International Review of Law and Economics最新文献

This work studies for the first time the effect on crime deterrence of variability in punishment under different assumptions on criminals risk preferences. We show that when criminals are risk averse, greater variability in punishment reduces the incentive to commit crimes, and that the opposite holds in the case of risk loving. The linkages between certainty of punishment, initial wealth and the incentive to commit crimes are also analyzed. We then analyze the effects of greater variability in punishment on deterrence policies founded on punishment severity, showing that this effect is positive if criminals are prudent and negative if they are imprudent. Lastly, we analyze for the first time variability in punishment as an instrument of deterrence policy. This analysis determines the optimal level of variability in the two cases of homogeneity and heterogeneity in risk preference.

Institutional quality is crucial for innovation and economic growth. In this article, we exploit historical linguistic differences across Slovenian municipalities between the Italian, German, and Slovenian-speaking population prior to World War 1, as a plausible exogenous source of variation in firm-level innovation to estimate the effect of institutional quality on innovation. Employing a set of limited dependent variable and instrumental variable models, we show that greater historical exposure to multilingualism is associated with markedly better quality of government and provision of public goods, more impartial local government administration, and lower prevalence of corruption, which in turn predicts systematically more vibrant economic activity, greater economic complexity, and higher rates of firm-level innovation at the local level. The estimated effects are robust to a variety of specification checks and do not appear to be sensitive to the choice of ethnic and linguistic diversity measures.

Borrower-friendly laws, such as recourse restrictions and judicial foreclosures, impose higher costs and risks to lenders. Yet, there is little evidence on how lenders transfer them to borrowers at the mortgage origination. By exploiting the mortgage law heterogeneity across U.S. states, I show that recourse restrictions trigger a collateral channel, through which lenders require a 1.6 to 1.9 percentage points lower loan-to-value ratio to compensate for worse recovery opportunities and respective higher expected loss. This effect holds both before and after the Great Recession, and is robust to a regression discontinuity design approach. I also find that lenders do not penalize strategic defaults when recourse is not allowed. Regarding the impact of judicial requirements, the findings are mixed.

Unrestricted publication of judicial opinions and full transparency of judicial action are often considered a means to increase information relevant for future litigants and public discourse. In this paper, we analyze a model that captures the potential for unintended consequences of such policies. Under certain conditions, unrestricted publication of judicial opinions, full transparency of judicial behavior at trial and oral argument enabled by telecasting, and other forms of surveillance of judicial behavior may induce judges to obscure their opinions and actions leading to less information for the public over time. Unrestricted publication and full transparency of judicial action should be carefully considered as a policy preference.

Although the demand for corporate legal services has grown significantly, so has the pressure on companies to reduce legal costs, thereby necessitating a “data-and-metrics” driven approach to legal fees. Accordingly, we exploit the availability of a unique dataset comprising legal fees that Indian corporations have spent over a 30-year period from 1990 to 2020. We undertake the first cross-sectional analysis of legal fees across various exploratory variables over a long period of time. The results show an increasing trend in the quantum of legal fees incurred by Indian companies during the period. They overwhelmingly suggest that large companies (measured along the lines of total assets, industry segmentation, export and import orientation) spend a higher quantum in legal fees than do small companies. Legal costs are higher for companies that undertake capital raising or mergers and acquisitions transactions in a given financial year than those that do not experience such events. Finally, legal fees tend to be higher in certain industry sectors such as technology and energy where significant contracting, regulatory or other form of legal work is pervasive. It is our expectation that the results and accompanying data analysis will aid purchasers of legal services (being corporations and their in-house legal departments) as well as providers (being law firms and legal professionals) in planning and budgeting for legal fees, and also in devising and implementing appropriate fee arrangements.

Why do some legal disputes fail to settle? From a bird’s eye view, the literature offers two categories of reasons. One consists of arguments based on informational disparities. The other consists of psychological arguments. This paper explores the psychological theory. It presents a model of litigation driven by risk preferences and examines the model’s implications for trials and settlements. The model suggests a foundation in Prospect Theory for the Mutual Optimism model of litigation. The model’s implications for plaintiff win rates, settlement patterns, and informational asymmetry with respect to the degree of risk aversion are examined.

The literature on legal traditions focuses on the comparative macroeconomic effects of legal systems, concentrating on efficiency alone and leaving distributive issues to taxation. However, a country’s legal structure also conditions the primary distribution of income and may have a comparative advantage over taxation as a distributive instrument. We use cross-section and panel estimates to show that the level of income inequality in a country is correlated with its legal system. By several measures of inequality, common law countries are on average more unequal than civil law countries. We explain these results by the nature of the systems. The looser regulation in common law countries limits their capacity to achieve social objectives such as combating income inequality.

We examine an important yet understudied form of reputational sanction in China, namely public criticisms imposed on culpable firms by the Chinese stock exchanges from 2013 to 2018. We find significantly negative cumulative abnormal returns around the announcement date, and they were affected by several factors, including financing propensity, governance mechanism, and equity nature. However, the market reaction is significantly negative only for firms relying on external financing and non-state enterprises, and importantly, becomes insignificant in cases where the firm had self-exposed misconduct before the official announcement of public criticism. Further, we examine other effects of public criticism, finding that public criticism does not improve firms’ long-term values, nor produce strong deterrence to change their behaviour. Overall, the evidence of the effects of public criticism on culpable firms is mixed, suggesting that reputational sanction is a weak, if not ineffective, instrument of market regulation in China.

We investigate the impact of legal insider trading announcements on stock returns in Vietnam. Vietnamese insiders must announce their trading intentions in advance as well as after the actual trade, which contrasts with the vast majority of countries where only post-trade announcement is mandatory. This regulatory setting allows to put to test the predictions from the theoretical models of advance disclosures (Huddart et al., 2004, Lenkey, 2014). Consistent with the theoretical literature, we find that the abnormal returns are large and significant after the pre-trade announcement, showing that the market takes into consideration the information content of the insiders' intention to trade. In addition, no significant stock price effect is found after the announcement of the actual trade occurrence or cancellation. We argue in favor of the implementation of advance disclosure policies since they help mitigate the returns obtained by insiders, better share the profits with outsiders and contribute to a better information dissemination.

Are judges motivated only by policy preferences? Public enforcement of law relies on the use of public agents, such as judges, to follow the law. We use the random assignment of U.S. Federal judges setting geographically-local precedent to document the causal impact of court decisions in a hierarchical legal system. We examine lower court cases filed before and resolved after higher court decisions and find that lower courts are 29%–37% points more likely to rule in the manner of the higher court. The results obtain when the higher court case was decided in the same doctrinal area as the pending case and when the higher court case was decided on the merits. Reversals by the higher court have no significant effects. These results provide evidence that judges are motivated to follow the law and are not solely motivated by policy preferences.