Volume 15, Issue 1 -

This paper examines the suppression of the product rule in litigation from a rent seeking perspective. We show that there are some important arguments in favor of not applying it. First, the expected judgment is always lower when the product rule is used, especially for relatively strong cases. Second, litigation expenditures are often larger when the product rule is used, again especially for relatively strong cases. Both of these factors decrease the plaintiff’s expected value for such cases. Third, when the product rule is suppressed, the plaintiff files all cases that he or she should win. This is not so when the product rule is applied. Fourth, for many of the weakest cases (the ones in which the quality of all issues is rather weak), the expected value of the plaintiff’s case is larger when the product rule is used. The main argument in favor of the application of the product rule is that when the rule is suppressed, plaintiffs file more cases in which the quality of one issue is weak and the quality of the other issue is strong. However, the influence of this factor on the ex ante incentives of the injurer is relatively small.

We argue that the European Union Emissions Trading System (EU ETS) has evolved into a hybrid of two design variants, allowance trading (cap-and-trade) and credit trading (performance standard rate trading), with an added feature of industry support to minimize carbon leakage. In particular the current rules tying free allowances to production capacity expansion, plant closure and capacity use have transformed the efficient cap-and-trade program that stood at the origins of the EU ETS into a system that even surpasses credit trading in paying hidden product subsidies to firms. This combination of rules encourages an inefficiently high level of investment in production capacity and an inefficiently high output in industries exposed to international competition. The result is a sub-optimal EU Emissions Trading ‘Hybrid’ (which we therefore label as ‘EU ETH’).

We examine firm value consequences of anti-takeover regulation, exploiting the staggered announcement and implementation of an anti-takeover regulation in the U.K. We show that, on average, takeover protection increases firm value. This effect is partly driven by innovative firms expanding their R&D activities. However, the anti-takeover regulation also increases the value of less productive firms. Anti-takeover regulation could thus constrain highly productive firms from taking over low-productivity firms. Our results imply that, while takeover protection may stimulate innovation, it can distort the allocation of funds by preventing market share from moving from less efficient to more efficient firms.

Apologies are assumed to be an effective pathway to the restoration of victims of torts. Accordingly, initiatives to facilitate their provision in legal contexts are currently being advocated. A crucial question, however, is whether the apologies that perpetrators provide in these contexts may live up to such expectations. Do perpetrators’ apologies in response to torts convey the content that victims desire, and how may this affect their remedial effectiveness? The present research examined what content victims desire, and perpetrators provide in apology in response to personal injury incidents. In two studies, we demonstrate that (a) perpetrators provide less comprehensive apologies than victims desire, and (b) their apologies thereby are less effective at restoring them. These differences were explained by their differing perception of torts, such that perpetrators regard their transgressions as less severe and intentional, and themselves as less blameworthy than victims do, and consequently offer less comprehensive apologies than victims desire. Therefore, subjectiveness in victims’ and perpetrators’ perception of torts may undermine the remedial effectiveness of legal apology.

Legal theorists have suggested that literature stimulates empathy and affects moral judgment and decision-making. I present a model to formalize the potential effects of empathy on third parties. Empathy is modeled as having two components–sympathy (the decision-maker’s reference point about what the third party deserves) and emotional theory of mind (anticipating the emotions of another in reaction to certain actions). I study the causal effect with a data entry experiment. Workers enter text whose content is randomized to relate to empathy, guile, or a control. Workers then take the Reading the Mind in the Eyes Test (RMET) and participate in a simple economic game. On average, workers exposed to empathy become less deceptive towards third parties. The result is stronger when workers are nearly indifferent. These results are robust to a variety of controls and model specifications.

I analyze the legal rules governing the sale-of-corporate-control in the case of going private transactions and examine whether a controlling shareholder must share the premium associated with sale-of-control. I rely on the framework developed in (Bebchuk, L.A. 1994. “Efficient and Inefficient Sales of Corporate Control,” 109 Quarterly Journal of Economics 957–993) regarding these transactions under the adjusted market rule (AMR) enabling different rights for the controlling and minority shareholders, and under the adjusted equal opportunity rule (AEOR) providing equal rights to the minorities and controller. My main findings are that both rules prevent inefficient transfers, since under both the new controller fully internalizes the externality imposed by extracting private benefits of control. However, the AMR is superior in facilitating efficient transfers. This is because the AEOR can prevent efficient transfers, due to the higher price demanded from the buyer in order to compensate both controller and minorities. In consequence, overall, the AMR dominates the AEOR for transactions in which a company is taken private.

This paper investigates the impact of a marginal change in punishment severity on the incidence of crime. I explore Arkansas’ (AR) milder punishment for theft, which was adopted in 2011 in order to deal with prison overcrowding. The decrease in punishment contributed to growing theft rates in AR, suggesting criminals respond to the reduced crime-specific punishment. The findings also indicate that the likely lower incarceration for theft did not lead to an increase in other types of crime.

A series of recent reform proposals in Malaysia have started to consider enhancing shareholders’ self-help remedies by expanding shareholders’ powers in corporate decision-making. The reform of listing rules, codes of corporate governance, and securities law legislation is intended to enhance shareholders’ participatory rights in decision-making in Malaysia. Some of the proposals echo the present UK position under the UK Companies Act 2006. These changes, occurring in several common law countries such as Malaysia, Hong Kong and UK, and the recent EU revision proposals, indicate a change of legal position towards expanding shareholders’ power even to the extent of giving instruction to the board. But are these sufficient or can more be done? For Malaysia and other developing economies, we argue for a self-enforcing model that requires expansion of shareholders’ general power by identifying and removing legal barriers to shareholders’ empowerment. This is recommended for other developing countries which share a similar corporate and regulatory architecture.