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With a unique data set from New Zealand which allows us to assign each bet to individual bettors, we analyze the impact of experience on behavior and success in non-parimutuel (fixed odds) sports betting markets. We find that experienced bettors bet more on favorites than inexperienced bettors do. Average returns, which we use as success measure, increase with experience even after controlling for odds. This means that the higher return of experienced bettors cannot only be attributed to betting more on favorites. To get a more detailed picture, we divide the data set into ten equally large subgroups, sorted by experience. We find that odds decrease from subgroup to subgroup, while success consistently increases. This shows that the positive impact of experience is not mainly driven by professional bettors. [ABSTRACT FROM AUTHOR]

In this paper, we analyze the German Capital Markets Model Case Law (KapMuG) enacted to reduce transaction costs in securities mass litigation. The KapMuG is often seen as a European role model trying to enhance investor rights without running the risk of frivolous claims known from the US class actions. We show that the current legislation is insufficient due to two main obstacles: first, shareholders need to file individual lawsuits before being eligible for participation in the model case, which leads to a rational ignorance of small shareholders. Second, for wrong and omitted capital market information beyond prospectus liability, it is unclear if shareholders need to prove the causal link between the wrong information and the investment decision, which is hardly possible. We suggest two major changes for the reform due in November 2012: a simplified opt-in mechanism without the prerequisite of individual lawsuits and extension of the reversal of the burden of proof for causation from prospectus liability to wrong or omittedad hocinformation. Besides, we argue that gross negligence is the appropriate liability rule in the substantive law underlying the KapMuG. [ABSTRACT FROM AUTHOR]

In standard models on negligence rules, due care levels can be used for fine-tuning the care levels of potential injurers, and there are good arguments why care levels should vary among different fields. We extend the analysis of the impact of due care on care actually chosen to situations where damages depend on sales prices. This is the case for many contractual relationships, but also for damages on capital markets which are usually calculated as the difference between share prices paid and share prices after the adverse information becomes public. In a model with errors in court, we show that tighter negligence standards may even reduce care levels chosen by potential injurers under reasonable circumstances. Due to this counter-intuitive effect, negligence standards can hardly be applied for fine-tuning the care levels of potential injurers when damages depend on prices. [ABSTRACT FROM AUTHOR]

Remuneration systems in the banking industry, in particular bonus payments, have frequently been blamed for contributing to the buildup of risks leading to the recent financial crisis. In our model, banks compete for managerial talent that is private information. Competition for talent sets incentives to offer bonuses inducing risk-taking that is excessive not only from society’s perspective but also from the viewpoint of the banks themselves. In fact, bonus payments and excessive risk-taking are increasing with competition. Thus, our model offers a rationale why bonuses are paid even when reducing the expected profits of banks. [ABSTRACT FROM AUTHOR]

The authors investigate optimal capital requirements in a model in which banks decide on their investment in credit scoring systems. The main result is that regulators should encourage sophisticated banks to keep their asset portfolios safe, while assets with high systematic risk should be concentrated in smaller banks. The proposed regulatory differentiation follows the Basel Accord’s distinction between internal ratings-based approach and standard approach. Sophisticated banks should increase their equity capital relative to other banks, leading to further size differentiation. The moral hazard problem of banks misrepresenting their loan portfolio risk is analyzed, with the result that it induces stricter capital requirements. [ABSTRACT FROM AUTHOR]

We extend the theoretical literature on the impact of malpractice liability by allowing for two treatment technologies, a safe and a risky one. The safe technology bears no failure risk, but leads to patient-specific disutility since it cannot completely solve the health problems. By contrast, the risky technology (for instance a surgery) may entirely cure patients, but fail with some probability depending on the hospital's care level. Tight malpractice liability increases care levels if the risky technology is chosen at all, but also leads to excessively high incentives for avoiding the liability exposure by adopting the safe technology. We refer to this distortion toward the safe technology as negative defensive medicine. Taking the problem of negative defensive medicine seriously, the second best optimal liability needs to balance between the over-incentive for the safe technology in case of tough liability and the incentive to adopt little care for the risky technology in case of weak liability. In a model with errors in court, we find that gross negligence where hospitals are held liable only for very low care levels outperforms standard negligence, even though standard negligence would implement the first best efficient care level. [ABSTRACT FROM AUTHOR]

In legal systems all over the world, injurers are held liable only when the probability of having caused an accident exceeds a critical threshold (causation standard) and when behaving negligently. In a complete information framework, the joint use of the two instruments is puzzling as both whether a potential injurer has taken due care and whether he meets a specific causation standard depend only on his care level. We explain this puzzle with private information about injurers’ avoidance costs, and we derive conditions under which the joint use of both instruments can induce self-selection of different cost types. With self-selection, low-cost firms take due care, whereas high-cost firms behave negligently, thereby aiming at escaping liability via the causation standard. Compared to the optimal single-instrument policy, we derive conditions under which such self-selection policies are strictly welfare-enhancing. [ABSTRACT FROM PUBLISHER]

We analyze whether corporate leniency programs should grant full immunity to the first self-reporting firm regardless of the amount of evidence provided. We distinguish between two firms, one of them providing high and one only low evidence. We show that awarding full amnesty also to the low evidence provider is suboptimal. Distinguishing fines between the two firms leads to the same percentage of self-reporting and to a lower cartel frequency. For the high evidence provider, full amnesty can but does not have to be optimal. [ABSTRACT FROM AUTHOR]