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Series

SSRN

Columbia Law School

Law and Economics

2005

Articles 1 - 14 of 14

Full-Text Articles in Law

Mome In Hindsight, Ronald J. Gilson, Reinier Kraakman Jan 2005

Mome In Hindsight, Ronald J. Gilson, Reinier Kraakman

Faculty Scholarship

Two decades ago, the Virginia Law Review published our article "The Mechanisms of Market Efficiency" (MOME), in which we tried to discern the institutional underpinnings of financial market efficiency. We concluded that the level of market efficiency with respect to a particular fact depends on which of several market mechanisms – universally informed trading, professionally informed trading, derivatively informed trading, and uninformed trading operates to reflect that fact in market price. Revisiting our article is particularly appropriate today. A new framework for evaluating the efficiency of the stock market, called "behavioral finance," and a growing number of empirical studies pose a ...


Serial Entrepreneurs And Small Business Bankruptcies, Douglas G. Baird, Edward R. Morrison Jan 2005

Serial Entrepreneurs And Small Business Bankruptcies, Douglas G. Baird, Edward R. Morrison

Faculty Scholarship

This empirical study suggests that, far from ensuring assets are put to their best use, Chapter 11 encourages small-business entrepreneurs to remain too long with failed businesses before trying to start (or work for) new ones. Small entrepreneurs open and close a number of businesses over the course of their careers as they search for the business (or employer) that offers the best match with their skills. Chapter 11 delays this matching process and, over this dimension, differs little from rent control and other government policies that encourage socially wasteful lock-in of scarce resources. These costs may not be large ...


How Law Affects Lending, Rainer F.H. Haselmann, Katharina Pistor, Vikrant Vig Jan 2005

How Law Affects Lending, Rainer F.H. Haselmann, Katharina Pistor, Vikrant Vig

Faculty Scholarship

The paper explores how legal change affects lending behavior of banks in twelve transition economies of Central and Eastern Europe. In contrast to previous studies, we use bank level rather than aggregate data, which allows us to control for country level heterogeneity and analyze the effect of legal change on different types of lenders. Using a differences-in-differences methodology to analyze the within country variation of changes in creditor rights protection, we find that the credit supplied by banks increases subsequent to legal change. Further, we show that collateral law matters more for credit market development than bankruptcy law. We also ...


Risk Management In Long-Term Contracts, Victor P. Goldberg Jan 2005

Risk Management In Long-Term Contracts, Victor P. Goldberg

Faculty Scholarship

Long-term contracts are designed to manage risk. After a brief discussion of why it is unhelpful to invoke risk aversion for analyzing serious commercial transactions between sophisticated entities, this paper focuses on adaptation to changed circumstances. In particular, it considers the options to abandon and the discretion to change quantity. It then analyzes a poorly designed contract between Alcoa and Essex showing how the parties misframed their problem and designed a long-term contract that was doomed to fail.


Causation By Presumption? Why The Supreme Court Should Reject Phantom Losses And Reverse Broudo, John C. Coffee Jr. Jan 2005

Causation By Presumption? Why The Supreme Court Should Reject Phantom Losses And Reverse Broudo, John C. Coffee Jr.

Faculty Scholarship

The Supreme Court is about to hear Dura Pharmaceuticals Inc. v. Broudo, a case in which the Ninth Circuit significantly liberalized the "loss causation" standards applicable to federal securities litigation. In response to a companion article by Professor Merritt Fox, which favors such a liberalization and even the abandonment of loss causation as a necessary element, Professor Coffee argues that any change in causation standards that permits a plaintiff to escape showing a decline in the security's stock market price attributable to the material misstatement or omission gives rise to perverse incentives, which would likely result in the award ...


Principles Of Contract Design, Robert E. Scott, George G. Triantis Jan 2005

Principles Of Contract Design, Robert E. Scott, George G. Triantis

Faculty Scholarship

Economic contract theory postulates two obstacles to complete contracts: high transaction costs and high enforcement (or verification) costs. The literature has proposed how parties might solve these problems under a stylized litigation system, but it does not address the question of how parties design contracts under the existing adversarial system, that relies on the parties to establish relevant facts indirectly by the use of evidentiary proxies. We advance a theory of contract design in a world of costly litigation. We examine the efficiency of investment at the front-end and back-end of the contracting process, where we focus on litigation as ...


Takeovers In The Boardroom: Burke Versus Schumpeter, Ronald J. Gilson, Reinier Kraakman Jan 2005

Takeovers In The Boardroom: Burke Versus Schumpeter, Ronald J. Gilson, Reinier Kraakman

Faculty Scholarship

This article was written for a symposium on the occasion of the 25th anniversary of Martin Lipton's 1979 article, Takeover Bids in the Target's Boardroom. In our view, Takeover Bids is a Burkean take on a messy Schumpeterian world that, during 1980s, reached its apex in Drexel Burnham's democratization of finance through the junk bond market. But the irony is that today, long after the Delaware Supreme Court has adopted many of Lipton's views, there is a new market for corporate control that no longer poses the threats – or supports the opportunities – that the market of ...


Marine-Salvage Law And Marine-Peril-Related Policy: A Second-Best And Third-Best Economic-Efficiency Analysis Of The Problem, The Law, And The Classic Landes And Posner Study, Richard S. Markovits Jan 2005

Marine-Salvage Law And Marine-Peril-Related Policy: A Second-Best And Third-Best Economic-Efficiency Analysis Of The Problem, The Law, And The Classic Landes And Posner Study, Richard S. Markovits

Faculty Scholarship

This Article (1) delineates the different kinds of allocative costs that marine-peril contingencies can generate and the different kinds of marine-peril-related decisions that can generate allocative inefficiency (marine-salvage-operation investment decisions; decisions about whether to offer to attempt or to actually attempt marine rescues; decisions about the character of the marine-rescue attempts that are made; decisions by potential rescuees to accept or reject offers of marine-rescue attempts; and decisions by potential rescuees to make or reject various marine-peril-avoidance moves); (2) defines the formal meaning of "the most-allocatively-efficient response a State can make to marine-peril contingencies;" (3) explains why, standing alone, judge-prescribed ...


The Political Economy Of International Sales Law, Clayton P. Gillette, Robert E. Scott Jan 2005

The Political Economy Of International Sales Law, Clayton P. Gillette, Robert E. Scott

Faculty Scholarship

The United Nations Convention on Contracts for the International Sale of Goods, or CISG, has been adopted by more than 60 countries in an effort to harmonize the law that applies to international sales contracts. In this paper, we argue that the effort to create uniform international sales law (ISL) fails to supply contracting parties with the default terms they prefer, thus violating the normative criterion that justifies the law-making process for commercial actors in the first instance. Our argument rests on three claims. First, we contend that the process by which uniform ISL is drafted will dictate the form ...


"Contracting" For Credit, Ronald J. Mann Jan 2005

"Contracting" For Credit, Ronald J. Mann

Faculty Scholarship

Credit card transactions might be at once the most perilous and least regulated consumer credit transaction. The relative lack of regulation is surprising considering the way consumers use cards in payment and borrowing markets. Card agreements have many of the traditional shortcomings associated with standardized financial contracts. They are lengthy and detailed. They conceal terms of economic import. They are complex. They use technical language requiring an advanced understanding of legal and financial concepts. Moreover, the agreements define a transactional structure that plays into several common behavioral biases, which unite to desensitize consumers to the risks of borrowing. Card agreements ...


Reading Wood V. Lucy, Lady Duff-Gordon With Help From The Kewpie Dolls, Victor P. Goldberg Jan 2005

Reading Wood V. Lucy, Lady Duff-Gordon With Help From The Kewpie Dolls, Victor P. Goldberg

Faculty Scholarship

In Wood v. Lucy, Lady Duff-Gordon, Cardozo found consideration in an apparently illusory contract by implying a reasonable effort obligation. Unbeknownst to Cardozo, Wood had agreed to represent Rose O'Neill, the inventory of the kewpie doll in an earlier exclusive contract. Wood sued O'Neill two months prior to entering into the Lucy arrangement. That contract included an explicit best efforts clause. The failure to include such a clause in this contract was, quite likely, deliberate, suggesting that Wood was trying to avoid making a binding commitment to Lucy. The paper examines both the kewpie doll and Lucy contract ...


Going-Private Decisions And The Sarbanes-Oxley Act Of 2002: A Cross-Country Analysis, Ehud Kamar, Pinar Karaca-Mandic, Eric L. Talley Jan 2005

Going-Private Decisions And The Sarbanes-Oxley Act Of 2002: A Cross-Country Analysis, Ehud Kamar, Pinar Karaca-Mandic, Eric L. Talley

Faculty Scholarship

This article investigates whether the passage and the implementation of the Sarbanes-Oxley Act of 2002 (SOX) drove firms out of the public capital market. To control for other factors affecting exit decisions, we examine the post-SOX change in the propensity of public American targets to be bought by private acquirers rather than public ones with the corresponding change for foreign targets, which were outside the purview of SOX. Our findings are consistent with the hypothesis that SOX induced small firms to exit the public capital market during the year following its enactment. In contrast, SOX appears to have had little ...


Legal Ground Rules In Coordinated And Liberal Market Economies, Katharina Pistor Jan 2005

Legal Ground Rules In Coordinated And Liberal Market Economies, Katharina Pistor

Faculty Scholarship

Two parallel literatures have explored differences across legal and economic systems,noting that countries can be loosely grouped into liberal vs. coordinated market economies on the one hand, and common law vs. civil law countries on the other. These two groups largely overlap. Liberal market economies (LMEs) tend to have a common law tradition, while coordinated market economies (CMEs) belong to the civil law family (French or German). This paper argues that this overlap is not coincidental. The link between legal and economic systems are social preferences reffected in basic norms, or ground rules, found in substantive and procedural laws ...


Featuring The Three Tenors In La Triviata, Victor P. Goldberg Jan 2005

Featuring The Three Tenors In La Triviata, Victor P. Goldberg

Faculty Scholarship

In the "Three Tenors" case the FTC found an agreement a violation of the antitrust law despite the fact that there was no way it could be anticompetitive. The Commission failed to heed the lessons of Coase's classic paper on the nature of the firm, making a sharp distinction between activities within a firm (legal) and across firm boundaries (not legal). Analytically, there should be no distinction. The decision to integrate activities by contract rather than ownership is a matter of relative transactions costs. Since the boundaries of the firm are, ultimately, an economic decision reflecting the costs and ...