nep-reg New Economics Papers
on Regulation
Issue of 2005‒07‒03
fourteen papers chosen by
Christian Calmes
Université du Québec en Outaouais, Canada

  2. Court Delay in Developing Countries with Special References to China By Qing-Yun Jiang
  3. Jurisdiction and Choice of Law in Economic Perspective By Katrin Lantermann; Hans-Bernd Schäfer
  4. The Survival of the Unfittest: Delinquent corporations and the production of organisational legitimacy through symbolic-discursive fit By Svensson, Peter
  5. U.S. Border Enforcement and the Net Flow of Mexican Illegal Migration By Manuela Angelucci
  6. Impacts of Policy Reforms on Labor Migration From Rural Mexico to the United States By Susan M. Richter; J. Edward Taylor; Antonio Naude
  7. Race to the top or bottom? Corporate governance, freedom of reincorporation and competition in law By Zsuzsanna Fluck; Colin Mayer
  8. A Generic Model of Financial Repression By Rangan Gupta
  9. Law and Behaviours in Social Dilemmas: Testing the Effect of Obligations on Cooperation By Roberto Galbiati; Pietro Vertova
  11. Short-run and Long-run Effects of Corruption on Economic Growth: Evidence from State-Level Cross-Section Data for the United States By Nobuo Akai; Yusaku Horiuchi; Masayo Sakata
  12. Does Crime Pay? A Classroom Demonstration of Monitoring and Enforcement By Lisa R. Anderson; Sarah L. Stafford
  13. Can Consumers Enforce Environmental Regulations? The Role of the Market in Hazardous Waste Compliance By Sarah L. Stafford
  14. Trend Breaks and Seasonality in the Yugoslav Black Market for Dollars, 1974-1987 By John Dawson; Steven Millsaps; Mark Strazicich

  1. By: Maurizio Pontani (University of Siena)
    Abstract: The word "bankruptcy" derives from the Italian word bancarotta (= broken bench) that during the Middle Ages was used to indicate the typical sanction applied to bankrupt tradesmen or bankers - the bench breaking, i.e. the breaking of the tradesman/banker's money table. At its origin, thus, the word bankruptcy had a punitive meaning that has been preserved in continental Europe (for instance the words bancarotta, Bankrott and banqueroute still designate the criminal consequences of failure in Italy, Germany and France respectively), but it has been lost in the Anglo-American world, where bankruptcy presently indicates the default as such. This study focuses on criminal liability of directors and entrepreneurs for misconduct committed prior to bankruptcy in the US and Italy and tries to understand how the different regulation is likely to affect the economic agents' behavior. We show that the boundary between a firm's legal and illegal management appears more clear-cut in the US than in Italy, with positive effects on the economic behavior of entrepreneurs and managers.
    Keywords: Bankruptcy law, Criminal liability, Judicial discretion, Optimal risk taking,
  2. By: Qing-Yun Jiang
    Abstract: The judiciary in developing countries is troubled with various problems. Specifically, court delays, backlogs and uncertainty associated with unexpected outcomes have diminished the quality of justice and leads to loss of confidence of the general public in judiciary. Court delay is always coupled with impartiality, corruption and low quality of judgment, etc. The reform program needs to address the major causes of the deterioration in the quality of court services and address the root political, economic causes of an inefficient and inequitable judiciary and not simply deal with its symptoms. Like many other judiciaries in developing countries, court delay is also a problem facing the jurisdiction in Chinese courts, especially in appeal and retrial procedure. Based on empirical study, this paper will also illustrate the major causes of court delay as well as difficulties of law enforcement in Chinese jurisdiction. In particular, some special references are made to the retrial procedure and the roll of the Trial Committee in the course of jurisdiction, as well as accessibility to the courts.
    Keywords: jurisdiction, duration of the court, retrial, the Trial Committee, enforcement of judgments,
  3. By: Katrin Lantermann (Universität Hamburg, Fachbereich Rechtswissenschaften, Institut für Recht und Ökonomik); Hans-Bernd Schäfer (University of Hamburg, Germany)
    Abstract: This article looks at choice of law rules from an economic perspective . The aim is to understand whether particular choice of law norms are wealth creating or wealth destroying and which of different norms should be preferred from this point of view. In this article we do not try to understand the forces that generate and sustain particular choice of law rules. We restrict ourselves to an efficiency analysis of existing or proposed choice of law rules. In the first part of the paper we argue that a free choice of law should be granted, whenever the choice causes no third party effects. We show that this criterion would extend free choice beyond the present scope. Free menu choice of law increases the wealth of the parties and creates institutional competition. It should be extended to fields of the law other than contract and tort law. In the second part we proceed with choice of law rules if the choice leads to positive or negative third party effects. To take care of these effects mandatory choice rules are sometimes but not always necessary. Methodologically choice of law rules should be market-mimicking rules, which reflect the interests of a grand coalition of the parties and all third parties affected by the choice rule. In the third part of the paper we discuss existing rules for the choice of tort law and refer to the discussion on a draft proposal for a European Council regulation of the law applicable to non-contractual obligations . In the fourth part we discuss whether the German or the US approach of international comparative law is preferable from an economic perspective. The US approach gives more judicial discretion for the choice of law than the German approach. We argue that the choice of law rules should lead to precise and clear legal commands with escape clauses for the judiciary only in exceptional and obvious cases. As Guzman pointed out it is striking that choice of law scholars have paid virtually no attention on how choice of law rules affect individual behaviour. But any economic analysis has to focus on this aspect as otherwise the social consequences of legal norms remain unknown and consequently little can be said about whether the consequences of one rule are socially better than those of another rule.
  4. By: Svensson, Peter (Department of Business Administration, School of Economics and Management, Lund University)
    Abstract: The survival of so called ‘delinquent organisations’ is the topic of this article. A delinquent organisation should here be conveived of as an organisation engaged in activities regarded by the public and stakeholders as harmful, hazardous or even lethal. Examples of delinquent organisations comprise producers of tobacco or warfare material. It has been recognised in the literature on organisations that the creation and maintenance of organisational legitimacy, i.e. the degree of congruence between the organisation’s deeds and the values, norms and expectations in society. This article aims at bringing into the limelight the symbolic-discursive aspects of organisational legitimacy, that is to say the construction of a fit between the text (written and spoken) produced by a particular organisation and the cultural and ideological environment wherein this organisation operates. Drawing upon ideas from discourse theory, the tobacco producer Swedish Match is subjected to a close up study. More specifically, the empirical case selected is that of a lawsuit filed against Swedish Match in 1997 and the related textual responses produced and distributed in public media by the organisation. I present the argument that, in order to construct a symbolic-discursive fit, Swedish Match has to navigate in between two strong ideological poles: a social democratic heritage and an emerging corpus of neo-liberal ideas, two forces that provide both the rhetorical means for and restraint of the construction of organisational legitimacy.
    Keywords: Organisational legitimacy; corporate reputation; delinquent corporation; Swedish Match; tobacco industry
    Date: 2005–05–02
  5. By: Manuela Angelucci (University of Arizona and IZA Bonn)
    Abstract: This paper investigates the effect of U.S. border enforcement on the net flow of Mexican undocumented migration. It shows how this effect is theoretically ambiguous, given that increases in border controls deter prospective migrants from crossing the border illegally, but lengthen the duration of current illegal migrations. It then estimates the impact of enforcement on 1972-1993 migration net flows by merging aggregate enforcement data with micro data on potential and current illegal Mexican migrants. The econometric model accounts for the endogeneity of border controls using the Drug Enforcement Administration budget as an instrumental variable. Both the inflow and outflow of illegal Mexican migration are highly sensitive to changes in border enforcement. The estimates of the enforcement overall effect on illegal migration’s net flow range across different specifications, from a decline - about 35% of the size of the effect on the inflow - to an increase. Thus, they suggest that border enforcement may not be an effective means to reduce the level of the illegal alien population in the United States.
    Keywords: illegal migration, border enforcement, Mexico
    JEL: F22 J61 K42 O15
    Date: 2005–06
  6. By: Susan M. Richter; J. Edward Taylor; Antonio Naude
    Abstract: Using new survey data from Mexico, a dynamic econometric model is estimated to test the effect of policy changes on the flow of migrant labor from rural Mexico to the United States and test for differential effects of policy changes on male and female migration. We find that both IRCA and NAFTA reduced the share of rural Mexicans working in the United States. Increased U.S. border enforcement had the opposite effect. The impacts of these policy variables are small compared with those of macroeconomic variables. The influence of policy and macroeconomic variables is small compared with that of migration networks, as reflected in past migration by villagers to the United States. The effects of all of these variables on migration propensities differ, quantitatively and in some cases qualitatively, by gender.
    JEL: F1 J6 J4 O1
    Date: 2005–06
  7. By: Zsuzsanna Fluck; Colin Mayer
    Abstract: This paper investigates the governance structure choices of firms when there is competition between legal systems. We study the impact of the allocation of control over choice of governance and reincorporation on firms’ technologies and technological specialization of countries in the context of a model of the firm in which there are agency conflicts between shareholders and managers. We show that the allocation of control over firms’ reincorporation decisions determines the corporate governance choice ex ante and the outcome of the competition between legal regimes ex post. When managers have control over reincorporation then competitive deregulation and “runs to the bottom” ensue. When shareholders have partial or full control then there is diversity in governance structures. Runs to the bottom are not necessarily socially undesirable but they have a feedback effect on firms’ choices of technologies that may make the party in control worse off ex ante. We show that it is impossible for any country to achieve social welfare maximization of its existing and new enterprises. With competition between legal regimes, start-up and mature companies incorporate in different jurisdictions even when reincorporation is correctly anticipated.
    Date: 2005
  8. By: Rangan Gupta (University of Connecticut)
    Abstract: The paper develops a standard neoclassical growth model in an overlapping generations framework of a financially repressed small open economy, and analyzes the effects of financial liberalization on steady-state capital stock. Repression is severe "enough" to generate an unofficial money market. The economy is also characterized by capital controls and crawling peg exchange rate regime. The following observations are made: Deregulation of interest rate reduces the steady-state stock of capital, while reduction in the multiple reserve requirements and increases in the rate of crawling, enhances it. The paper thus advocates financial liberalization policies to be oriented towards reduction of reserve requirements rather than interest rate deregulation.
    Keywords: Financial Repression; Capital Stock and Investment; Uno±cial Financial Markets.
    JEL: E22 E44 E52
    Date: 2005–06
  9. By: Roberto Galbiati; Pietro Vertova
    Abstract: Laws consist of two components: the ‘obligations’ they express and the ‘incentives’ designed to enforce them. In this paper we run a public good experiment to test whether or not obligations have any independent effect on cooperation in social dilemmas. The results show that, for given marginal incentives, different levels of minimum contribution required by obligation determine significantly different levels of average contributions. Moreover, unexpected changes in the minimum contribution set up by obligation have asymmetric dynamic effects on the levels of cooperation: a reduction does not alter the descending trend of cooperation, whereas an increase induces a temporary re-start in the average level of cooperation. Nonetheless, obligations per se cannot sustain cooperation over time.
    Keywords: Obligation, Incentives, Public Good Game, Experiments.
    JEL: K40 H26 C92 C91
    Date: 2005–04
  10. By: Jonathan Yoder (Washington State University)
    Abstract: Prescribed fire is a useful but risky method for reducing general wildfire risk and improving wildlife habitat, biodiversity, timber growth, and agricultural forage. In the past the fifteen years, laws is some states have been adopted to support the use of prescribed fire. This article examines the effect of liability law and common regulations on the incidence and severity of escaped prescribed fires in the United States from 1970 to 2002. Regression results show that stringent statutory liability law and regulation tends to reduce the number and severity of escaped prescribed fires on private land, but not on federal land where state liability law does not directly apply.
    Keywords: endogenous risk, prescribed fire economics, liability law
    JEL: K32 Q2
    Date: 2005–06–28
  11. By: Nobuo Akai; Yusaku Horiuchi; Masayo Sakata
    Abstract: Theoretical studies suggest that corruption may counteract government failure and promote economic growth in the short run, given exogenously determined sub optimal bureaucratic rules and regulations. As the government failure is itself a function of corruption, however, corruption should have detrimental effects on economic growth in the long run. In this paper, we measure the rate of economic growth for various time spans—short (1998–2000), middle (1995–2000) and long (1991–2000)—using previously uninvestigated state-level cross-section data for the United States. Our two-stage least square (2SLS) estimates with a carefully selected set of instruments show that the effect of corruption on economic growth is indeed negative and statistically significant in the middle and long spans but insignificant in the short span.
    JEL: O40 D73
    Date: 2005
  12. By: Lisa R. Anderson (Department of Economics, College of William and Mary); Sarah L. Stafford (Department of Economics, College of William and Mary)
    Abstract: This paper presents a classroom game in which students choose whether or not to comply with pollution regulations. By changing the level of monitoring and fines for noncompliance across periods, the game shows students how the probability and severity of enforcement affects incentives for compliance. The game can be adapted for settings other than environmental regulation and can be used in a variety of classes including regulation, law and economics, environmental economics, public economics, or the economics of crime. It can easily be conducted in a fifty-minute class period.
    Keywords: Classroom Experiment, Non-Compliance, Pollution
    JEL: A22 C90 K42
    Date: 2005–05–12
  13. By: Sarah L. Stafford (Department of Economics, College of William and Mary)
    Abstract: To assess the role that consumers can play in encouraging environmental compliance, we examine the U.S. hazardous waste management industry to determine (1) whether environmental performance affects consumer demand and (2) whether markets affect compliance behavior. We find that noncompliance does decrease demand, at least in the short-term. While we do not find any evidence that market size affects compliance, local competition does appear to increase compliance. However, as competition becomes less localized, it has a smaller, if any, effect. Finally, regardless of the pressures exerted by consumers to comply, commercial managers are more likely to violate than on-site managers.
    Keywords: : Commercial Environmentalism, Compliance, Enforcement, Hazardous Waste, Market Size, Competition
    JEL: Q28 K42 D21
    Date: 2005–06–28
  14. By: John Dawson (Appalachian State University); Steven Millsaps (Appalachian State University); Mark Strazicich (Appalachian State University)
    Abstract: We estimate a model of the black market premium for dollars in Yugoslavia from 1974-1987. Our analysis extends previous applications of the model by (1) addressing nonstationarity in the underlying data, (2) allowing for trend breaks, and (3) providing evidence on the impact of government intervention in the black market. After allowing for trend breaks (found to be closely associated with the death of Tito), we find strong support for the underlying model, including a significant seasonal influence. In addition, we find evidence consistent with the era of increased government involvement in the black market following regime change, and a significant seasonal component in the volatility of the black market premium.
    Date: 2004

This nep-reg issue is ©2005 by Christian Calmes. 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.