision at the local level, or to pre-existing trends in entrepreneurship.
    Keywords: access to justice, courts, entrepreneurship, institutions, Brazil Jel Codes: K1, K41, K42, H41, O12, O17, O54
    Date: 2011–08
  4. By: Zevgolis, Nikolaos; Fotis , Panagiotis
    Abstract: This paper attempts, on the one hand, to reveal the main principles of Competition Law (regulatory and case law framework) covering the prevention of parallel trade, mainly the prohibition of parallel imports or exports, and on the other hand to cast light on the main effects of parallel imports prohibition imposed by an upstream supplier on the competitive structure of the downstream market. Especially, the regulatory framework relates Block Exception Regulation 330/2010, (ex Block Exception Regulation 2790/99), with Block Exception Regulation 461/2010 (ex Block Exception Regulation 1400/2002) in order to determine whether prohibition of parallel trade constitutes a hardcore restriction or not, while the economic analysis evaluates it in a geographical vertical market which constitutes an upstream and a downstream market with few suppliers & buyers respectively which sell goods to the final (domestic) consumers. The results indicate that prohibition of parallel imports by the upstream sellers causes vertical restraints to the domestic customers of the buyers.
    Keywords: Antitrust Law; Vertical Restraints; Block Exception Regulation; Market Imperfection; Consumer Nondurables; Repeated Games of Oligopoly Theory;
    JEL: K21 D43 C73
    Date: 2011–08–16
  5. By: sarkar, prabirjit
    Abstract: This study re-examines the theory of legal-origin on the basis of a new longitudinal dataset for four OECD countries (UK, USA, France and Germany) over a long time span 1970-2005. It observes that the civil law countries (France and Germany) provided better minority shareholder protection and creditor protection relating to debtors’ control while the common law countries (UK and USA) provided better creditor protection relating to credit contract and insolvency. Through dynamic panel data modelling our study shows that minority shareholder protection has a long-term favourable effect only on stock market listing of firms and debtors’ control has a similar effect on credit market expansion while the credit contract component of creditor protection has the opposite effect. Thus, our study questions the proposition that common-law countries provide more protection to their shareholders and creditors; it also casts doubt on the related proposition that shareholder and creditor protection promotes financial development.
    Keywords: Shareholder protection; Creditor Protection; Investor Protection; Corporate Governance; Law and Finance
    JEL: K40 K22 J38 G30
    Date: 2011

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