New Economics Papers
on Law and Economics
Issue of 2014‒06‒28
thirteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Law versus Economics? How should insurance intermediaries influence the insurance demand decision By Annika Pape
  2. Asymmetric punishment as an instrument of corruption control By Basu, Karna; Basu, Kaushik; Cordella, Tito
  3. Free to Leave? A Welfare Analysis of Divorce Regimes By Raquel Fernández; Joyce Cheng Wong
  4. Do shareholders really own the firm? By Tristan BOYER
  5. Corporate Influence and Political Corruption: Lessons from Stock Market Reactions to Political Events By Jeffrey Milyo
  6. The EU origin of the Albanian legal regime on product liability By Dollani, Nada
  7. Revisiting American Exceptionalism: Democracy and the Regulation of Corporate Governance in Nineteenth-Century Pennsylvania By Naomi R. Lamoreaux
  8. Which Securities Regulation Promotes Crowdinvesting? By Hornuf, Lars; Schwienbacher, Armin
  9. Liability Rule Failures? Evidence from German Court Decisions By Annika Pape
  10. Tax Collection, The Informal Sector, and Productivity By Julio C. Leal-Ordoñez
  11. The European Central Bank’s outright monetary transactions and the Federal Constitutional Court of Germany By Siekmann, Helmut; Wieland, Volker
  12. Spurious middlemen in corrupt transactions By Bayar, Güzin
  13. The Effects of Tax Policy on Alcoholic Beverage Trends and Alcohol Demand in Japan By Omura, Makiko

  1. By: Annika Pape (Leuphana University Lueneburg, Germany)
    Abstract: How should intermediaries influence the insurance demand decision? The answer must refer to the interdependence of economic determinants and legal duties. Intermediaries potentially guide demand decisions by delivering objective information and by considering individuals’ situation and economic circumstances. The economic theory provides determinants that are essential for the insurance demand decision. Undoubtedly, consumers lack information about certain variables, and therefore misjudge their demand for insurances. In response to the consumer, an intermediaries’ task is to discover possible misjudgments and to provide the correct information. Since the information in the insurance market is asymmetrically distributed, an insurance agent has an incentive to behave opportunistically, a tendency that is reinforced by the remuneration scheme in Germany. In 2007/2008, insurance intermediaries became regulated by law. That law states, among other things, the four basic obligations of insurance intermediaries and a liability rule to sanction violations. In order to interpret and substantiate the legal terms, those have to match the relevant economic determinants to state the ideal behavior of an intermediary.
    Keywords: insurance, insurance intermediation, advice, liability, Insurance Contract Act
    JEL: G22 D83 D89 K29 K40
    Date: 2013–06
  2. By: Basu, Karna; Basu, Kaushik; Cordella, Tito
    Abstract: The control of bribery is a policy objective in many developing countries. It has been argued that asymmetric punishments could reduce bribery by incentivizing whistle-blowing. This paper investigates the role played by asymmetric punishment in a setting where bribe size is determined by Nash bargaining, detection is costly, and detection rates are set endogenously. First, when detection rates are fixed, the symmetry properties of punishment are irrelevant to bribery. Bribery disappears if expected penalties are sufficiently high; otherwise, bribe sizes rise as expected penalties rise. Second, when detection rates are determined by the bribe-giver, a switch from symmetric to asymmetric punishment either eliminates bribery or allows it to persist with larger bribe sizes. Furthermore, when bribery persists, multiple bribe sizes could survive in equilibrium. The paper derives parameter values under which each of these outcomes occurs and discusses how these could be interpreted in the context of existing institutions.
    Keywords: Public Sector Corruption&Anticorruption Measures,Crime and Society,Corruption&Anticorruption Law,Social Accountability,Business Ethics, Leadership and Values
    Date: 2014–06–01
  3. By: Raquel Fernández; Joyce Cheng Wong
    Abstract: During the 1970s the US underwent an important change in its divorce laws, switching from mutual consent to a unilateral divorce regime. Who benefitted and who lost from this change? To answer this question we develop a dynamic life-cycle model in which agents make consumption, saving, labor force participation (LFP), and marriage and divorce decisions subject to several shocks and given a particular divorce regime. We calibrate the model using statistics relevant to the life-cycle of the 1940 cohort. Conditioning solely on gender, our ex ante welfare analysis finds that women would fare better under mutual consent whereas men would prefer a unilateral system. Once we condition not only on gender but also on initial productivity, we find that men in the top three quintiles of the initial productivity distribution are made better off by a unilateral system as are the top two quintiles of women; the rest prefer mutual consent. We also find that although the change in divorce regime had only a small effect on the LFP of married women in the 1940 cohort, these effects would be considerably larger for a cohort who lived its entire life under a unilateral divorce system.
    JEL: J12 J16 K36
    Date: 2014–06
  4. By: Tristan BOYER
    Abstract: The object of this contribution is to address the question of the ownership of the firm. Both law and economics shape representations of the world: law focuses on rules and justice; economics focuses on efficiency and allocation. They describe common situations and "objects'' such as firms and their functioning, both with positive (analytical) and normative perspectives. However, their descriptions and remedies for the issues which they tackle are very different due to the differences in their philosophical and sociological goals. The Law & Economics perspective can be described as the use of the economics theoretical framework upon issues of law. In this perspective, law issues are addressed as any other economic phenomenon through the prism of efficiency. From this perspective, law is contingent upon normative conditions of economic theory and the best solution arises after a standard process of optimisation. This paper will set out a reversal of that epistemological position: instead of using economic representations to improve the state of law, representations of law will be aimed at testing and improving the economic analytical framework. Since corporate governance issues are structured by domestic laws as well as by economic regulations, legal representations will be discussed in light of economic corporate governance analysis.
    Keywords: corporate governance, agency theory, law & economics, property rights, stakeholder approach
    JEL: K0 K11 G30 M14 M52
    Date: 2014–06–16
  5. By: Jeffrey Milyo (Department of Economics, University of Missouri-Columbia)
    Abstract: Stock market reactions to political events demonstrate that the value of some firms is strongly affected by which party controls political power. However, contrary to common perception, event studies do not indicate that the ability to make unlimited political contributions or expenditures enhances a firm's value. Instead, geographic and personal connections to political actors matter more for firms' bottom line, although there is some evidence that personal connections may be rented via professional lobbying.
    Keywords: Campaign Contributions, Corruption, Event Studies, Lobbying
    JEL: D7 H0 K0 L2
    Date: 2013–12–30
  6. By: Dollani, Nada
    Abstract: The liability for defective products was for the first time introduced in 1994 by the new Civil Code. It widely reflects the liability regime provided by Directive 85/374 on product liability. In order to analyse the Albanian system on product liability as a special regime of extra-contractual liability, one should look at the Product Liability Directive, which is the source of inspiration for the Albanian regulation. Before the adoption of the Civil Code in 1994, no special regime of liability existed for the defective products due to the special features of economic and social order, based on centralised economy, on state property on the means of production, social and health insurance for all citizens and medical services provided by the state. The new regulation incorporated into the torts chapter of the Civil Code is not a full transposition of Product Liability Directive. However, it is considered as sufficient for the transposition duties of Albania under Stabilization and Association Agreement. When the Albanian legislator transposed a series of European directives on consumer protection, by adopting a separated legal act, Consumer Protection Law, it was assumed that this special area of tort did not need any amendment to bring it into consistency with the new regime of consumer protection and fully compatible with the Product Liability Directive. Considering the difficulties of law enforcement in South East European countries, this discussion paper aims at drawing a comparison between the European regime and the Albanian one so as to explain the specific features of the objective liability regime and identify the deficiencies in transposition, considering that the Product Liability Directive requires maximum harmonisation. --
    Keywords: consumer expectation test,defective product,producer,risk development defence,strict liability
    Date: 2014
  7. By: Naomi R. Lamoreaux
    Abstract: The legal rules governing businesses’ organizational choices have varied across nations along two main dimensions: the number of different forms that businesses can adopt; and the extent to which businesses have the contractual freedom to modify the available forms to suit their needs. Until the last quarter of the twentieth century, businesses in the U.S. had a narrower range of forms from which to choose than their counterparts in these other countries and also much less ability to modify the basic forms contractually. This article uses the case of Pennsylvania to argue that the sources of this “American exceptionalism” reside in the interplay between the early achievement of universal (white) manhood suffrage and elite efforts to safeguard property rights.
    JEL: K2 N41
    Date: 2014–06
  8. By: Hornuf, Lars; Schwienbacher, Armin
    Abstract: In this paper, we show that too strong investor protection may harm small firms and, thus, entrepreneurial initiatives. This situation is particularly relevant in crowdinvesting, which refers to a recent financial innovation originating on the Internet. In general, securities regulation offers exemptions to prospectus and registration requirements. From an analysis of selected countries, we offer first evidence that portals shape the securities contracts they provide to startups based on these exemptions. This, in turn, can limit the amount of capital raised by the firms as well as the type of investors participating in the campaigns. Finally, we offer a ‘law and finance’ analysis of recent reforms of securities regulation in different countries that have been initiated as a means to encourage crowdinvesting.
    Keywords: crowdinvesting; crowdfunding; securities regulation; investor protection
    JEL: G20 G18 G38 K22
    Date: 2014–03–20
  9. By: Annika Pape (Leuphana University Lueneburg, Germany)
    Abstract: Since 2007, all insurance intermediaries face negligence liability that is supposed to reallocate risks and set economic incentives. Nonetheless, further measures are taken to improve consumer protection. So, the question arises does the liability rule influence the agents behavior, or not, and does it influence in the intended way, or not? Do court cases provide evidence for failure of the current liability rule? Based upon an economic analysis of liability rules, aspects concerning potential failures can be derived. An analysis of twelve verdicts suggests that understatement of intermediary responsibility as well as a potential overstatement of the consumer responsibility yields suboptimal results. Often, missing documentation reinforces that tendency.
    Keywords: Insurance, Intermediaries, Liability, Consumer Protection, Court Errors, Court Cases
    JEL: G22 D83 D89 K29 K40
    Date: 2014–05
  10. By: Julio C. Leal-Ordoñez
    Abstract: Some authors argue that informality is associated with distorted firm decisions and inefficiency. In this paper, I assess the quantitative effect of incomplete tax enforcement on aggregate output and productivity using a dynamic general equilibrium framework. I calibrate the model using data for Mexico and investigate the effects of introducing enforcement improvements. Under complete enforcement, labor productivity and output would be 19% higher under perfect competition and 34% higher under monopolistic competition. The source of this gain is the removal of distortions induced by incomplete enforcement of taxes which affect the economy in three ways: by reducing the capital-labor ratios of informal establishments; by allowing low-productive entrepreneurs to enter; and by misallocating resources towards low-productive establishments. I isolate the effects of pure factor misallocation, distorted occupational choices, capital accumulation, and complementarities.
    Keywords: Tax enforcement, TFP, the informal sector
    JEL: E23 E26 O17 O40
    Date: 2013–12
  11. By: Siekmann, Helmut; Wieland, Volker
    Abstract: This note reviews the legal issues and concerns that are likely to play an important role in the ongoing deliberations of the Federal Constitutional Court of Germany concerning the legality of ECB government bond purchases such as those conducted in the context of its earlier Securities Market Programme or potential future Outright Monetary Transactions. --
    Date: 2013
  12. By: Bayar, Güzin
    Abstract: To solve the corruption problem, its root causes should first be diagnosed and factors supporting it should be determined. One of the important facilitators of corrupt transactions are intermediaries, who make corrupt dealings less risky, thereby increasing corruption. Even worse, there are 'spurious' intermediaries who obtain bribes from public services by pretending they can ensure a service is completed even though they have no such influence over the issue. This deception may continue even if the officer providing the public service in question is honest. The simple game theoretical model formulated in this article tries to capture the mechanisms behind such a deception. From the solutions of the model, some policy recommendations to prevent such a process from occurring are derived. --
    Keywords: corruption,spurious middlemen,game theory
    JEL: K42 C72
    Date: 2014
  13. By: Omura, Makiko
    Abstract: This paper examines the evolution of alcoholic beverage sectors and the effects of tax policies on these sectors as well as the alcohol beverage demand systems in Japan utilising data from 1948 to 2011. In tax policy analyses, liquor tax policies are found to have differential effects on the production and consumption of different types of alcohol. Although sectoral growth and general economic performance in terms of final consumption expenditure per capita are found to be significant, with major positive effects, tax rates are found to have mixed effects, depending on the type of alcohol considered. The analyses suggest that preferential tax rates may be beneficial for boosting the sectoral performance of certain types of alcoholic beverages. The results, based on double-log and demand system equation estimations for five types of alcoholic beverages, suggest that all alcoholic beverages, except for shōchu, are normal goods with positive expenditure elasticities. Although the results suggest that shōchu may be the safest taxable subject in a Ramsey sense, the own-price elasticity estimates provide less coherent results depending on the model applied.
    Keywords: liquor/alcohol tax, panel analysis, time-series analysis, AIDS, QUAIDS, dynamic AIDs, Japan, Food Consumption/Nutrition/Food Safety, Political Economy, Research Methods/ Statistical Methods, H29, K34, N55,
    Date: 2014–04

This issue is ©2014 by Eve-Angeline Lambert. 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.
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