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on Law and Economics |
| By: | Philippe Choné; Laurent Linnemer |
| Abstract: | The analysis of horizontal mergers hinges on a tradeoff between unilateral effects and efficiency gains. The article examines the role of uncertainty (on the efficiency gains) in this tradeoff. Common wisdom is that the antitrust authorities should be very cautious about random gains. Our results show that dismissing efficiency gains on the sole ground that they are uncertain would not be theoretically founded. Indeed, the attitude towards uncertainty depends on the curvature of the social objective function. We exhibit a number of situations where the objective is convex in the efficiency gains, implying that competition authorities should welcome the risk for a given expectation of efficiency gains. Implications for empirical merger analysis are exposed. |
| Keywords: | merger analysis, antitrust, efficiency gains, uncertainty |
| JEL: | K21 L12 L41 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1726&r=law |
| By: | W. Bentley MacLeod |
| Abstract: | This paper discusses the literature on the enforcement of incomplete contracts. It compares legal enforcement to enforcement via relationships and reputations. A number of mechanisms, such as the repeat purchase mechanism (Klein and Leffler (1981)) and efficiency wages (Shapiro and Stiglitz (1984)), have been offered as solutions to the problem of enforcing an incomplete contract. It is shown that the efficiency of these solutions is very sensitive to the characteristics of the good or service exchanged. In general, neither the repeat purchase mechanism nor efficiency wages is the most efficient in the set of possible relational contracts. In many situations, total output may be increased through the use of performance pay and through increasing the quality of law. |
| Keywords: | contract, law and economics, reputation, repeated games, incomplete contracts, transactions costs, institutional economics, contract enforcement |
| JEL: | C70 D86 K12 O17 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1730&r=law |
| By: | Helge Berger; Michael Neugart |
| Abstract: | Labor courts play an important role in determining the effective level of labor market regulation in Germany, but their application of law may not be even-handed. Based on a simple theoretical model and a new panel data set, we identify a nomination bias in labor court activity - that is, court activity varies systematically with the political leaning of the government that has appointed judges. In an extension, we find a significant positive relation between labor court activity and unemployment, even after controlling for the endogeneity of court activity. The results have potentially important policy implications regarding the independence of the judiciary and labor market reforms. |
| Keywords: | courts, labor courts, law production, nomination bias, unemployment, regulation, firing costs, Germany |
| JEL: | E24 J53 K31 K41 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1752&r=law |
| By: | Robert Dur |
| Abstract: | This paper offers a new argument for why a more aggressive enforcement of minor offenses (‘zero-tolerance’) may yield a double dividend in that it reduces both minor offenses and more severe crime. We develop a model of criminal subcultures in which people gain social status among their peers for being ‘tough’ by committing criminal acts. As zero-tolerance keeps relatively ‘gutless’ people from committing a minor offense, the signaling value of that action increases, which makes it attractive for some people who would otherwise commit more severe crime. If social status is sufficiently important in criminal subcultures, zero-tolerance reduces crime across the board. |
| Keywords: | status concerns, street crime, subcultures, penalties, zero-tolerance, broken windows policing |
| JEL: | K14 K42 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1762&r=law |
| By: | Christa Hainz |
| Abstract: | Business groups in emerging markets perform better than unaffiliated firms. One explanation is that business groups substitute some functions of missing institutions, for example, enforcing contracts. We investigate this by setting up a model where firms within the business group are connected to each other by a vertical production structure and an internal capital market. Thus, the business group’s organizational mode and the financial structure allow a self-enforcing contract to be designed. Our model of a business group shows that only sequential investments can solve the ex post moral hazard problem. We also find that firms may prefer not to integrate. |
| Keywords: | business groups, self-enforcing contract, institutions, internal capital market |
| JEL: | G31 G32 G34 K49 L22 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1763&r=law |
| By: | Nauro F. Campos (Brunel University, CEPR and IZA Bonn); Cheng Hsiao (University of Southern California); Jeffrey B. Nugent (University of Southern California) |
| Abstract: | Recent research convincingly shows that crises beget reform. Although the consensus is that economic crises foster macroeconomic stabilization, it is silent on which types of crises cause which types of reform. Is it economic or political crises that are the most important drivers of structural reforms? To answer this question we put forward evidence on trade and labour market liberalization from panel data on more than 100 developed and developing countries from 1950 to 2000. We find important differences in the effects of the two types of crises on the two reforms across regions and even from one measure of crisis to another. Yet, in general, we consistently find that political considerations (political crises as well as political institutions) are more important determinants of these reforms than economic crises. This finding is robust to the inclusion of interdependencies between the two types of crises, feedbacks between the two types of reform, the use of alternative measures of political and economic crises and whether or not the data are pooled across all countries or only across regions. |
| Keywords: | economic reform, economic crisis, political crisis, trade liberalisation, labour market reform |
| JEL: | H11 K20 E32 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2217&r=law |
| By: | Justin McCrary |
| Abstract: | Arguably the most aggressive affirmative action program ever implemented in the United States was a series of court-ordered racial hiring quotas imposed on municipal police departments. My best estimate of the effect of court-ordered affirmative action on workforce composition is a 14 percentage point gain in the fraction African American among newly hired officers. Evidence on police performance is mixed. Despite substantial black-white test score differences on police department entrance examinations, city crime rates appear unaffected by litigation. However, litigation lowers slightly both arrests per crime and the fraction black among serious arrestees. |
| JEL: | H4 H7 J1 J4 J7 K3 K4 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12368&r=law |
| By: | Stéphanie Jamet |
| Abstract: | With high unemployment, low participation of specific groups such as the low-skilled and those nearing retirement age, and relatively low average hours worked, France is far from using its full labour potential. Improving the labour market situation would not only increase living standards and growth potential but also reduce social exclusion and ease pressures on public spending. This paper analyses various characteristics of the French labour market that may explain the low utilisation of labour potential. It puts forward the need for a comprehensive reform of the labour market aiming at: i) shifting the burden of social protection in the labour market away from employers towards the state by reducing and streamlining employment protection legislation; ii) removing incentives that lead to early withdrawal from the labour market; iii) allowing employers and employees more freedom to negotiate working hours; and iv) improving efficiency in job placement services. |
| Keywords: | employment protection legislation, France, labour costs |
| JEL: | J30 J50 J65 J8 K31 |
| Date: | 2006–07–24 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:504-en&r=law |
| By: | Tomaso Duso; Klaus Gugler; Burçin Yurtoglu |
| Abstract: | This paper applies a novel methodology to a unique dataset of large concentrations during the period 1990-2002 to assess merger control’s effectiveness. By using data gathered from several sources and employing different evaluation techniques, we analyze the economic effects of the European Commission’s (EC) merger control decisions and distinguish between blockings, clearances with commitments (either behavioral or structural), and outright clearances. We run an event study on merging and rival firms’ stocks to quantify the profitability effects of mergers and merger control decisions. We back up our results and methodology by using alternative measures for the merger’s profitability effects based on balance-sheet data and obtain consistent results. Our findings suggest that outright blockings solve the competitive problems generated by the merger. Remedies are not always effective in solving the market power concerns, at least not on average. Nevertheless, both structural (divestitures) and behavioral remedies do help restore effective competition when correctly applied to anticompetitive mergers during the first investigation phase. Yet, they are on the whole ineffective or even detrimental when applied after the second investigation phase. Finally, remedies - especially behavioral ones - seem to constitute a rent transfer from merging firms to rivals when mistakenly applied to pro-competitive mergers. <br> <br> <i>ZUSAMMENFASSUNG - (Wie wirksam ist die Europäische Fusionskontrolle?) <br> In diesem Beitrag wenden wir eine neue Methodologie auf einen einzigartigen Datensatz von großen Unternehmenskonzentrationen während der Jahre 1990- 2002 an, um die Wirksamkeit der Fusionskontrolle zu untersuchen. Wir benutzen Daten, welche von unterschiedlichen Quellen erfasst worden sind und setzen unterschiedliche Auswertungsmethoden ein, um die ökonomischen Effekte der Fusionskontrollentscheidungen der Europäischen Kommission zu analysieren. Wir unterscheiden zwischen Untersagungen, Genehmigung mit Auflagen (entweder Verhaltensauflagen oder strukturelle) und sofortige Genehmigung. Wir verwenden eine "event study" - Methodologie und untersuchen, wie die Aktienpreise sowohl der fusionierenden Unternehmen als auch der Wettbewerber auf die Ankündigung einer Fusion oder einer besonderen wettbewerbspolitischen Entscheidung reagieren, um die Rentabilitätseffekte von Fusionen und von Fusionskontrollentscheidungen quantitativ zu bestimmen. Wir stützen unsere Resultate und Methodologie, indem wir alternative Maße für die Rentabilitätseffekte der Fusion verwenden, die auf Bilanzdaten basieren und erreichen gleich bleibende Resultate. Unsere Analyse ergibt, dass sofortige Untersagungen das von der Fusion verursachte Wettbewerbsproblem lösen können. Dagegen sind Auflagen nicht immer wirkungsvoll - mindestens nicht im Durchschnitt - um die durch die Fusion erzeugte Markmacht zu begrenzen. Dennoch helfen strukturelle Auflagen wie Abstoßungen von Kapitalvermögen und Verhaltensauflagen, einen "effektiven" Wettbewerb wieder herzustellen, wenn sie richtig auf wettbewerbswidrige Fusionen während der ersten Untersuchungsphase des Fusionskontrollverfahren angewendet werden. Jedoch sind sie im Durchschnitt erfolglos - wenn nicht sogar schädlich - wenn sie nach der zweiten Untersuchungsphase angewendet werden. Schließlich scheinen Abhilfemaßnahmen - besonders Verhaltensauflagen -, ein Rententransfer von den fusionierenden Unternehmen auf ihre Rivalen zu sein, wenn sie irrtümlich Wettbewerb steigernden Fusionen auferlegt werden.</i> |
| Keywords: | Mergers, Merger Control, Remedies, European Commission, Event Studies, Ex-post Evaluation |
| JEL: | L4 K21 G34 C2 L2 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:wzb:wzebiv:spii2006-12&r=law |
| By: | Ramb, Fred; Reitzig, Markus |
| Abstract: | On the basis of accounting and market data for firms and groups listed on German stock exchanges between 1997 and 2003, we show that the value relevance of R&D information under German accounting standards can be superior to that provided by US-GAAP and IAS. The results, obtained while dynamically controlling for partial freedom of firms to choose a standard in a modified Q model, show that the risk of IAS/US-GAAP misinforming investors during “bear market” periods is more relevant than their comparative advantage over the prudence principle of the German Commercial Code in “bull market” periods. Using the approach chosen for this study, it is possible not only to draw a clear dividing line between standard and selection effects but also to disentangle them along theoretical lines more clearly than in earlier studies. |
| Keywords: | Accounting sta ds, sta d selection, R&D, value relevance, Germany |
| JEL: | D82 K11 M40 M41 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdp1:4230&r=law |
| By: | de Laiglesia, Juan R. |
| Abstract: | This paper analyzes the importance of legal property documents in providing tenure security, enhancing agricultural investment incentives and easing access to credit. While theory predicts that better property rights on land can increase investment through increased security, enhanced trade opportunities and increased collateral value of land, the presence and size of these effects depend crucially on whether those rights are properly enforced. In Nicaragua, a troubled history of land expropriation and invasion has undermined the credibility of the legal property regime. The variation in legal ownership status due to a land titling and regularization programme is studied to identify the effects of legal ownership documents. Possession of a registered document is found to increase the probability of carrying out land-attached investments by 35%. No difference is found in the effect of public deeds and agrarian reform titles provided they are both registered and we find no strong evidence of a credit supply link, thus suggesting security of tenure as the channel through which formal land ownership has an effect on investment. |
| Keywords: | Property rights, investment, land reform, Nicaragua, land ownership |
| JEL: | D23 K11 O13 Q15 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec05:3483&r=law |
| By: | Hainz, Christa |
| Abstract: | The number of firm bankruptcies is surprisingly low in economies with poor institutions. We study a model of bank-firm relationship and show that the bank’s decision to liquidate bad firms has two opposing effects. First, the bank receives a payoff if a firm is liquidated. Second, it loses the rent from incumbent customers that is due to its informational advantage. We show that institutions must improve significantly in order to yield a stable equilibrium in which the optimal number of firms is liquidated. There is also a range where improving institutions may decrease the number of bad firms liquidated. |
| Keywords: | Credit markets, institutions, bank competition, information sharing, bankruptcy, relationship banking |
| JEL: | D82 G21 G33 K10 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:gdec05:3491&r=law |