Digital Commons Network^™

Netznutzungsentgelte Als Wettbewerbshindernis? Diskriminierungsanreize Und Regulierung In Liberalisierten Strommärkten – Eine Spieltheoretische Analyse The Access Pricing Problem: Incentives To Discriminate And The Regulation Of Access Charges – A Game Theoretic Analysis, Dieter Schmidtchen, Christoph Bier

German Working Papers in Law and Economics

The purpose of the paper is (1) to analyze the incentives for a vertically integrated input monopolist to engage in price-discrimination when there is downstream entry, and (2) to examine the question, whether a cost-based regulation of access charges for electricity grids enhances competition in the downstream-market. The paper also derives the welfare effects of both the liberalization of the downstream-market and the cost-based regulation.

The paper shows that the incumbent will never block entry if the entrant is more efficient than the incumbent. The reason is that the input-monopolist can make more profit through input sales than it could …

Economic Analysis Of Law And Economics, Oren Gazal-Ayal

German Working Papers in Law and Economics

The academic world is wonderful. Like few other professionals, we can choose what we want to do and what questions we think are important, which in our line of work means choosing what topics we want to research. But what influences our choices? This paper examines what drives scholars to select Law and Economics (L&E) as a topic for research. It does so by implementing the methodology of many L&E papers – by assuming that regulation and incentives matter.

Legal scholars face very different academic incentives in different parts of the world. In some countries, the academic standards for appointment, …

The Condorcet Jury-Theorem With Two Independent Error-Probabilities, Roland Kirstein

German Working Papers in Law and Economics

The Condorcet jury-theorem is derived from the implicit assumption that jury members may only commit one type of error. In binary decision situations however, two error types may occur, the probability of which is independent of each other. Taking this into account leads to a generalization of the theorem.

Increased Heterogeneity As A Cause For Decreased Use Of International Courts - The Case Of The Icj, Janina Satzer

German Working Papers in Law and Economics

The popularity of the International Court of Justice (ICJ) is discussed controversially. This paper examines the usage of the ICJ by both all UN member states and the top-ten economies of the world. In addition, five hypotheses explaining the decrease in the ICJ’s usage by the major powers of the world are presented as follows: (I) the home-bias of judges, (II) the diversification of international tribunals, (III) changes in the composition of the cases filed, (IV) the (re-) allocation of power, and (V) an increased heterogeneity of external institutions among UN member states. We find empirical evidence that the increase …

Shareholder Protection In The Usa And Germany - On The Fallacy Of Llsv, Udo C. Braendle

German Working Papers in Law and Economics

“Law matters” is the message in several articles of LaPorta et al., which influence economic as well as legal literature. The results of their heavily cited Law and Finance article highlight the much better shareholder protection of Common Law compared to Civil Law countries. In this contribution I reconsider their “ntidirector rights index” for Germany and the United States, two typical representatives of their respective legal tradition. By having a close look at the legal provisions of the two countries I illustrate the weaknesses and pitfalls of the index. Bothering German Company Law, I find that Germany would score much …

Corruption, Exogenous Changes In Incentives And Deterrence, Guiseppe Di Vita

German Working Papers in Law and Economics

In this article we apply and extend the model elaborated by Acemoglu and Verdier in their seminal paper (2000), to examine how the economy represented in their theoretical framework responds to an exogenous change in the agent’s incentive. In particular, we focus on the consequences of a famous sentence of the Italian Supreme Court in plenary session, no. 500 of 1999, in which a revolutionary interpretation of civil liability rules is introduced, allowing private agents of our economy to appear before the court to demand reimbursement for the damages suffered as a consequence of illicit behavior of the public administration. …

How Independent Are Independent Directors? The Case Of Italy, Paolo Santella, Giulia Paone, Carlo Drago

German Working Papers in Law and Economics

In this article, we provide an interpretation for the voluntary independence requirements contained in the Italian Corporate Governance Code (Preda Code) checking them against a proxy for international best practice, the independence criteria provided in the EC Recommendation on non-executive and supervisory directors of 2005. We then check to what extent company disclosure for 2003 allows the verification of the independence of directors qualified as independent by the Italian 40 blue chips. We find that the Preda Code (currently under revision) should be updated in several respects in order to make it abreast with best practice in the European Union. …

Information And Product? Trade Marks As A Source Of Economic Benefit, Andrew Griffiths

German Working Papers in Law and Economics

This paper will build upon a paper delivered at the 2005 Workshop in Ghent, “An Economic Perspective on the Concept of Origin in Trade Mark Law”, and a subsequent paper on the economic rationale of trade mark law. The Ghent paper considered the “essential function” that trade marks are supposed to perform according to trade mark law, namely indicating the “origin” of products, and showed how this term has a special meaning. Thus, a trade mark indicates that the products with which it is used have a particular economic parentage or trade (or commercial) and does not, for example, indicate …

The Corporate Lawyer Client Privilege: A Comparative Law Analysis From Law & Economics Perspective, Ido Baum

German Working Papers in Law and Economics

Professionals often claim confidential communications with their clients are the cornerstone of the profession’s social function. Lawyers claim confidentiality increases clients’ consultation with lawyers and promotes candour. A more recent claim is that confidentiality promotes client compliance with the law. Jurisdictions have recognized the importance of confidentiality by granting lawyers with a testimonial privilege. What lies beyond the rhetoric? Law and Economics scholars challenged the social desirability of the lawyer-client privilege. However, most of them have done so in the individual setting. This paper extends the existing analysis to corporations. It offers an explanation for the differences in the application …

The Economic Effects Of Direct Democracy - A Cross-Country Assessment, Stefan Voigt, Lorenz Blume

German Working Papers in Law and Economics

This is the first study that assesses the economic effects of direct democratic institutions on a cross country basis. Most of the results of the former intra-country studies could be confirmed. On the basis of some 30 countries, a higher degree of direct democracy leads to lower total government expenditure (albeit insignificantly) but also to higher central government revenue. Central government budget deficits are lower in countries using direct democratic institutions. As former intra-country studies, we also find that government effectiveness is higher under strong direct-democratic institutions and corruption lower. Both labor and total factor productivity are significantly higher in …

Sanctions, Now Or Later? The Optimal Use Of Warnings In Law Enforcement, Roberto Galbiati

German Working Papers in Law and Economics

Despite strict penalties may be available in order to prosecute violators, regulators frequently just issue a warning of some kind, and if violators move into compliance they do net release any penalty. Example of this practice may be found in several countries and for several different situations, the most common regard traffic law, environmental regulation and financial crimes. This paper defines the optimal sanctioning strategy for an enforcer that minimizes the social cost of violations and can determine the auditing probability and whether to sanction violators immediately or issue a warning and sanctioning only repeat offenders. We show that it …

Does Punishment Matter? A Refinement Of The Inspection Game, Rimawan Pradiptyo

German Working Papers in Law and Economics

We attempt to revise the inspection game used by Tsebelis (1989, 1990, 1993 and Tsebelis in Bianco et al, 1990) to model phenomena in criminal justice. Recent findings from various studies, primarily conducted in the UK, are used to re-construct the game. In contrast to Tsebelis’ (1989) propositions, we found that the severity of punishment may affect individuals’ offending behaviour. Similar results can be found for the case in which the authority initiates crime prevention initiatives by providing incentives to law abiding individuals. Any attempts to increase the severity of punishment are less certain in reducing individuals’ offending behaviour than …

The Principles Of European Tort Law: The Right Path To Harmonisation?, Roger Van Den Bergh, Louis Visscher

German Working Papers in Law and Economics

The goal of the Principles of European Tort Law is to serve as a basis for the enhancement and harmonisation of tort law in Europe. This paper takes a critical look at these Principles from a Law and Economics perspective. The first part of the paper questions the traditional arguments in favour of harmonisation, such as the need to achieve a ‘level playing field’ for industry and the reduction of legal uncertainty which may hinder cross-border trade. There are several economic arguments in favour of diverging tort laws: the possibility to satisfy heterogeneous preferences and the learning processes generated by …

Regulierung In Vertikal Verknüpften Märkten: Maximieren Diskriminierungsfreie Kostenorientierte Netznutzungsentgelte Die Gesellschaftliche Wohlfahrt?, Christoph Bier, Dieter Schmidtchen

German Working Papers in Law and Economics

In diesem Paper werden die Wohlfahrtseffekte einer kostenorientierten Regulierung von Netznutzungsentgelten zur Schaffung fairen Wettbewerbs abgeleitet. Es wird gezeigt, daß eine solche Regulierung nur im Falle starker Kostenvorteile eines vertikal integrierten Netzbetreibers im Vergleich zu einem Marktneuling second-best wohlfahrtsoptimal ist. In allen anderen Fällen von Erzeugungskostenunterschieden ist eine Abweichung von den Kosten – je nach Parameterkonstellation – nach oben oder unten wohlfahrtsoptimal. Die generelle Botschaft ist, daß es keine einfache und allgemein optimale Regulierungsregel für die Praxis gibt.

Escalating Penalties And Imperfect Information, Tim Friehe

German Working Papers in Law and Economics

We show that imperfect information of potential oenders concerning the magnitude of enforcement variables can reason escalating penalties welfare maximizing in two dfferent variants of the optimal-deterrence model. Imperfect information causes distortions in indi- viduals' perception of the enforcement variables that apply to the expected sanction of the first offense. Once detected, individuals learn about enforcement variables which makes this argument less relevant for the expected sanction for consecutive offenses.

The Economics Of D&O Liability For False Information In German Secondary Capital Markets, Alexander Meschkowski

German Working Papers in Law and Economics

In recent years, the German capital market was shaken by scandals caused by the insiders of public corporations like Comroad, Metabox, Infomatec, EM.TV et al. The overall damages of the scandals generated in the Frankfurt Stock Exchange’s Neuer Markt are approximated to be close to 200 billion € until the market segment was finally closed down. The consequence of the financial scandals is, besides the causation of the tremendous damages to private investors, a substantially spoiled reputation of the capital market itself, whereas the latter adversities seem not yet to be absorbed completely. Even though the criminal procedures in the …

The Role Of Institutional Investors In The Corporate Governance, Moshe Pinto

German Working Papers in Law and Economics

Corporate governance has recently received much attention due to Adelphia, Enron, WorldCom, and other high profile scandals, serving as the impetus to such recent U.S. regulations as the Sarbanes-Oxley Act of 2002, considered to be the most sweeping corporate governance regulation in the past 70 years, and enhancing the long standing bandwagon for increasing shareholder power. More broadly, the Berle and Means model, in which professional managers control large public companies, is being questioned. The separation of ownership and control creates an agency problem, that managers may run the firm in their own, rather than the shareholders' interest, choosing the …

Wenn Justitia Die Hand Aufhält – Ursachen Und Folgen Korrupter Justizbehörden, Stefan Voigt, Lorenz Blume

German Working Papers in Law and Economics

Empirical research on the determinants of corruption has made substantial progress over the last decade. To date, the consequences of different structures of the legal enforcement institutions have only played a marginal role. This contribution deals both with the determinants of corruption within the judiciary and with the consequences of institutional structures of the judiciary for corruption at large. It is shown that both the factual independence of the judiciary as well as that of prosecution agencies are correlated with lower levels of corruption. This is also true for a third indicator that measures the degree to which judges are …

Internationaler Müllhandel. Eine Institutionenökonomische Analyse., Roland Kirstein

German Working Papers in Law and Economics

Müllexporte werden von Umweltpolitik und Rechtswissenschaft nahezu einhellig abgelehnt. Aus Sicht der neoklassischen Außenhandelstheorie ist diese Einschätzung überraschend, denn freiwilliger Handel sollte alle Beteiligten besser stellen. Das Paper schöpft aus der ökonomischen Analyse des Rechts sowie aus einem Experiment über iterative reasoning und liefert zwei Argumente, warum internationaler Müllhandel auch ineffizient sein kann. Außerdem wird ein Argument gegen die internationale Harmonisierung von Umweltstandards präsentiert. Aus den genannten Einwänden kann jedoch keine Begründung für das Verbot innergemeinschaftlichen Müllhandels abgeleitet werden.

Anti-Teilen In Teams, Roland Kirstein

German Working Papers in Law and Economics

Soll der gemeinsam erzeugte Output zwischen den Mitgliedern eines Teams aufgeteilt werden, so kann dies die Anreize aller Mitglieder vermindern, unbeobachtbare Anstrengung zu leisten. Weist die gemeinsame Produktionsfunktion darüber hinaus positive Kreuzableitungen auf, so ist Teamarbeit zwar besonders sinnvoll. Allerdings senkt dann die ineffiziente Anstrengung der anderen Teammitglieder die Grenzproduktivität jedes einzelnen, was die individuell rationale Anstrengung noch weiter reduziert. Der Beitrag schlägt einen simplen Vertrag vor, der diese Probleme löst: Anti-Teilung. Im Rahmen dieses Vertrages hat jedes Teammitglied Aussicht auf den gesamten Teamoutput. Hierzu muß jedes Teammitglied sich verpflichten, einen fixen Betrag zu tragen, der allerdings kleiner ist als …

Inefficient Intra-Firm Incentives Can Stabilize Cartels In Cournot Oligopolies., Roland Kirstein, Annette Kirstein

German Working Papers in Law and Economics

The need for intra-firm incentive schemes allows remodeling the Cournot duopoly in wages (rather than in output levels). In both versions of the Cournot model, a cartel agreement is unstable. The new formulation, however, allows us to demonstrate that a collective wage agreement on minimum wages can stabilize the cartel solution. Beyond its relevance for strategic management, this result has a policy implication: competition authorities should observe collective wage agreements for their potential collusive effect on product markets. Moreover, the model may provide a new explanation why firms in reality pay lower than efficient variable wages and higher fixed wages …

The "Rainmaker’S Dilemma": Bad Debt Loss Insurance In Settlement And Litigation, Roland Kirstein, Hans Gerhard

German Working Papers in Law and Economics

In this paper, we analyze the impact of Bad Debt Loss Insurance on settlement outcomes. A huge success in a settlement or trial may turn into a disaster when the defendant goes bankrupt. “Rainmakers” face the following dilemma: the greater the success in court, the greater the defendant’s bankruptcy risk. The starting point of our paper is a simple trial and litigation model with perfect and complete information. We add the possibility of a defendant’s bankruptcy as well as Bad Debt Loss Insurance for both the settlement and the trial stage. We demonstrate that trial insurance and settlement insurance may …

Anti-Sharing., Roland Kirstein, Robert Cooter

German Working Papers in Law and Economics

Anti-Sharing may solve the sharing problem of teams: the team members promise a fixed payment to the Anti-Sharer. He collects the actual output and pays out its value to them. We prove that the internal Anti- Sharer is unproductive in equilibrium.

Bayesian Monitoring., Roland Kirstein

German Working Papers in Law and Economics

This paper presents a modification of the inspection game: The “Bayesian Monitoring” model rests on the assumption that judges are interested in enforcing compliant behavior and making correct decisions. They may base their judgements on an informative but imperfect signal which can be generated costlessly. In the original inspection game, monitoring is costly and generates a perfectly informative signal. While the inspection game has only one mixed strategy equilibrium, three Perfect Bayesian Equilibria exist in my model (one in pure strategies, two in mixed). These outcomes can be described with respect to their punishment styles: tyrannic, draconian, and lenient. The …

Killing The Goose That May Have Laid The Golden Egg?, Dieter Schmidtchen, Christoph Bier

German Working Papers in Law and Economics

The purpose of the paper is (1) to analyze the potential and the incentives for a vertically integrated input monopolist to engage in price-discrimination when there is downstream entry, and (2) to examine the question, whether a cost-based regulation of access charges for electricity grids enhances competition in the downstream-market. The paper shows that the incumbent will never block entry if the entrant is more efficient than the incumbent. The reason is that the input-monopolist can make more profit through input sales than it could generate by producing the downstream product itself. If the entrant does not have a cost …

The Impact Of Endangered Species Law On The Real Estate Development Process Explored With Cost-Benefit Analysis: The Case Of The Corncrake In Hamburg/Germany, Jan Marcus Matauschek

German Working Papers in Law and Economics

In recent decades protection of the environment has become an issue of wide public interest. Both on a national and an EU level a multitude of statutes and directives in this area have been enacted. In many cases, these provisions intervene into business activity. This paper explores the way in which environmental protection law can affect real estate projects. The paper uses the example of a development project in Hamburg/Germany, where a population of corncrakes (a small bird) halted a large scale housing project as the bird is protected under the EU Birds Directive (79/409/EEC). The author conducts a cost …

Der "More Economic Approach" In Der Wettbewerbspolitik, Dieter Schmidtchen

German Working Papers in Law and Economics

This article argues that it is time for antitrust policy to move beyond structural understandings of competition (“preserving competition”) and into the realm of explicit welfare analysis. A “more economic approach” should reflect current economic thinking about competition, incentives and efficiency. Competition is defined in the paper as a process of creating and appropriating value (social surplus). Allocative, technical and innovative inefficiencies are viewed as fundamentally due to failures of capturing value. The paper argues that antitrust laws should recognize a defence for all private acts that restrain “competition” under the traditional antitrust analysis but advance total welfare. The proposed …

Mehr Markt Im Hochschulbereich: Zur Effizienz Und Gerechtigkeit Von Studiengebühren, Dieter Schmidtchen

German Working Papers in Law and Economics

Das Bundesverfassungsgericht hat gesprochen: Das im Hochschulrahmengesetz enthaltene Verbot, bis zum ersten berufsqualifizierenden Abschluß Studiengebühren zu erheben, ist nichtig. Damit ist in Deutschland die Bahn frei für die Einführung von Studiengebühren. Aber sollten die Bundesländer, die in ihren Hochschulgesetzen die Erhebung von Studiengebühren vorgesehen haben, von diesem Recht auch Gebrauch machen? Für viele Studierende, für die Gewerkschaften, für zahlreiche Politiker, Publizisten und Wissenschaftler ist die Antwort klar: Studiengebühren sind vom Teufel; sie sind „unsozial“, ungerecht, bewirken, daß „Bildung nur für die Reichen“ da ist. Bei nüchterner Betrachtung zeigt sich jedoch ein anderes Bild: Nicht die Einführung von Studiengebühren ist „unsozial“ …

Effizienz Als Leitbild Der Wettbewerbspolitik: Für Einen "More Economic Approach", Dieter Schmidtchen

German Working Papers in Law and Economics

Effizienz als Leitbild der Wettbewerbspolitik: Für einen „more economic approach“ Die jüngsten Reformen im Europäischen Wettbewerbsrecht geben Anlaß, sich erneut mit Grundsatzfragen der Wettbewerbspolitik zu beschäftigen. Unter Rückgriff auf die moderne Wettbewerbstheorie, die Industrie- und die Neue Institutionenökonomik werden in diesem Paper die Grundlagen eines „more economic approach“ entworfen. Wettbewerb wird als Parallel- und Austauschprozeß begriffen, in dem Werte (social surplus) geschaffen und angeeignet werden. Allokative, produktionstechnische und innovative Ineffizienzen sind in diesem Wettbewerbskonzept Folge einer mangelnden Aneignung von Wertschöpfung. Konkret wird in diesem Paper vorgeschlagen, daß Wettbewerbsbehörden und Gerichte in allen Verfahren gegen Unternehmen und Unternehmensgruppen einen überzeugend begründeten …

Incentive Effects Of State Liability For Wrongful Conviction On The Level Of Crime, Vincy Fon, Hans-Bernd Schäfer

German Working Papers in Law and Economics

The criminal justice system is not infallible. This unfortunate but unavoidable fact has been known for some time. For many reasons, in spite of advocacy raised as early as 1913 by Borchard to offer compensation to those wrongfully convicted and later exonerated, currently in the United States only 15 states, the District of Columbia, and the federal government have laws for such compensation. Further, the compensation is fairly meager, and compensation is usually not granted if the alleged criminal pleaded guilty in cases involving confessions. Outside the United States, a different era seems to be on the horizon. In recent …