Showing papers in "European Journal of Law and Economics in 1999"

Money Laundering: the Economics of Regulation

Abstract: The paper undertakes an economic analysis of money laundering and of anti-money laundering regulation within a theoretical and normative framework. The model is then applied to the development of the Italian anti-money laundering regulation in recent years.

To Arbitrate or To Litigate: That Is the Question

Abstract: The benefits of interjurisdictional competition, particularly with a customary law option, are discussed. Arbitration can be a mechanism for choosing among systems of substantive law if effective sanctions back arbitration. Powerful groups capture wealth by manipulating monopolized law, however, and arbitrators' decisions must correspond with expectations about how they will be viewed under review if a coercive monopoly provides sanctions, so conditions necessary for establishing alternative sanctions are explored. Finally, historical efforts to eliminate or absorb customary commercial law are discussed in light of the analysis of interjurisdictional competition, and the potential for encouraging such competition in emerging markets is considered.

Implicit Consitutional Change—Changing the Meaning of the Constitution Without Changing the Text of the Document

Abstract: Constitutional change is often thought of as explicit constitutional change, i.e., as change that implies a modified wording of the constitutional document. In this paper, the possibilities of implicit constitutional change, i.e., change that is not accompanied by formally changing the constitution, are analyzed. The separation of powers a la Montesquieu is taken as a starting point and it will be argued that constitutional change can be brought about by all government branches, i.e., by the executive, the legislature, and the judiciary. If this argument is accepted it follows that the judiciary-even when endowed with the competence of judicial review-is not the ultimate arbiter in supervising constitutional change. It is the main hypothesis of this paper that the judiciary in bringing about implicit constitutional change is subject to a number of constraints among which the original document plays a rather marginal role. Instead, it is claimed that the current preferences of the other government organs as well as those of the population are more relevant in ascertaining the meaning of the constitution at a given point in time.

Corporate Ownership by Industrial Foundations

Abstract: Industrial foundations are self-governing, non-profit institutions that own business companies. This ownership structure is found in a fair number of Northern European companies, some of them successful world-class competitors. Standard agency theory would predict foundation-owned companies to be relatively inefficient since they lack monitoring by residual claimants and access to equity finance from the stock market. Nevertheless, empirical research (Thomsen 1996) has found that Danish foundation-owned companies do no worse in terms of profitability and growth than companies with dispersed ownership or family ownership. The paper considers and tests alternative explanations of this paradox. Explanations based on tax incentives, alternative control mechanisms and product-market advantages are rejected, but some support is found for performance advantages related to family control and long-term business commitment.

Public Choice at the Intersection of Environmental Law and Economics

Abstract: Management of environmental assets begins with a commons and ends with various legal institutions that assign property rights and control. Each step in the evolution of these legal institutions involves collective decision making. Public Choice analysis helps to explain the decision making process and institutional characteristics that emerge. A survey of Public Choice literature that addresses environmental issues illustrates how Public Choice sheds light on outcomes for the U.S. experience. In the absence of Public Choice theory, law and economics scholars would be hard pressed to explain why costly forms of environmental regulation seem preferred to apparently more efficient institutions and why the body politic seemingly accepts a high-cost, low-output outcome.

The Impact of Regulation on Innovation

Abstract: This paper presents two examples that indicate the breadth of the impact of regulation on innovation. That some of the impacts in those examples were not intended by the regulators is taken as evidence that a better understanding of the impact of regulation is needed. The examples can be understood within theoretical frameworks that place innovation at the centre of social and economic activity within an integrated system. It is argued that understanding that system is essential to the better appreciation of the innovation process and relevant policy.

Sailing Towards the Brave New World of Zero Transaction Costs

Abstract: The Coase Theorem is in essence an if-A-then-B statement. Previous discussions of the Theorem have mostly focused on the then-B part and examined that, given the condition of A, whether B is true or not. The present study attempts to analyze the Theorem from a different angle. In particular, we push the if-A assumption, i.e., the zero transaction costs assumption, to its logical limit, and then explore the implications. We argue that the price mechanism, which is implicitly employed as the foundational basis of the Coase Theorem, is the result of positive transaction costs. Consequently, if transaction costs are zero, then money and prices as commonly understood would not exist, and the value of production would become a vague concept without any operational content. As such, the world of zero transaction costs may be even more peculiar than Coase might have thought!

Optimal Law Enforcement with Dissemination of Information

Abstract: In this paper we discuss the implications of introducing imperfect information on the optimal law enforcement literature We assume that individuals can be imperfectly informed about the probability of apprehension and about the sanction

A Deferential Role for Efficiency Theory in Analysing Causation-Based Tort Law

Abstract: This paper argues for a reorientation in our thinking concerning the relationship between causation and efficiency in the design of tort law. The main proposition is that efficiency theory has a significant but deferential role to play in understanding appropriate tort law rules in countries where a corrective justice purpose is fundamental to the tort system.

Lender Liability for Environmental Harm: An Argument Against Negligence Based Rules

Abstract: A firm strictly liable for any harm done will choose an inefficiently low care level if there is a possibility that it goes bankrupt. One possibility to improve care is extending liability to secured lenders, as applied under CERCLA and as currently being discussed in the EU. I compare strict liability, partial liability and vague negligence for lenders in a model with moral hazard and environmental auditing. While auditing is socially valuable only if it increases the firm's care level, the creditor also calculates the reduction in the information rent. Thus, for each possible care level, monitoring is always too high. This effect is aggravated by a vague negligence rule, where the probability that a lender is found liable decreases in the level of auditing. It is demonstrated that partial liability is superior, because the incentive for excessive monitoring is diminished.

Regulatory Competition: A Private International Law Approach

Abstract: This article analyzes the “regulatory competition model” (RCM) from a private international law perspective. This perspective helps us identify and resolve two gaps in the standard explanation of the RCM. According to the standard explanation, two conditions must be fulfilled for the market of legal products to function well: (1) free movement of resources (persons, capital, and goods); (2) the absences of cross-border externalities. In relation to this second condition, the standard model argues that a uniform material rule is necessary to overcome cross-border externalities. The main thesis of this article is that a “private international law” approach can complete this model by adding two ideas. First, a smooth functioning of the market-of-legal products requires, not only the free movement of resources, but also a uniform private international law system which guarantees the autonomy of the parties (free choice of law) and the procedural implementation of this autonomy (free choice of forum and free movement of judgments). And second, a uniform material law, which wipes out the regulatory market, is not essential to deal with the externality problem; rather a uniform conflict-of-laws rule, which leads to the internalization of cross-border externalities by states, can correct at least some of the externalities problem and also maintains the regulatory market.

Economic Efficiency in a World of Frictions

Abstract: As the literature has given increasing attention to the roles played by transaction costs and bounded rationality in shaping economic outcomes, attempts have been made to redefine the concept of economic efficiency The traditional criterion, which is linked to the standard Pareto conditions, is said to lead to the nirvana fallacy The newer, alternative definitions, however, are also open to criticism on grounds that they involve contradictory assumptions It appears that, for logical consistency to hold, only a loose, qualitative definition of allocative efficiency can be established for a system in which decision makers have limited cognitive capacity and both transaction and deliberation costs are positive Given this interpretation, the analytical focus should shift from concern with narrow technical issues of allocative efficiency to a consideration of how legal, social and other constraints can be changed to improve economic performance

German influences on Japanese Pre-war Constitution and Civil Code

Abstract: German influences were seen in every field of Japanese culture after the Meiji Restoration. as for the pre-war constitution, Dr. Hermann Roesler is considered the most important foreign advisor to the Japanese government because the constitution was established according to his plan. Roesler recommended that Japanese politicians strengthen the right of the Emperor and establish the constitution by the will of the Emperor, not by the will of the people. In the enactment of Japan's civil code was to be enacted in 1894 but this code was considered too democratic for the actual Japanese situation. conservative Japanese politicians then tried to established the civil code according to the German model and succeeded partly in doing so.

Assessing and Tax Accounting Principles in the German Civil and Commercial Code and the Impact on Tax Compliance

Abstract: The author outlines the development of accounting and assessing principles in Germany. He presents the poor regulations at the beginning and shows the thoroughly improved rulings after the middle of the 19th century as a result of specific problems caused by the revolutionized taxation sytem after priority was shifted from indirect excise duties to direct new income taxation. The author shows the impact of accounting problems and the development of modern accounting principles originated by the political events. He outlines the gradual formation of extraordinary deficiencies of the German legal accounting principles compared with the ideal goal of all accounting. The author demonstrates the difficulties, which brought about a different historical economic development beween German and Anglo-Saxon accounting principles. He shows the obstacles the harmonisation activities are facing and the endeavours to support globalisation.

The Liberalization of the Telecommunications Sector: A Rent-Seeking Perspective

Abstract: This paper assesses market liberalization in the telecommunications industry from a rent-seeking perspective. Our focus is on United States regulation, with corollary international developments that are spurring competition. The analysis which is general in approach, assesses pervasive government controls which have long shaped the nature of competition in the telecommunication sectors. We find that government has been a means for retarding competition and innovation in the telecommunications sector through the actions of rent-seeking agents. Rapid technological change, however, increasingly is rendering traditional government regulation obsolete. This change is spurring welfare-enhancing competition, regulatory reform, and privatization in the telecommunications sector.

The German Civil Code of 1896: An Economic Interpretation

Abstract: The 19th century has seen some large codifications, several of which such as the Code de Napoleon of 1804 and the German Civil Code of 1900 have shown remarkable longevity. This article deals with the economists' influence on the German Civil Code of 1900. It is argued that the economists played an important role in re-shaping the Code, that this was even a concerted effort, and that Otto von Gierke's legal doctrine proved to be particularly viable for the introduction of economic ideas into legal reasoning.

Getting Out of Debt: Garnishment of Wage in Whose Interest?

Abstract: Garnishment of wage as a way for creditors to enforce payment by unwilling or insolvent debtors, while very common in Germany and Switzerland, is not very successful Based on a dynamic model of debtor behaviour, this paper explores two alternatives of reform One is to reduce the rate of garnishment, which at present amounts to 100 percent of the wage income exceeding a defined subsistence level, thus probably destroying incentives to work According to model simulations, reducing the rate of garnishment is likely to result in an increase of labour supply but a decrease of garnishment revenue per period Second, the introduction of a debt release as it exists in the United States would have an ambiguous effect on labour supply While providing debtors with a fresh start, it would result a partial loss for creditors A Pareto improvement thus does not seem to be possible When taxpayers as an involved third party are taken into account, however, a potential Pareto improvement appears attainable through debt release

Equality and Sharing: Views of Household Across the Iron Curtain

Abstract: Before they reunified, the two Germanies provided a natural experiment in whether law could rectify what many have seen as injustice between men and women in the household. East German legislation mandated that equal hours of housework be contributed by husband and wife, while West Germany allowed the couple to reach any arrangement they chose. This paper explores the predicted and actual consequence of the two regimes for labor force participation, divorce, and equality within marriages.

The Undesirability of Detailed Judicial Reasoning

Abstract: In this paper we question the general practice in which Common Law based judicial systems produce detailed written decisions. The requirement to produce written court decisions is expensive and helps produce long delays. Furthermore, we show that the general applicability of detailed reasoning may be inefficient. Our method of proving this claim is to show that the individual litigants have almost nothing to gain from having a detailed written reasoning. In fact, most of the time, they are clearly better off by being able to switch to a policy that requires no written opinion. Our approach is most appropriate in circumstances of pecuniary private disputes where the parties involved act as rational utility, or profit, maximizers.

Compensation of Uncertain Lost Earnings

Abstract: The present value of expected lost earnings is in the Law and Economics literature normally regarded as the amount that makes a victim fully compensated at income losses. However, the present value measure disregards risk-aversion. In the framework of the von-Neumann-Morgenstern utility theory the risk-averse victim will be made whole by a compensation smaller than the present value of the stream of uncertain lost earnings. A rule for determining an immediate certainty equivalent for lost potential earnings when the victim is risk-averse is suggested. The equivalent depends not only on the degree of risk-aversion, but also on the correlation between future losses. The legal practice varies, but in many jurisdictions judges tend to pay less than the present value for uncertain lost earnings, which is in accordance with our results.

Dominance in the Tetra Pak Case: An Empirical Approach

Abstract: The 1991 decision of the European Commission on the Tetra Pak case was based on information which seemed to prove the firm's anti-competitive behavior. The Tetra Pak case is investigated here focusing on the meaning of multimarket dominance, using empirical techniques. We find that a more rigorous analysis of the data available would not confirm the Commission's assertions. That is, it cannot be concluded with certainty that the Commission was right to relate Tetra Pak's dominance in the aseptic sector to its market power in the non-aseptic sector. Our results suggest a general framework for the analysis of abusive transfer of market power across vertically or/and horizontally related markets.

Why has the German Civil Code Proven so Durable

Abstract: This paper explores possible reasons for the longevity of the German Civil Code (Burgerliches Gesetzbuch) using mostly English language sources. The introduction reviews the reasons usually given for the durability of the Code in the context of the history of Germany. None are completely satisfactory. The next section is devoted to a description of the Code. It concludes with attention to the patriotic motives of its developers, an important factor in determining its unique character. The third part examines what social scientists and legal scholars, with an emphasis on sociologists, have written about legal evolution and this important legislation. Their results, although often interesting and provocative, made no substantial contribution to the problem. The “Conclusions” summarize and make the point that it is not known what determines the quality or durability of legal systems.

The Italian Post War Fiscal Constitution: Reasons of a Failure

Abstract: If the Italian Constitution shall be changed, to transform Italy in a semi-Presidential Republic-as in the project of constitutional revision recently approved by the Parliamentary Committee for Constitutional Reforms-the President of the Republic, elected by the people, shall become the natural guardian of the fiscal constitution, under direct control of the public opinion (17) He should, then, be staffed with an office, to check the conformity of laws to the fiscal constitutional rules and claims might be addressed by a qualified number of Parliamentarians, in addition to the Court of Accounts, to him The chain connecting the President of the Republic to the Parliament, in this new constitutional model, will be broken And hardly the President could stand still, in case of open violation of the rules of the fiscal constitution by the Government on the Parliament, because of the risk of loss of reputation If he were to overlook negative checks by the Court of Accounts, his behaviour would greatly damage his credibility among the electors Thus, it seems that the difference in the model of State, whether is a parliamentary system or a system where the President of the Republic is elected by the people, has much to do with the workability of a fiscal constitution aiming to monetary and fiscal soundness

Reversed Solidarity in Pension Plans

Abstract: There is a unexpected phenomenon in the majority of complementary pension plans in the Netherlands. Unlike other arrangements that are the result of collective bargaining and decision making, these pension plans increase the inequality in the distribution of (lifetime) income. In those plans, persons without a career contribute to the payment of pension provisions of those with a career. Generally speaking, this implies that blue-collar workers and women pay for the pensions of white-collar workers, who are mostly men. For some of the contracting parties, the terms of the pension contract seem to be disadvantageous and suboptimal. The question arises as to why these contracts are being concluded and how they can survive in a competitive environment. Moreover, since the pension plans are the result of collective bargaining between the organisation of employers and the labour unions, the question arises as to how reversed solidarity fits the alleged redistributive goal of the labour unions. The analysis leads to the following conclusions. Firstly, that information and transaction cost, collective agreements, legal barriers and market failures on substitute arrangements prevent the conclusion of optimal contracts. Secondly, employers would find the pension plan attractive because it discourages shirking, enhances productivity and the process of job matching and reduces labour turnover. Thirdly, a pension plan based on final salary is in the interest of the median voter in the labour union, who is older and earns a higher seniority wage than junior workers. Furthermore, in the given circumstances the pension plan enlarges union membership and the dues income of the union and endows the union leadership with more prestige and influence. Individual union members would not oppose such a pension plan for reasons of informational asymmetry, transaction cost and the inability to capture the full benefits of their actions. A comparison of the pension schemes of Belgium, Germany, France and the UK shows that there are large differences in the structure and content of retirement provisions. Reversed solidarity may also be part of the pension plans in Belgium and the UK.

Consolidation of the Field: a Review Article

Abstract: When a particular research field experiences the sudden and simultaneous appearance of several encyclopaedic and anthological works, this might be taken as a sign of consolidation. This article tests the hypothesis of consolidation on occasion of the appearance of several new anthologies and an encyclopaedia.

The Law and Economics of European Monetary Integration

Abstract: The review articles draws attention to the need of serious law and economics analysis of the Maastricht Treaty. It first discusses the convergence criteria, then delves into the history of monetary integration with the example of Germany, looks thirdly at the basic theoretical model underlying the main stream analysis, forthly deals with adjustment problems and finally emphasizes a constitutional law and economics aspect.

Shall Housekeeping Tasks Become a Duty for Husbands

Abstract: This popular newspaper headline has often be discussed in public. After all, statistics show, that men only spend 19 and a half hours per week to help with the cooking, washing, ironing etc., while the wife spends 35 hours for housekeeping.