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We present the results of a randomized control trial on the effect of the introduction of formalized property rights on individuals’ moral judgments and, in particular, on utilitarian morality. We show that institutions shape morality: being exposed to private property institutions makes individuals more utilitarian when confronted with moral dilemmas. Our results shed light on a possible institutional determinant of the variation of moral judgments across the globe and its geographical patterns, and have implications for the consequences of major institutional reforms—both intended, such as land-titling programs, and unintended, such as those following from recent historical events—on moral attitudes. We discuss two possible channels stemming from the inherent features of property rights: the loosening of social ties and the commodification of rights (JEL codes: K11; O13; Z10; Z13). Marco Fabbri gratefully acknowledges financial support from the Marie Curie Research Grants scheme, grant H2020-MSCA-IF-2017-789596. Giuseppe Dari-Mattiacci gratefully acknowledges research support from Columbia Law School.

This paper shows that formalizing private property rights has a positive effect on the propensity to respect the property of others. We study a recent large-scale land tenure reform in West Africa that was the first of its kind to be implemented as a randomized control trial. Results of a modified dictator game show that the formalization of private property rights reduced an individual's willingness to take from others' endowment. We used additional experimental measures and postexperimental survey data to rule out alternative explanations for the observed behavior that do not imply a change in preferences.

One of the problems perceived to be at the heart of the global financial crisis was an amalgamation of various commercial and investment banking activities under one entity, as well as the interconnectedness of the banking entities with other financial institutions, investment funds, and the shadow banking system. This paper focuses on various measures that aim to structurally separate the banking entities and their core functions from riskier financial activities such as (proprietary) trading or investments in alternative investment funds. Although banking structural reforms in the EU, the UK, and the US have taken different forms, their common denominator is the separation of core banking functions from certain trading or securities market activities. Having reviewed the arguments for and against banking structural reforms and their varieties in major jurisdictions, including the EU, UK, US, France, and Germany, the paper argues that a more nuanced approach to introducing such measures at the EU level is warranted. Given the different market structures across the Atlantic and the lack of conclusive evidence of the beneficial impact of banking structural reforms, the paper concludes that the withdrawal of the banking structural reforms proposal by the European Commission has been a prudent move. It seems that in the absence of concrete evidence, experimenting with structural reforms at the Member-State level would be less costly and would provide for opportunities for learning from smaller experiments that could pave the way for a more optimal approach to banking structural reforms at the European level in the future.

The core insight of the new EU framework for bank resolution is to allocatelosses to bank’s insiders (bail-inable creditors). This affects both financialstability and the corporate governance of banks. The current academicdebate on bank resolution overlooks the relevance of identifying theinvestors in bail-inable securities (ie who is going to bear losses) and the roleof counterparty risk. This article identifies the investors that are better suitedto hold those instruments and highlights the trade-offs between thecorporate governance role and the threat to financial stability posed bydifferent investors. The article demonstrates that the composition of bailinabledebtholders matters and shows – empirically and theoretically – atransition towards a desirable composition of holders; although aconsiderable room for improvement remains. This exercise deepens theunderstanding of the impact of the resolution framework and the importanceof counterparties for its credibility and future applications.

The risk retention rule was introduced in the US and the EU as a mechanism to curb the originate-to-distribute model, associated with securitisations and the financial crisis of 2008. this article argues that besides its original financial stability rationale, the rule has positive spillovers on debt governance and specifically on the incentives to monitor, the design of covenants and the lender's stance during renegotiation and bankruptcy (the ‘empty creditor' problem). Risk retention in true sale securitisations makes the strongest case for debt governance, although the existence of various options of retention appears to be associated with varying incentives. For cases where monitoring is performed by a party different than the originator, the introduction of retention by the servicer is a promising although partial solution. the mechanism and effects of risk retention on synthetic securitisations remain ambivalent, given the perverse incentives associated with over-insurance (negative economic ownership). however, the upcoming restriction of double hedging for synthetic StS transactions is a positive development.

This paper focuses on the emergence of communication to support cooperation in environments modeled as social deduction games (SDG), that are games where players communicate freely to deduce each others’ hidden intentions. We first state the problem by giving a general formalization of SDG and a possible solution framework based on reinforcement learning. Next, we focus on a specific SDG, known as The Werewolf, and study if and how various forms of communication influence the outcome of the game. Experimental results show that introducing a communication signal greatly increases the winning chances of a class of players. We also study the effect of the signal’s length and range on the overall performance showing a non-linear relationship.

EU securities regulation has established a taxonomy of environmentally sustainable activities. This article discusses, from a law and economics standpoint, the potential of this taxonomy to support sustainable corporate governance. Corporate governance can be an efficient way to channel investor preferences towards sustainability because the concentration of institutional shareholding has lowered the transaction costs of shareholder action. However, there is a principal-agent problem between institutional investors and their beneficiaries, which depends on greenwashing and undermines sustainable corporate governance. This article argues that introducing environmental sustainability into EU mandatory disclosure aligns the institutional investors’ incentives with the interest of their beneficiaries and may foster the efficient inclusion of sustainability in corporate governance. The argument is threefold. Firstly, the EU Taxonomy may curb greenwashing by standardizing the disclosure of environmental sustainability. Secondly, this information may become salient for the beneficiaries as the same standards define the sustainability preferences to be considered in recommending and marketing financial products. Thirdly, sustainability disclosure prompts institutional investors to compete for sustainability-minded beneficiaries. Being unable to avoid unsustainable companies altogether, institutional investors are expected to cater to beneficiaries’ preferences for environmental sustainability using voice instead of exit.

This paper studies markets plagued with asymmetric information on the quality of traded goods. In Akerlof's setting, sellers are better informed than buyers. In contrast, we examine cases where buyers are better informed than sellers. This creates an inverse adverse selection problem: the market tends to disappear from the bottom rather than from the top. In contrast to the traditional model, it is the high-value goods (gems) that are traded on the market, rather than the low-value goods (lemons). We refer to this asymmetric information scenario as the “market for gems.” We investigate the consequences of this undisclosed knowledge of hidden qualities — which we refer to as inverse adverse selection — and the reasons why legal theorists have given this form of asymmetric information substantially less consideration. Conventional legal and contractual solutions to the lemons problem are often ineffective in the gems case: the uninformed buyer in a traditional market for lemons experiences the quality of the good he purchased; in a market for gems, instead, the uninformed seller may never know the quality of the good that he sold. We study three alternative solutions to the gems problem — auctions, suppression of information, and inverse warranties — and identify the condition under which each of them is feasible. We then show how the theory sheds light on real-life gems problems arising in the multi-million dollar transactions involving soccer players, artworks, M&As, Hollywood movies, and diamonds.

Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claimants whose interest lies in the solvency of the borrower. Consequently, shareholders are usually thought to have optimal incentives to maximise the value of the corporation. The article challenges this common wisdom in banking and proposes to reform bank governance granting (some) ex-ante governance rights to bank creditors. This aims at finetuning bank governance and incumbent substantive regulation, in particular the resolution framework for distressed banks, and enhance the quality of decision-making of banks in terms of risk-taking. At the same time, the proposed reform should increase the ex-ante credibility of resolution. The second part of the article operationalises this construct focusing on the specific case of the European Banking Union and discusses the design of the governance status of bail-inable creditors. The analysis demonstrates how bail-inable creditors can correct for shareholders’ perverse incentives and make debt governance work in banking. The policy proposal advanced in the paper would complement substantive regulation and prudential oversight. The governance role of creditors has the potential to be particularly helpful in preventing disproportionate risk-taking decisions in good times, when regulatory and supervisory standards are lax and systemic risk piles-up. Keywords: Financial Stability, Bank Governance, Debt Governance, Voting Rights, Appointment Rights, Governance Arrangements JEL Classification: G21, G38, K22

Decentralisation is one of the promises introduced by blockchain technologies: fair and secure interaction amongst peers with no dominant positions, single points of failure or censorship. Decentralisation, however, appears difficult to be formally defined, possibly a continuum property of systems that can be more or less decentralised, or can tend to decentralisation in their lifetime. In this paper we focus on decentralisation in quorum-based approaches to open (permissionless) consensus as illustrated in influential protocols such as the Ripple and Stellar protocols. Drawing from game theory and computational complexity, we establish limiting results concerning the decentralisation vs. safety trade-off in Ripple and Stellar, and we propose a novel methodology to formalise and quantitatively analyse decentralisation in this type of blockchains., OASIcs, Vol. 82, 2nd International Conference on Blockchain Economics, Security and Protocols (Tokenomics 2020), pages 5:1-5:20

The debate on sustainable finance seldom includes the perspective of shareholders. However, shareholders are important for the governance of publicly held corporations today, because their holdings are concentrated in the hands of few institutional investors. Institutional investors can therefore have an impact on the sustainability of the largest companies in the world, as they often claim they do – particularly in communications with their beneficiaries. Whether institutional investors actually have such an impact is an open question. Recent changes in EU financial regulation will bring more clarity on this matter. For instance, the revised Shareholder Rights Directive requires companies, on a comply-or-explain basis, to disclose voting policies and behaviours concerning sustainability. Moreover, the EU soon will be the first jurisdiction in the word to supply standard definitions of sustainable investment, to be used in institutional investors’ mandatory disclosure to their beneficiaries. This essay discusses whether this legislation can align the incentives of institutional investors to pursue sustainable corporate governance with the prosocial preferences of their beneficiaries.

As FinTech promises to increase competition for both banks and investment firms, we consider the market failures that emerge from its existence, particularly as they relate to issues of financial stability and investor protection. This chapter discusses the wave of technology-enabled disintermediation of financial services asking how regulation should cope with the risks associated with disintermediating finance. While regulation of financial intermediaries has been embraced because the industry is particularly prone to market failures, disintermediation has the potential to make current frameworks obsolete. The law and economics problem is twofold: (1) potential market failures, and (2) the issue of enforcement. This chapter discusses the foundations of financial intermediation and the traditional regulatory approaches to both banks and other providers of financial services. Our analysis establishes a distinction between FinTechs working outside and inside the blockchain. For the former, the crucial regulatory trade-off is between efficiency gains from innovation and regulatory arbitrage. For the latter, our analysis suggests that regulating the convertibility of cryptocurrencies into fiat money is a promising strategy not only to safeguard financial stability, but also to attract financial services to the regulatory perimeter, whenever it is efficient to do so.

Stare decisis is a fundamental principle of case-based reasoning. Yet its application varies in complexity and depends, in particular, on whether relevant past decisions agree, or exist at all. The contribution of this paper is a formal treatment of types of the hardness of case-based decisions. The typology of hardness is defined in terms of the arguments for and against the issue to be decided, and their kind of validity (conclusive, presumptive, coherent, incoherent). We apply the typology of hardness to Berman and Hafner's research on the dynamics of case-based reasoning and show formally how the hardness of decisions varies with time.

Comparison between cases is a core issue in case-based reasoning. In this paper, we discuss a logical comparison approach in terms of the case model formalism. By logically generalizing the formulas involved in case comparison, our approach identifies analogies, distinctions and relevances. An analogy is a property shared between cases. A distinction is a property of one case ruled out by the other case, and a relevance is a property of one case, and not the other, that is not ruled out by the other case. The comparison approach is applied to HYPO-style comparison (where distinctions and relevances are not separately characterized) and to the temporal dynamics of case-based reasoning using a model of real world cases.

Obligations can be affected by knowledge. Several approaches exist to formalize knowledge-based obligations, but no formalism has been developed yet to capture the dynamic interaction between knowledge and obligations. We introduce the dynamic extension of an existing logic for knowledge-based obligations here. We motivate the logic by analyzing several scenarios and by showing how it can capture in an original manner several fundamental deontic notions such as absolute, prima facie and all-things-considered obligations. Finally, in the dynamic epistemic logic tradition, we provide reduction axioms for the dynamic operator of the new logic.

Shareholders are the residual claimants on the assets of a corporation. Creditors are fixed claimants whose interest lies in the solvency of the borrower. Consequently, shareholders are usually thought to have optimal incentives to maximise the value of the corporation. The article challenges this common wisdom in banking and proposes to reform bank governance granting (some) ex-ante governance rights to bank creditors. This aims at fine-tuning bank governance and incumbent substantive regulation, in particular the resolution framework for distressed banks, and enhance the quality of decision-making of banks in terms of risk-taking. At the same time, the proposed reform should increase the ex-ante credibility of resolution. The second part of the article operationalises this construct focusing on the specific case of the European Banking Union and discusses the design of the governance status of bail-inable creditors. The analysis demonstrates how bail-inable creditors can correct for shareholders’ perverse incentives and make debt governance work in banking. The policy proposal advanced in the paper would complement substantive regulation and prudential oversight. The governance role of creditors has the potential to be particularly helpful in preventing disproportionate risk-taking decisions in good times, when regulatory and supervisory standards are lax and systemic risk piles-up.

The market discipline of creditors on the risk-taking behaviour of borrowing banks represents a long-lasting debate. Such a debate gained new attention after the post-crisis stream of reforms concerning resolution policy: creditors should be incentivized to make an optimal effort in monitoring their borrowers and, at the same time, their interests have been aligned with the social ones. Many commentators criticized such an expectation especially in the European context, arguing that the lack of credibility and excessive complexity of the resolution mechanism impair the ability and willingness of creditors to exert a disciplining role. This article aims at taking a step forward in this scientific debate, investigating whether the ability to exert disciplining activity is inherently impaired by the design of the Directive. In other words, this research wants to assess if, assuming an ideal environment, creditors would have optimal incentives to monitor banks’ behaviour and to react accordingly. To do so, the article reviews the literature on market discipline, then carries out a legal analysis of the Bank Recovery and Resolution Directive (BRRD), focusing on those norms shaping the market for bail-inable securities. Eventually, the incentives stemming from those norms are discussed, assuming an ideal environment where a bail-in is certain and credible and the market for bail-inable securities works smoothly. The analysis highlights that the incentives of creditors toward market discipline are inherently diluted by the BRRD’s legal design because of competing policy objectives pursued by the Directive. The direct normative consequence of such a finding is that enhancing information and predictability, though desirable in principle, will never lead to an optimal monitoring effort, leaving the floor to alternative rule-based strategies.

We outline a formalization of precedent comparison in the precedent model formalism.

This paper proposes a radical change in the current remuneration practices, including bail-inable debt within the variable component of remuneration packages. In supporting such claim, the paper sets the economic rationale for remuneration and explains the quintessential role of debt in banking. Against such theoretical framework, the incumbent EU regulation reveals to be severely flawed. Consequently, the paper shows why including bail-inable debt in remuneration packages provides incentives towards optimal risk-taking and develops a detailed policy proposal that focuses both on the content of the regulation and on the possible implementation strategies.

The post-crisis stream of reforms, especially the new recovery and resolution framework, has been often welcomed for its aim to increase market discipline in the banking sector, allocating the losses to shareholders and creditors of failing banks and not anymore on the general public though state bail-out. Nonetheless, the concrete mechanisms according to which such turnaround shall happen and the corporate governance consequences of financial reforms have been severely understudied.The paper tackles the trade-off between market discipline and financial stability in the post-crisis EU regulatory environment through the lenses of financial contracting. Building on the debt as a mechanism to contingently allocate control, the paper approaches the regulatory framework as a set of restrictions to contractual freedom, exploring the room for investors to discipline risk-taking of banks through specific contractual arrangements.Traditional contractual devices are scrutinized against the qualitative requirements for regulatory capital and bail-inable securities and turned out to be largely unavailable because of regulatory constraints, so that the ability of investors to limit risk-taking appetite of managers is limited. Therefore, the attention moves to the peculiar case of contingent convertible instruments (Cocos), discussing some design features that might allow investors to successfully reduce risk-taking incentives both before and after the distress of the bank, enhancing market discipline after all.

We describe how, during the 17th century, the business corporation gradually emerged in response to the need to lock in long-term capital to profit from trade opportunities with Asia. Since contractual commitments to lock in capital were not fully enforceable in partnerships, this evolution required a legal innovation, essentially granting the corporation a property right over capital. Locked-in capital exposed investors to a significant loss of control, and could only emerge where and when political institutions limited the risk of expropriation. The Dutch East India Company (VOC, chartered in 1602) benefited from the restrained executive power of the Dutch Republic and was the first business corporation with permanent capital. The English East India Company (EIC, chartered in 1600) kept the traditional cycle of liquidation and refinancing until, in 1657,the English Civil War put the crown under strong parliamentary control. We show how the time advantage in the organizational form had a profound effect on the ability of the two companies to make long-term investments and consequently on their relative performance, ensuring a Dutch head start in Asian trade that persisted for two centuries. We also show how other features of the corporate form emerged progressively once the capital became permanent. (JEL: G30, K22, N24).

The law and the economy are deeply influenced by horizontal property rights, which are the rules regulating legal direct and indirect takings between private parties. To foster research on the determinants and impact of these institutions, we illustrate here a novel data set partially employed in (Dari-Mattiacci, Giuseppe, Carmine Guerriero, 2015; Dari-Mattiacci, Giuseppe, Carmine Guerriero, Zhenxing Huang, 2016) [3], [4], and (Guerriero Carmine, 2016) [6] and describing the acquisition of ownership through adverse possession of personal and real property and the use of government takings to transfer real property from a private party to another private party in 126 jurisdictions. These data are based on the laws and judicial decisions prevailing in each jurisdiction between 1981 and 2011.

The Roman law remedies for failure to disclose in sales contracts were developed by two different institutions: that of the aediles, with jurisdiction on market transactions effected through auctions, and that of the praetor, with general jurisdiction including private transactions. The aedilician remedies—the actiones redhibitoria and quanti minoris—allowed for rapid transactions and inexpensive litigation but generated some allocative losses ex post, as they did not incentivize the parties to exchange information about idiosyncratic characteristics of the goods for sale. In contrast, the remedy developed by the praetor—the actio ex empto—implied lengthier transactions and more expensive litigation but eliminated the ex post allocative loss, as it fully protected the buyers’ idiosyncratic interests. The analysis reveals that these Roman law remedies maximized the value of the underlying contracts and sheds new light on how differences in the lawmaking institutions affect the law produced by them.

The COVID-19 pandemic is changing the face of Europe. Member States’ divergent responses to this crisis reveal a lack of unity in the face of a humanitarian catastrophe. At best, this undermines the effectiveness of health protection within the European Union (EU). At worst, it risks breaking up the Union altogether. Divergent national responses to COVID-19 reflect different national preferences and political legitimacy, and thus cannot be completely avoided. In this article, we argue that these responses should be better coordinated. Without coordination, the price for diversity is high. Firstly, there are damaging spill-overs between Member States, which undermine key pillars of European integration such as the free movement of persons and of goods. Secondly, national policy-making is easily captured by local interest groups. Our proposal is that the EU indicates – not mandates – a European exit strategy from asymmetric containment policies of COVID-19. In particular, the EU should help Member States procure and validate tests for infection and immunity. The EU should also indicate ways in which testing could be used to create safe spaces to work, thereby restoring the free movement of persons and of goods. We see a great advantage in such EU guidance: it could improve mutual learning between Member States, which have faced different timings of the epidemic and learned different lessons. Although the local political economy has so far delayed learning and undermined cooperation, the EU can mitigate both effects and indicate the way for Europe to resurrect united from the ashes of COVID-19.

Well-behaved preferences (e.g., total pre-orders) are a cornerstone of several areas in artificial intelligence, from knowledge representation, where preferences typically encode likelihood comparisons, to both game and decision theories, where preferences typically encode utility comparisons. Yet weaker (e.g., cyclical) structures of comparison have proven important in a number of areas, from argumentation theory to tournaments and social choice theory. In this paper we provide logical foundations for reasoning about this type of preference structures where no obvious best elements may exist. Concretely, we compare and axiomatize a number of ways in which the concepts of maximality and optimality can be generalized in this general class of preferences. We thereby expand the scope of the long-standing tradition of the logical analysis of preference.

In this paper we examine the internal economic organization of the peculium servi communis as separate business assets granted to a slave and its (external) relationships with creditors. Literary, legal and epigraphic evidence points predominantly to businesses of small or medium size, suggesting that there must have been some constraints to growth. We identify both agency problems arising within the business organization (governance problems) and agency problems arising between the business organization and its creditors (limited access to credit). We suggest that, although the praetorian remedies had a remarkable mitigating effect, agency problems operated as a constraint to the expansion of these business organizations, both in terms of individuals involved and in terms of capital invested.

Formalizing case-based reasoning is an important topic in AI and Law, which has been discussed using various approaches, such as formal dialogue games, abstract dialectical frameworks. In this paper we model case-based reasoning by using the formal argument semantics of case models. With the precedent models we present, the validity of legal arguments in the case-based reasoning process can be shown formally. We also present a case study of precedent models in a real legal domain and evaluate the validity of arguments in case-based reasoning.

Evidence production at trial, the accumulation of patents in a technological race, and lobbying are contests that often involve strategic choices over a discrete set of options. The literature has primarily focused on games with continuous effort choices. We fill this gap by studying a rent-seeking game with discrete effort choices and, for a significant class of games, derive a transformation rule that allows one to find the equilibrium of the discrete game from the equilibrium of the continuous game, which is much simpler to identify. We also discuss the limits of this approach and how well the continuous game approximates the discrete one.

In all legal systems, possession and property are inextricably linked. Game theory captures this relationship in the Hawk-Dove game. When two contenders compete to appropriate an asset, one of the two most efficient outcomes is achieved when both play the bourgeois strategy: they coordinate in such a way that the incumbent possessor plays Hawk and the intruder plays Dove. In our Hawk-Dove experiment, we test the role of possession with respect to the emergence of such a bourgeois convention. Our treatment variation concerns the way the initial claim to the asset is established. We manipulate the type of information provided and the process of acquisition. We show that i) the highest level of bourgeois coordination emerges whenever the information is based on possession but also when the process is meritorious; ii) possession, both arbitrary and meritorious, induces only bourgeois coordination and never antibourgeois (this is the equally efficient opposite strategy of playing Hawk when the player is the intruder and playing Dove when he is the possessor); and iii) without merit or possession, coordination on a “bullying” equilibrium emerges, generating very inequitable outcomes. Possession thus triggers the establishment of property, and this prevents inequality from arising.

We show that formalizing private property rights has a positive effect on the propensity to respect the property of others, a social preference with important implications for growth and economic development. Our identification strategy is based on a unique feature of a recent large-scale land-tenure reform in West Africa, which was the first of its kind to be implemented as a randomized control trial. To recover the effect of the reform on subjects' willingness to respect others' property, we used a lab-in-the-field experiment in which subjects played a modified dictator game designed to elicit their willingness to appropriate others' endowment. Results show that the formalization of private property rights reduced an individual's willingness to take from others. We used additional experimental measures and post-experimental survey data to rule out alternative explanations for the observed behavior that do not imply a change in preferences. These findings suggest that the structure and design of property rights institutions play a key role in shaping prosocial preferences.

The law and the economy are deeply influenced by the legal tradition or origin, which is the bundle of institutions shaping lawmaking and dispute adjudication. The two principal legal traditions, common law and civil law, have been transplanted through colonization and occupation to the vast majority of the jurisdictions in the world by a group of European countries. Here, I illustrate a novel dataset recording the lawmaking institution employed by 155 of these jurisdictions at independence and in 2000 and four discretion-curbing adjudication institutions adopted by 99 of these “transplants” at the same two points in time. Contrary to the “legal origins” scholars׳ assumption, 25 transplants changed the transplanted lawmaking institution and 95 modified at least one of the transplanted lawmaking and adjudication rules. In “Endogenous Legal Traditions” (Guerriero, 2016a) [12], I document that these reforms are consistent with a model of the design of legal institutions by societies heterogeneous in their endowment of both the extent of cultural heterogeneity and the quality of the political process. In “Endogenous Legal Traditions and Economic Outcomes” (Guerriero, 2016b) [13] moreover, I show the relevance of considering legal evolution and the endogeneity between legal traditions and economics outcomes. The data illustrated here also include the proxies for the determinants of legal evolution I use in “Endogenous Legal Traditions” (Guerriero, 2016a) [12] and the novel measure of economic outcomes I employ in “Endogenous Legal Traditions and Economic Outcomes” (Guerriero, 2016b) [13].

When adjudication is not perfectly accurate, litigants with unmeritorious cases may benefit from court errors, which in turn may result in a dilution of incentives for primary behavior and frivolous litigation. We study how shifting the court fees to the loser may improve the accuracy of adjudication. If litigation costs are high, the American rule performs better than the English rule, and vice versa if litigation costs are low. Yet, the optimal rule typically lies in between the American and the English rule, allowing the court to modulate fee shifting based on the accuracy of the evidence submitted by the parties. Our results rationalize observed patterns of use of fee shifting. In the United States, fee shifting is less common than in Europe, where litigation costs are lower. When used, fee shifting commonly depends on the accuracy of the evidence. Moreover, fee shifting filters extreme cases out of litigation, resulting in a more representative set of cases—including also more extreme ones—being adjudicated under the American rule as compared to the English rule. Finally, we identify a characteristic of fee-shifting rules, their “flatness”, which guarantees that fee shifting does not affect the settlement rate and show that flatness is a feature of an optimal mechanism.

The conference examined four papers on three primary topics: common ownership, annual general meetings (AGMs) and the agenda on environmental, social and governance (ESG) issues and investor engagement (two papers on this latter issue). The first discussion, addressing the antitrust risks stemming from common ownership, started from empirical evidence that may suggest anticompetitive effects and higher fares in the airline industry as a possible result of common ownership. More specifically, anticompetitive effects are alleged to arise in the form of reduced incentives for companies to compete aggressively, in order not to undermine portfolio profits of their “common owners”. At least in theory this creates the possibility of a tripartite trade-off between, diversification, governance and competition. A lively debate ensued, during which strong criticism was advanced on the actual existence of anticompetitive outcomes and the scope of institutional investors’ intervention in firms’ decision-making. The need for further empirical studies on the issue, in order to better understand the mechanisms at play and to better inform potential policy initiatives, was a fundamental conclusion from the discussion.

In this article, I propose a theoretical framework for systematically including the discussion of tastes and values in the economic analysis of the law. I argue that Cultural Economics offers a welfaristic argument for including the promotion of welfare-enhancing tastes and values as one of the elements that the Law and Economics analyst needs to consider. My main argument is that recent empirical findings in Economics support Guido Calabresi’s (2016) invitation to normatively engage in shaping cultural traits – at least for a specific set of tastes and values. In the next section, I will start my exposition by reviewing recent empirical findings in the field of Cultural Economics, a branch of Economics that uses state-of-the-art empirical techniques to investigate the relationship between people’s tastes, values, and economic outcomes. A growing body of literature demonstrates two important results. First, it is possible to identify a set of tastes and values which are key determinants of a society’s economic performance. Second, the design of legal institutions has direct consequences – which can be predicted and empirically estimated – for the formation and persistence of these economically-relevant tastes and values. I hold that, taking as a starting point the fact that cultural traits have an impact on economic outcomes, the effects of a hypothetical legal change on tastes and values can be treated as an (expected) cost or benefit in a welfare analytical framework, or used it as a “tie-breaker” in case of mixed evidence and uncertain evaluations. On this basis, and assuming that in the upcoming years the discipline will develop a systematic exploration of which tastes and values matter for economic choices, the Law and Economics analyst can engage in normative arguments regarding which values and tastes should be promoted by the lawmaking process. Another way to state the concept is that the analyst will be able to inform policy and law-makers regarding how to design reforms and institutions that ceteris paribus promote welfare-enhancing cultural traits. Indeed, the field of Law and Economics is particularly suited to produce sophisticated analysis of a society’s institutional setting and to generate systematic and testable predictions regarding the effects of changes in legal institutions.

This paper proposes a quantitative approach to study two methodological problems arising when a costly redistribution of resources is implemented through public policies or legal rules: (a) aggregating individual into social preferences and (b) choosing the object of maximization. We consider a redistribution intervention that reduces inequality but diminishes total wealth and we specify a set of social welfare functions combining different preferences aggregation methods and maximands. For each social welfare function, we calculate its “price of equity”, defined as the maximum fraction of total wealth that a society is willing to sacrifice in order to implement the redistribution. Comparing the prices for equity across different social welfare function specifications, we identify systematic relationships and we rank them according to the efficiency-equity orientation. Results show that social welfare functions characterized by aggregation methods conventionally considered equity-oriented may reject redistribution interventions that are evaluated as welfare-improving by social welfare functions using efficiency-oriented aggregation methods. Similarly, social welfare functions considered equity-oriented because using utility as object of maximization may reject distributive policies that are evaluated as welfare-improving by social welfare functions using wealth as maximand. We argue that the quantitative approach proposed, by expounding the trade-off between equity and efficiency connected to different social welfare functions, may prove useful in areas of public law where policy-makers have to engage in the choice of a normative criterion for the evaluation of social welfare. Additionally, our results may inform rule-makers interested in comparing the distributive effects of alternative legal rules in special circumstances where private remedies can efficiently achieve redistribution goals.

I investigate how the first large-scale randomized-controlled trial of a land formalization reform in rural Western Africa affects villagers' cooperativeness and trust. With the reform, land plots traditionally characterized by collective property and informal possession are mapped, parcels boundaries demarcated, and land rights are formally attributed, making it possible to claim property in court and sell or use them as collateral. Six years after the reform implementation, I conduct lab-in-the-field experiments to collect data on cooperation and trust choices among villagers who experienced the formalization program and compare them with control villagers not selected for the reform implementation. Results show that the formalization of land rights significantly increases participants' contributions to the common account in a public goods game and trustors' transfers in a trust game. In a second study, I replicate the experiment in a different rural area sharing the same set of formal institutions and subject to the same tenure reform, but characterized by significantly lower levels of market integration and worse socio-economic conditions. In contrast with results of the first study, in this environment the reform produces no positive effects on participants' trust levels and determines a significant reduction of cooperation and trustworthiness.

We explore learning and change in standard form contracts. We hypothesize that drafters (sellers) are more likely to revise the terms they offer when they have an opportunity to learn about their value. These opportunities arise only for those types of terms that allow drafters to experience the relative costs and benefits of offering them. Consider a warranty. Sellers offering a warranty in an initial period will be exposed to claims about malfunction by purchasers and will learn whether it is desirable to offer it going forward. When drafters are unable to learn, either because they fail to offer such learning-enabling terms initially, or because the term in question is one where there is no increased opportunity to learn, we expect that such terms will be revised less frequently. Indeed, a reduced opportunity to learn might create contractual “black holes,” where terms that are less likely to be revised might lose their meaning over time or appear less related to the rest of the contract. Our results support this hypothesis. Using a large sample of changes in consumer standard form contracts over a period of seven years, we find that sellers are more likely to revise terms that offer an opportunity to learn than those that do not. The results suggest that standard form contract terms evolve over time as sellers learn about their benefits, costs, and risks. Our results have normative implications for the design of default rules.

Deze Notenkraker bespreekt twee uitspraken van de rechtbank Rotterdam over het heenzenden van een bestuurder van Delta Lloyd en een daaraan gerelateerde boeteoplegging.

We identify a fundamental trade-o between protecting property rights and enhancing reliance on contracts. This trade-o arises whenever a potentially dishonest intermediary can transfer a good to a buyer without the original owner’s consent, as in the sale of stolen goods. In these instances, the legal system can either protect the original owner’s property or enhance the buyer’s reliance on contracts. We show that this choice depends more crucially on who values the good the most rather than on the original owner’s incentives to protect property and the buyer’s willingness to inquire about the good title. In particular, whenever the buyer has the highest valuation, protecting the original owner’s property rights is comparatively more appealing when more intermediaries are honest and when law enforcement is less ecient since in both cases condoning non-consensual transfers becomes less ecient. In addition, the impact of culture and enforcement on the institutional choice is stronger when the dierence between the owner’s and the buyer’s valuations is larger. Both empirical predictions are consistent with recent evidence on the determinants of the very diverse

Recent theories of compliance predict that, apart from utilitarian considerations, individual decisions to respect or break the law account for virtuous motives and nonutilitarian willingness to promote the social good. We test whether empirical evidence supports these theories by collecting data on cyclists' decisions to ignore a red traffic light in a natural setting. We consider different situations where noncompliance is costly, but without risk, and where material deterrence incentives from legal sanctions remain constant. The only difference between the situations lies in who is observing the cyclists' decision at the traffic light at the intersection of a footpath with the cycle track. We find that about 68 percent of cyclists ignore the red traffic light when there is the opportunity to do so. This frequency does not change substantially when adult bystanders are observing at the pedestrian traffic light. Interestingly, the violation frequency drops to about 10 percent when children are present. Robustness checks rule out the alternative explanations that this change is driven by concerns for children's unpredictable actions, or by the simultaneous presence of other adult bystanders. In a vignette study, we additionally dissect the cyclists' motives for being compliant. Results suggest a “role‐model effect” on compliance. When asked, the majority of participants report that the willingness to educate and be a good example is the most important reason for their decision to abide by the law, hence supporting the empirical observation that promoting the social good can be an important nonutilitarian motive of compliance decisions.

Liquid democracy is a proxy voting method where proxies are delegable. We propose and study a game-theoretic model of liquid democracy to address the following question: when is it rational for a voter to delegate her vote? We study the existence of pure-strategy Nash equilibria in this model, and how group accuracy is affected by them. We complement these theoretical results by means of agent-based simulations to study the effects of delegations on group's accuracy on variously structured social networks., Comment: 17 pages, 3 figures. This paper (without Appendix) appears in the proceedings of AAAI'19

Behavioral policy interventions aimed at redirecting individuals’ behavior toward optimal choices are characterized by an important issue which is often overlooked: the lack of an instrument to define what “optimal” means. If agents are subject to behavioral biases leading them to make “wrong” choices, the policy-maker can no longer rely on the revealed preferences approach (e.g., what people choose is what people prefer) for defining a welfare criterion. In this article, we reiterate the argument put forward by some scholars that choosing a suitable welfare criterion once the link between observed choices and individuals’ preferences is broken becomes a problematic task. We review the state of the art in the literature and the possible approaches proposed to overcome the problem, concluding that a solution has not yet been reached. Moreover, we argue that the lack of an established welfare criterion characterizing behavioral policy-making could pave the way to government wanting to restrict individual freedom. In the absence of any legislative constraint for the executive, stating that what individuals choose is not what they prefer in principle justifies any freedom-reducing government intervention, since choices can be arbitrarily labeled “sub-optimal” or “welfare-reducing.” To avoid this risk without turning down the potential of behavioral policy-making, we propose that an independent committee establishes ex ante procedural rules and domains where behavioral policy-making can be implemented. The article suggests some possible examples of normative provisions characterizing this constitution-type document, such as the selective identification of the only sectors where behavioral policies could be effectively applied, the periodic evaluation of policy effects, and the use of sunset clauses.

A big corporate governance debate concerns the corporation’s time horizons and the balance of power between shareholders and managers. In response to pressure from shareholder activists – typically activist hedge funds – companies are, some say, becoming too short-term. If this is true, shareholders and the greater society may be being harmed. We argue here that this may reflect a heretofore neglected facet of decision-making: an actor’s accountability and her anticipated need to justify decisions in the case of a bad outcome. Our account does three novel things. First, we demonstrate that the need to justify is pervasive. Our account identifies a type of agency cost, “justification costs,” resulting from decisions motivated by justification. Second, to our knowledge, the relationship between these sorts of agency costs and more traditional agency costs has not been considered. Reducing traditional agency costs typically means increasing accountability and the consequent anticipated need for justification; in contrast, reducing costs of justification generally means increasing managerial leeway, which might increase traditional agency costs. Third, we introduce a role for uncertainty. We show that under conditions of low(er) uncertainty, more accountability does not necessarily increase justification costs but does reduce traditional agency costs. But under conditions of uncertainty, accountability increases justification costs, potentially in an amount greater than any reduction in traditional agency costs. We propose a mechanism by which managers and stockholders can agree on granting managers some leeway for a specified period of time, in the form of “Control-Enhancing- Mechanisms” (CEMs). A CEM may or may not condition continuing leeway during the period on management’s meeting certain agreed-upon conditions. We consider how our argument as to the existence of justification costs might apply in some private and public financial contexts, and suggest some solutions in those contexts as well.

Shadow banking is often defined by reference to what is not, namely official banking. This essay takes a different approach. Focusing on the purpose of shadow banking regulation, namely minimizing systemic risk, shadow banking is defined as leveraging on collateral to support liquidity promises.This essay discusses the economic case for regulating shadow banking by asking three questions. First, what is shadow banking? Second, why regulate shadow banking? Third, how to regulate shadow banking efficiently? It is argued that shadow banking should be regulated because the social cost of systemic risk is not internalized by the players generating it. Moreover, because systemic risk cannot be accurately measured and priced, this essay argues that the negative externalities of shadow banking should be limited through quantity regulation – restrictions on the size of shadow banking – rather than corrective taxation.