New Economics Papers
on Law and Economics
Issue of 2012‒05‒02
three papers chosen by
Jeong-Joon Lee, Towson University

  1. Forecasting the Brazilian Real and the Mexican Peso: Asymmetric Loss, Forecast Rationality, and Forecaster Herding By Ingrid Groessl; Nadine Levratto
  2. Optimal Damages Multipliers in Oligopolistic Markets By Florian Baumann; Tim Friehe
  3. A theory of antitrust enforcement game By Jellal , Mohamed; Souam, Said

  1. By: Ingrid Groessl (Universitaet Hamburg, School of Business, Economics and Social Sciences, Department of Socioeconomics); Nadine Levratto (Université de Paris ouest Nanterre)
    Abstract: Economic theory conjectures complementarities between the ranking of creditors in formal insolvency proceedings and the use of collateral in bank loan contracts as well as the existence of relational compared to arm’s length lending. In this paper we seek evidence for these hypotheses taking France and Germany as examples which differ significantly concerning the ranking of in particular secured creditors. On closer scrutiny of empirical studies as well as statistical information we can neither confirm that a high priority for se-cured lenders explains an excessive use of collateral in bank loans nor that a priority for inside collateral promotes relational lending. Regarding relational lending we point to variables lying outside the insolvency law, like culture and history.
    Keywords: Insolvency; France; Germany; bank-borrower-relationships; collateral; variety-of-capital-approach; law and finance
    JEL: K12 K22 G21 G33
    Date: 2012–04
  2. By: Florian Baumann (Faculty of Economics and Social Sciences, University of Tübingen, Germany); Tim Friehe (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper establishes that tort damages multipliers higher than one can be an instrument to induce imperfectly competitive producers to invest in product safety at socially optimal levels. In their selection of product safety levels, producers seek to maximize profits, neglecting the fact that higher investment in product safety increases consumer welfare; the discrepancy between private and social safety incentives can be remedied by setting damages multipliers to values greater than one. We show that the optimal damages multiplier depends on the characteristics of competition, such as the number of firms, the degree of substitutability / complementarity when products are heterogeneous, firms' cost structures, and the mode of competition.
    Keywords: product liability; product safety; market power; level of damages; punitive damages
    JEL: K13 H23
    Date: 2012–04–25
  3. By: Jellal , Mohamed; Souam, Said
    Abstract: We analyze a situation where an antitrust authority delegates to an audit inspector the mission of gathering the sufficient information to condemn a cartel. The authority has two instruments at her disposal: rewarding the inspector with a proportion of the collected fine or providing him with information which enhances the probability of the success of the prosecution. More precisely, we explore the efficiency consequences of a contest between the audit inspector and the cartel. Both of them bid to win the contest by expending efforts. We show that the race issue depends positively on the financial incentives proposed to the inspector but the impact of an increase of the level of the fine, to be paid once an illegal agreement is detected, is ambiguous. Moreover, we show that the optimal combination of the two instruments consists in two regimes. When the marginal cost of providing the relevant information is relatively high, the antitrust authority equally shares the collected fine and does not provide the inspector with any information. Conversely, when this marginal cost is relatively small, the authority uses the two instruments. She has to provide him with the maximum level of information consistent with winning the contest with certainty
    Keywords: Antitrust Enforcement; Collusion; Moral Hazard; Contest
    JEL: K42 K21 L4
    Date: 2012

This issue is ©2012 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.