https://sites.temple.edu/lnaveen/files/2014/05/JFE_risktaking_2006.pdf

Managerial incentives and risk-taking ☆

We estimate private benefits of control in 39 countries using 393 controlling blocks sales. On average the value of control is 14 percent, but in some countries can be as low as ‐4 percent, in others as high a +65 percent. As predicted by theory, higher private benefits of control are associated with less developed capital markets, more concentrated ownership, and more privately negotiated privatizations. We also analyze what institutions are most important in curbing private benefits. We find evidence for both legal and extra-legal mechanisms. In a multivariate analysis, however, media pressure and tax enforcement seem to be the dominating factors. THE BENEFITS OF CONTROL OVER corporate resources play a central role in modern thinking about finance and corporate governance. From a modeling device (Grossman and Hart (1980)) the idea of private benefits of control has become a centerpiece of the recent literature in corporate finance, both theoretical and empirical. In fact, the main focus of the literature on investor protection and its role in the development of financial markets (La Porta, Lopez-de-Salines, and Shleifer (2000)) is on the amount of private benefits that controlling shareholders extract from companies they run. In spite of the importance of this concept, there are remarkably few estimates of how big these private benefits are, even fewer attempts to document empirically what determines their size, and no direct evidence of their impact on financial development. All of the evidence on this latter point is indirect, based on the (reasonable) assumption that better protection of minority shareholders is correlated with higher financial development via its curbing of private benefits of control (La Porta et al. (1997)). The lack of evidence is no accident. By their very nature, private benefits of control are difficult to observe and even more difficult to quantify in a reliable

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Private Benefits of Control: An International Comparison

We provide evidence that the use of discretionary accruals to manipulate reported earnings is more pronounced at firms where the CEO's potential total compensation is more closely tied to the value of stock and option holdings. In addition, during years of high accruals, CEOs exercise unusually large amounts of options and CEOs and other insiders sell large quantities of shares.

CEO Incentives and Earnings Management

Outside the United States and the United Kingdom, large corporations usually have controlling owners, who are usually very wealthy families. Pyramidal control structures, cross shareholding, and super-voting rights let such families control corporations without making a commensurate capital investment. In many countries, a few such families end up controlling considerable proportions of their countries’ economies. Three points emerge. First, at the firm level, these ownership structures, because they vest dominant control rights with families who often have little real capital invested, permit a range of agency problems and hence resource misallocation. If a few families control large swaths of an economy, such corporate governance problems can attain macroeconomic importance—affecting rates of innovation, economywide resource allocation, and economic growth. If political influence depends on what one controls, rather than what one owns, the controlling owners of pyramids have greatly amplified political influence relative to their actual wealth. This influence can distort public policy regarding property rights protection, capital markets, and other institutions. We denote this phenomenon economic entrenchment, and posit a relationship between the distribution of corporate control and institutional development that generates and preserves economic entrenchment as one possible equilibrium. The literature suggests key determinants of economic entrenchment, but has many gaps where further work exploring the political economy importance of the distribution of corporate control is needed.

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Corporate Governance, Economic Entrenchment, and Growth

Heuristics are efficient cognitive processes that ignore information. In contrast to the widely held view that less processing reduces accuracy, the study of heuristics shows that less information, computation, and time can in fact improve accuracy. We review the major progress made so far: (a) the discovery of less-is-more effects; (b) the study of the ecological rationality of heuristics, which examines in which environments a given strategy succeeds or fails, and why; (c) an advancement from vague labels to computational models of heuristics; (d) the development of a systematic theory of heuristics that identifies their building blocks and the evolved capacities they exploit, and views the cognitive system as relying on an ‘‘adaptive toolbox;’’ and (e) the development of an empirical methodology that accounts for individual differences, conducts competitive tests, and has provided evidence for people’s adaptive use of heuristics. Homo heuristicus has a biased mind and ignores part of the available information, yet a biased mind can handle uncertainty more efficiently and robustly than an unbiased mind relying on more resource-intensive and general-purpose processing strategies.

/pdf/homo-heuristicus-why-biased-minds-make-better-inferences-115j01ajcy.pdf

Homo Heuristicus: Why Biased Minds Make Better Inferences

Economic analysis of law usually proceeds under the assumptions of neoclassical economics. But empirical evidence gives much reason to doubt these assumptions; people exhibit bounded rationality, bounded self-interest, and bounded willpower. This article offers a broad vision of how law and economics analysis may be improved by increased attention to insights about actual human behavior. It considers specific topics in the economic analysis of law and proposes new models and approaches for addressing these topics. The analysis of the article is organized into three categories: positive, prescriptive, and normative. Positive analysis of law concerns how agents behave in response to legal rules and how legal rules are shaped. Prescriptive analysis concerns what rules should be adopted to advance specified ends. Normative analysis attempts to assess more broadly the ends of the legal system: Should the system always respect people's choices? By drawing attention to cognitive and motivational problems of both citizens and government, behavioral law and economics offers answers distinct from those offered by the standard analysis.

A Behavioral Approach to Law and Economics

Авторы расширяют стандартный подход к экономическому анализу права (базирующийся на предпосылках экономической теории), основывая свой анализ на постулатах поведенческой экономики. В статье разбираются аргументы в пользу использования основ поведенческой экономики при анализе права, объясняются существующие правовые нормы и институты, исследуется, каким образом люди реагируют на информацию, и каким образом эта реакция сказывается на роли права в регулировании общества.

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In many settings, human beings are boundedly rational. A distinctive and insufficiently explored legal response to bounded rationality is to attempt to "debias through law," by steering people in more rational directions. In many important domains, existing legal analyses emphasize the alternative approach of insulating outcomes from the effects of boundedly rational behavior, often through blocking private choices. In fact, however, a large number of actual and imaginable legal strategies are efforts to engage in the very different approach of debiasing through law by reducing or even eliminating people's boundedly rational behavior. In important contexts, these efforts to debias through law can avoid the costs and inefficiencies associated with regulatory approaches that take bounded rationality as a given and respond by attempting to insulate outcomes from its effects. This paper offers a general account of how debiasing through law does or could work to address legal questions across a range of areas, from consumer safety law to corporate law to property law. Discussion is also devoted to the risks of government manipulation and overshooting that are sometimes raised when debiasing through law is employed.

Debiasing through Law

Introduction 448 I. Framework 453 A. Time of Hiring 454 B. Nature of the Hiring Process 455 II. Evidence on Hiring in the Third Rather Than the Second Year of Law School 457 III. Adherence to Start Dates 459 A. Historical Experience with Start Dates in the Law Clerk Market and Beyond 459 B. Evidence on Adherence to Start Dates in the Present Law Clerk Market 461 C. Stabilization of the Present Law Clerk Market in a Pattern of Mixed Adherence and Nonadherence 469 IV. “Exploding Offers” and Compressed Market Timing 476 A. Exploding Offers 479 B. Market Compression in General 481 V. Conclusion 483 Appendix 484

/pdf/the-new-market-for-federal-judicial-law-clerks-3zccggq66g.pdf

The New Market for Federal Judicial Law Clerks

Considerable attention has been given to the Implicit Association Test (IAT), which finds that most people have an implicit and unconscious bias against members of traditionally disadvantaged groups. Implicit bias poses a special challenge for antidiscrimination law because it suggests the possibility that people are treating others differently even when they are unaware that they are doing so. Some aspects of current law operate, whether intentionally or not, as controls on implicit bias; it is possible to imagine other efforts in that vein. An underlying suggestion is that implicit bias might be controlled through a general strategy of debiasing through law.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID897553_code170891.pdf?abstractid=897553&mirid=2

Christine Jolls

Papers

A Behavioral Approach to Law and Economics

A Behavioral Approach to Law and Economics

Debiasing through Law

The New Market for Federal Judicial Law Clerks

The Law of Implicit Bias