Volume 13, Issue 1 -

This paper offers one of the first economic analyses of scams. Its major finding is that, unlike other crimes, imperfect enforcement may increase victimization by deterring only low-ability scammers whose failed attempts would otherwise alert potential victims before encounters with high-ability scammers. High-ability scammers may actually benefit from partial enforcement, which reduces their competition. These results may be reinforced when failed attempts are punished.

Should managers be liable for ill-conceived business decisions? One answer is given by U.S. courts, which almost never hold managers liable for their mistakes. In this paper, we address the question in a theoretical model of delegated decision making. We find that courts should indeed be lenient as long as contracts are restricted to be linear. With more general compensation schemes, the answer depends on the precision of the court’s signal. If courts make many mistakes in evaluating decisions, they should not impose liability for poor business judgment.

We empirically evaluate creditors’ voting conditions and the bankruptcy voting rules of 90 countries. The severity of a voting rule is determined by the threshold values of the majority-voting rules by which creditors impose their interests. The higher the threshold values, the higher is the severity degree of the rule. We find that the bankruptcy laws of countries with German and French legal origin tend to have the least severe voting rules. The Nordic countries have moderate rules. The laws of the common law countries have the most severe rules. These results hold for secured and unsecured claimants. The court’s legal right of overcoming the voting result is granted more often by bankruptcy laws of French and German legal origin. The severity of the voting rules can influence the recovery of creditors’ debt. We show that a coalition of creditors that has a common interest can use the severity of the voting rule to influence the approval of a reorganization plan that provides a higher recovery rate of the creditors’ debt.

Greater trial delay is commonly associated with decreasing demand for trials, thereby bringing about an equilibrium for a given trial capacity. This note highlights that – in contrast to this premise – trial delay may in fact increase trial demand. Such an outcome is established for a scenario in which the number of cases is endogenous based on the deterrence effect of lawsuits. That trial demand may increase with longer delay makes multiple stable equilibria possible. This reality has important policy implications, which are discussed.

This paper examines why criminal intent matters in sentencing. In particular, it considers two types of crimes, opportunistic and premeditated. Opportunistic crimes are ones that present themselves to a criminal and can be deterred if the victim makes it too costly for the criminal through private property protection. Premeditated crimes are ones sought out by the criminal, and the effect of private property protection is simply to displace crime. This difference between deterrence and displacement leads to the result that it is optimal to punish premeditated crimes more. The extent to which this is true, however, lies in the response by potential victims. If victims protect themselves from premeditated crimes in ways that also protect them from opportunistic ones, then the difference in penalties is relatively less.

Based on a large-scale survey of Chinese entrepreneurs, our study explores how legal and political institutions influence investment decisions made by private companies. The study finds that, consistent with the conventional view, a more effective legal system is correlated with short-term general investment, and that the judiciary is important mainly because of its restraint over the state. The role of effective courts, however, diminishes when private entrepreneurs consider making long-term investment. We find a positive association between the entrepreneurs’ political backgrounds and their R&D investment, suggesting that Chinese courts, in spite of decades of reform, are not yet viewed as reliable to protect long-term private investment from expropriation, policy instability, and a hostile regulatory environment. Rather, informal political connections constitute the premise for the protection of long-term investment. We also find evidence indicating that political ties are expensive resources to accumulate and maintain, so Chinese entrepreneurs tap into them only when substantial long-term interests are at stake. The findings contribute to the literature on law and economic development.

This paper presents an estimation of ideal points for the Justices of the Supreme Court of Argentina for 1984–2007. The estimated ideal points allow us to focus on political cycles in the Court as well as possible coalitions based on presidential appointments. We find strong evidence to support the existence of such coalitions in some periods (such as President Carlos Menem’s term) but less so in others (including President Néstor Kirchner’s term, a period of swift turnover in the Court due to impeachment processes and resignations). Implications for comparative judicial politics are discussed.