the role of monitoring of corruption in a simple endogenous growth model i introduction during the last 30 years economists from various fields have contributed to the analysis of corruption the first paper to receive widespread attention was published in 1975 rose ackerman 1975 since then a large literature has developed and much attention has been paid to the relationship between corruption and economic growth in the analysis of the consequences of corruption the literature supports two opposing positions on one hand common wisdom views corruption as an obstacle sand to development and growth on the other hand other researchers since the pioneering works of left 1964 and huntington 1968 have suggested that corruption may promote efficiency by allowing firms to bypass government failures of various sorts grease corruption more recent expositions of efficiency enhancing corruption can be found in lui 1985 acemoglu and verdier 1998 2000 and barreto 2000 barreto 2000 presents a simple neoclassical endogenous growth model where the public sector s monopolistic position is explicitly considered results indicate that a corruption equilibrium is characterized by lower growth rates compared to the ideal situation in which public goods are provided competitively barreto 2000 also shows that if the public sector is subject to significant bureaucratic red tape all of the agents within the economy may prefer the corruption equilibrium as corruption can bypass bureaucratic obstacles from a theoretical point of view there are several ways in which corruption may reduce economic growth corruption can act as a tax and thus lower incentives to invest corruption could cause talented people to engage in rent seeking rather than productive activities corruption may distort the composition of government expenditure as corrupt politicians could be expected to invest in large non productive projects from which considerable bribes can be extracted more easily than from productive activities empirical analysis has also provided evidence of the negative effects of corruption on economic growth mauro 1995 shows that corruption reduces economic growth via reduced private investment 1 similar results are obtained by keefer and knack 1995 using other measures of corruption and a different selection of countries 2 recently the grease the wheels hypothesis has been tested and statistically supported see aidt 2009 campos dimova and ahmad 2010 meon and sekkat 2005 among others in this article we develop a theoretical endogenous growth model which incorporates corruption in our model the social loss brought about by corruption stems from the fact that firms must bribe a bureaucrat in order to invest and consequently devote fewer resources to the accumulation of capital therefore in our model corruption has a negative effect on private investment other models share our framework ehrlich and lui 1999 claim that individuals have an incentive to compete over the privilege of becoming bureaucrats the so called investment in political capital since they obtain economic rents through corruption this investment in political capital consumes economic resources which could otherwise be used for production or investment in human capital in del monte and papagni 2001 corruption arises when bureaucrats manage public resources to produce public goods and services corruption reduces the quality of public infrastructure resulting in a negative effect on economic growth the novel feature of this article is the study of the impact of monitoring of corruption on economic growth 3 in our theoretical model we derive a nonlinear relationship between the level of monitoring and economic growth as well as between corruption and economic growth 4 at low monitoring levels the economy experiences widespread corruption and medium growth rates whereas no corruption occurs at intermediate monitoring levels but low growth rates are recorded

bribes lobbying and development paign contributions or influence buying through other means as an activity that is aimed at changing existing rules or policies we view bribery in contrast as an attempt to bend or get around existing rules or policies the analysis contrasts these two means of influencing politics we use the labels lobbying and bribery for convenience and not because they are perfect defini tions for the two rent seeking activities we study in reality bribery and lobbying differ in several di mensions first lobbying is a legal and regulated activ ity in many countries whereas bribery is not second a change in the rules as a result of lobbying often af fects an entire industry whereas the return to bribery is more firm specific third a government that ponders a change in the rules might have quite different concerns than a bureaucrat considering a bribe our model cap tures all these differences possibly the most important difference however and the driving assumption in the model is that bending the rules is only temporary bu reaucrats can seldom commit to not asking for bribes in the future because corrupt deals are not enforceable in courts and because firms deal with different officials over time a legislative change on the other hand al ters the status quo and is therefore likely to last longer although policies and politicians also change over time our key assumption is that changing the rules is long lasting relative to bending them 2

lender penalty for environmental damage and the equilibrium cost of capital in a model of the lending relationship incorporating both adverse selection and moral hazard we show that increasing the liability of lenders for environmental damage done by their borrowers has a qualitatively ambiguous impact upon interest rates this calls into question the assertion of financial community representatives that such reform will necessarily driveup interest rates and have adverse macroeconomic consequences if it is this fear which is preventing reform then that reluctance may in the case of many classes of pollutant be misplaced the implications of such reform for credit rationing are also explored

optimal taxation of flow pollutants when firms may also inflict catastrophic environmental damage in many industries firms affect the environment in two distinct types of ways firstly they emit routine anticipated volumes of flow pollutants secondly they can potentially inflict catastrophic environmental damage liability for which may be overhanging or limited by the law operaters of chemical plants nuclear power stations and oil tankers are three examples if an emissions tax or charge is to be levied on the flow pollutants in these cases how should it be set we use simple dynamic programming techniques to characterise second best optimality we identify contexts in which the tax should be raised above its pigovian level to take account of the catastrophic potential and others where it should be set below that level the analysis has significant implications for how policymakers should go about calibrating ecological taxes in a number of high profile industries

public regulation of agricultural biotechnology field tests economic implications of alternative approaches federal oversight of agricultural biotechnology field testing is based on public concerns that unknown consequences could arise from such tests and that firms may not adequately consider the public consequences of their research and development activities in this paper four general types of ex ante and ex post approaches to manage public risks from field testing are explored the analysis shows that the approaches are least effective at facilitating the research process yet controlling public risks when the research firm is small in size and potential damages exceed the value of the firm

environmental federalism and environmental liability abstract environmental federalism considers what level of government should optimally regulate pollution this paper addresses this question for accidental pollution which government regulates through the ex post liability regimes of either negligence or strict liability we find that decentralizing the choice between these regimes does not in general induce the socially optimal outcome when firms can pay all damages all regions may choose negligence and impose an overly strict standard of due care when firms may be bankrupted by damages all regions may choose strict liability which induces too little care in addition asymmetric equilibria are possible in which some regions choose negligence others strict liability combining negligence with a pigovian tax or strict liability with a bonding requirement can align regional authorities incentives with those of a central government

innovation and communication signalling with partial disclosure this paper introduces a model of feedback effect equilibrium i e equilibria in which an asymmetrically informed agent is motivated to communicate its privately known attribute but can do so only through channels or signals which convey directly useful information to competing agents this revelation to the competition serves to reduce the value of the private information held by the first agent models of this kind are of obvious relevance to realistic theories of product or financial market disclosure policies of firms patenting and a host of related behavioural and regulatory issues this model is developed in the context of a set of firms engaged in research and development rivalry in which the value of privately held and disclosed information arises from its implications for the likelihood and timing of productive innovation

strategic judgment proofing a liquidity constrained entrepreneur raises capital to finance a business activity that may harm bystanders the entrepreneur raises senior secured debt to shield assets from the tort victims in bankruptcy for a fixed level of borrowing senior debt creates better incentives for precaution taking than either junior debt or outside equity the entrepreneur s level of borrowing is however socially excessive giving tort victims priority over senior debtholders in bankruptcy prevents overleveraging but leads to suboptimal incentives lender liability exacerbates the incentive problem even further a limited seniority rule dominates these alternatives shareholder liability mandatory liability insurance and punitive damages are also discussed

antitakeover charter amendments and stockholder wealth abstract many large corporations have recently adopted antitakeover charter amendments which make the transfer of corporate control more difficult this paper develops and tests competing theoretical explanations for the passage of these amendments in one view antitakeover provisions are adopted because incumbent management seeks job protection at stockholders expense the alternative hypothesis is that antitakeover provisions benefit stockholders perhaps by extracting greater payment in exchange for corporate control although inconclusive the evidence provides weak preliminary support for the hypothesis that antitakeover amendments are best explained as a device for managerial entrenchment

issuing costs to existing shareholders in competitive and negotiated underwritten public utility equity offerings abstract this paper presents the results of an empirical investigation of whether there is any difference in the cost incurred by public utilities if they issue new equity through a negotiated or competitive underwriting we conclude that the expected cost of a competitive offer is less than the expected cost of a negotiated offer but that the variance of the cost is substantially greater with a competitive offer these results are interesting because most public utilities use negotiated underwriting unless forced by regulation to use competitive offers this paper is also an addition to the growing agency theory literature

capture and governance at local and national levels 135 despite the importance of this issue not much systematic research appears to have been devoted to assessing the relative susceptibility of national and local governments to interestgroup capture here we describe a model of two party electoral competition with probabilistic voting behavior and lobbying by specialinterest groups based on david baron 1994 and gene grossman and elhanan helpman 1996 that helps identify determinants of relative capture at different levels of government these include relative levels of voter awareness and interest group cohesiveness electoral uncertainty electoral competition heterogeneity of districts with respect to inequality and the electoral system while some of these uphold the traditional madisonian presumption others are likely to create a tendency for lower capture at the local level so the net effect is theoretically ambiguous this suggests that the extent of relative capture may be context specific and needs to be assessed empirically

the structure of political institutions and effectiveness of corporate political lobbying this paper investigates how the structure of political institutions influences the effectiveness of corporate political lobbying by shaping the veto points and entry points that lobbying firms encounter and require respectively when attempting to influence public policies in so doing this study deepens our understanding of the strategic implications of institutional environments using large sample and cross country firm level data we find that the influence of firms lobbying activities on public policies is weakened when there are tighter constraints generated as a result of greater political partisan competition and more subnational government tiers we find that the negative association between the effectiveness of lobbying and political partisan competition is particularly pronounced in countries with lower electoral accountability and that the negative association between the effectiveness of lobbying and subnational government tiers is particularly pronounced in more centralized politi

firm growth and corruption empirical evidence from vietnam this paper tests whether firm growth reduces corruption using data from over 10 000 vietnamese firms we employ instrumental variables based on growth in a firm s industry in other provinces within vietnam and in china we find that firm growth reduces bribes as a share of revenues we propose a mechanism for this effect whereby government officials decisions about bribes are modulated by inter jurisdictional competition this mechanism also implies that growth reduces bribery more for more mobile firms consistent with this prediction we find a larger effect for firms with transferable rights to their land or operations in multiple provinces this article is protected by copyright all rights reserved

standstill agreements privately negotiated stock repurchases and the market for corporate control abstract standstill agreements are voluntary contracts which limit a substantial stockholder s ownership interest in a corporation for a specified number of years they are often accompanied by repurchase of the substantial stockholder s shares at a premium above the market price standstills and premium buybacks reduce competition for corporate control and provide differential treatment of large block stockholders the analysis indicates a statistically significant negative average effect on non participating stockholder wealth associated with standstill agreements negotiated premium repurchases are also associated with negative but less significant stockholder returns the evidence is inconsistent with the hypothesis that these management actions are in the best interests of non participating stockholders

bankruptcy and care choice this article considers the care choice of a potentially bankrupt injurer when care is pecuniary and the legal system is characterized by strict liability i show contrary to previous results that such an injurer may take too little or too much care and that neither injurer care nor victim welfare is necessarily increasing in injurer wealth when injurers behave optimally analysis of an expected cost function demonstrates that injurer expected costs are a concave and increasing function of injurer assets a result suggesting applications to the study of vertical relationships and markets for agents

how liable should a lender be the case of judgment proof firms and environmental risk comment recently u s environmental law has shown a tendency toward increased lender liability a model of a potentially judgment proof owner of a firm a lender and a potential victim is developed in which this policy can increase accident frequency and reduce efficiency full partial and zero lender liability rules and a minimum equity requirement are analyzed partial lender liability and an equivalent minimum equity requirement deliver the highest level of efficiency although the former can deliver a higher contribution by the lender to the victim than the latter policy and empirical implications are also discussed copyright 1995 by american economic association

the rule 415 experiment equity markets rule 415 allows a firm to register all the securities it reasonably expects to sell over the next two years and then at the management s option to sell those securities over these two years whenever it chooses this paper examines whether equity offerings made under rule 415 shelf offerings differ in issuing costs from equity offerings not sold under this rule we find that shelf offerings cost 13 less for syndicated issues and 51 less for nonsyndicated issues we also investigate the empirical relevance of the market overhang argument which suggests that shelf registrations depress the price of the registering firm s shares more than traditional registrations our data does not support the market overhang argument the securities and exchange commission s sec rule 415 which was permanently adopted for large firms in november 1983 allows a firm to register all the securities that it reasonably expects to sell over the next two years and then sell those securities whenever it chooses this procedure is known as shelf registration investment bankers securities regulators and corporate issuers vigorously debate the effect of rule 415 on firms issuing cost for new securities some mostly investment bankers argue that rule 415 increases new issue costs while others mostly issuers argue that rule 415 decreases new issue costs in addition many investment bankers argue that placing common stock on the shelf depresses the price of a firm s outstanding shares of stock most issuers

plata o plomo bribe and punishment in a theory of political influence we present a model where groups attempt to influence policies using both bribes plata spanish for silver and the threat of punishment plomo spanish for lead we then use it to make predictions about the quality of a country s public officials and to understand the role of institutions granting politicians with immunity from legal prosecution the use of punishment lowers the returns from public office and reduces the incentives of high ability citizens to enter public life cheaper plomo and more resources subject to official discretion are associated with more frequent corruption and less able politicians this predicts that violence in a country will typically go together with corruption and worse politicians moreover the possibility of punishment changes the nature of the influence game so that even cheaper plata can lower the ability of public officials protecting officials from accusations of corruption immunity will decrease the frequency of corruption if the judiciary is weak and may increase the quality of politicians these predictions cannot emerge from a traditional model where only bribes are used the positive evils and dangers of the representative as of every other form of government may be reduced to two heads first general ignorance and incapacity or to speak more moderately insufficient mental qualifications in the controlling body secondly the danger of its being under the influence of interests not identical with the general welfare of the community

environmental policy based on strict liability implications of uncertainty and bankruptcy a firm level model is developed to analyze the impacts of bankruptcy and uncertain firm wealth on incentives for safety under a strict liability rule future damages and wealth are uncertain and a firm s income earning activities that possibly create damages are incorporated into the model this analysis shows that firms do not always undertake more of a risky activity than is socially desirable for the extremely hazardous industry case larger firms always undertake less of a risky activity than smaller firms for the cyclical industry case larger firms do not always conduct less of a risky activity than smaller firms

ethical aspects of investor behavior the neoclassical paradigm assumes that shareholders utility is solely a function of their wealth and prescribes that management should act in a manner consistent with share price maximization the stakeholder view also assumes that shareholders utility derives from wealth but prescribes that managers must balance the shareholder wealth maximization objective against the rights of other constituencies thus while neoclassicists and stakeholder theorists have different prescriptives for management behavior their definitions of the shareholders interest are consistent shareholders are self interested economic agents whose utility is best served by share price maximization however if shareholders are other interested and attack importance to ethical and moral values then both the neoclassical and stakeholder view derive from invalid assumptions in this paper i present evidence that much shareholder behavior is ethically motivated as a result the basis for both the neoclassical and the stakeholder view are weakened

financial incentives and endogenous enforcement in china s pollution levy system abstract using data from 3000 chinese factories we estimate an econometric model of endogenous enforcement in which factories levy rates and emissions are jointly determined by the interaction of local and national enforcement factors abatement costs and regulator manager negotiations that are sensitive to plant characteristics our results demonstrate the significant deterrent impact of a system that combines progressive financial penalties and self reporting with few options for contesting regulatory decisions despite the prevalence of state enterprises and developing country conditions in china despite central pressure for uniformity in enforcement we find great regional diversity that reflects local conditions we also find that pollution control through financial incentives has a much greater impact on production processes than on end of pipe abatement

are foreign owned firms more likely to pay bribes than domestic ones evidence from emerging markets summary an extensive literature exists on the adverse effects of corruption on inward fdi and the impact this may have on economic development but the reverse causality has not been fully explored legislation in the us and the eu prohibits firms from engaging in corrupt practices in foreign countries and this suggests that foreign owned firms might be less likely to pay bribes however such legislation may be ineffective because foreign firms have to adapt to local market conditions or risk being uncompetitive using firm level data for 41 emerging countries a probit model estimates the probability that a firm pays bribes to allow for possible endogeneity this probit analysis is repeated with an instrument to proxy for endogenous foreign ownership then a propensity score matching technique tests for differences in the propensity to pay bribes by domestic and foreign firms the paper finds no difference in the behavior of foreign owned and domestic firms with respect to corrupt practices results are robust to different levels of foreign ownership and support the view that foreign owned firms adapt to local practices and are neither more nor less likely to pay bribes than comparable domestic firms the paper finds that other variables including bureaucracy government contracts and perceived difficulties with civil society legal and political do have statistically significant effects on increasing bribery and that some others such as per capita gdp tend to reduce bribery the study concludes that there is no evidence that foreign ownership after investment has occurred tends to reduce bribery but it does support the view that foreign owned firms adopt local behavioral norms

the effect of environmental regulation on optimal plant size and factor shares the method for measuring the effects of environmental regulation on the size distribution of industrial plants and the distribution of factor shares described in this paper focuses on the 20 industries with highest per unit pollution abatement costs and the 20 with the lowest costs the study finds that compliance with environmental laws has not only reduced the number of plants in the affected industries but has placed a greater burden on small rather than on large plants besides redistributing within industry market shares environmental regulation has increased the use of capital relative to labor although the disproportionate burden placed on small plants in the high abatement cost industries may have been unintended it is likely that large firms will be less vocal opponents of environmental regulation than are small firms 22 references 12 tables

corruption and rent seeking the rent seeking theory was one of thefirst economic instruments developed tomodel corruption in the public sector comparing corruption with lobbying itproposes that the former is the lesser oftwo evils since lobbying entails the wastage of resources inthe competition forpreferential treatment this study showsthat the traditional rent seeking theorymisunderstands three factors first theimpact of a corrupt monopoly on the rent ssize second corruption as a motivationfor supplying preferential treatment andthird that corruption involves a narrowerrange of interests than those ofcompetitive lobbying taking these factorsinto consideration the opposite argumentis valid corruption has worse welfareimplications than alternative rent seekingactivities

the benefits of extended liability we characterize the optimal regulation of a firm that undertakes an environmentally risky activity this firm the agent is protected by limited liability and bound by contract to a stakeholder the principal the level of safety care exerted by the agent is nonobservable this level of care depends both on the degree of incompleteness of the regulatory contract and on the allocation of bargaining power between the principal and the agent increasing the wealth of the principal that can be seized upon an accident has no value when private transactions are regulated but might otherwise strictly improve welfare an incomplete regulation supplemented by an ex post extended liability regime can sometime achieve the second best

measuring firm size in empirical corporate finance abstract in empirical corporate finance firm size is commonly used as an important fundamental firm characteristic however no research comprehensively assesses the sensitivity of empirical results in corporate finance to different measures of firm size this paper fills this hole by providing empirical evidence for a measurement effect in the size effect in particular we examine the influences of employing different proxies total assets total sales and market capitalization of firm size in 20 prominent areas in empirical corporate finance research we highlight several empirical implications first in most areas of corporate finance the coefficients of firm size measures are robust in sign and statistical significance second the coefficients on regressors other than firm size often change sign and significance when different size measures are used unfortunately this suggests that some previous studies are not robust to different firm size proxies third the goodness of fit measured by r squared also varies with different size measures suggesting that some measures are more relevant than others in different situations fourth different proxies capture different aspects of firm size and thus have different implications therefore the choice of size measures needs both theoretical and empirical justification finally our empirical assessment provides guidance to empirical corporate finance researchers who must use firm size measures in their work

the simple economics of extortion evidence from trucking in aceh this paper tests whether the behavior of corrupt officials is consistent with standard industrial organization theory we designed a study in which surveyors accompanied indonesian truck drivers on 304 trips during which they observed over 6 000 illegal payments to police soldiers and weigh station attendants using plausibly exogenous changes in the number of checkpoints we show that market structure affects the level of illegal payments we further show that corrupt officials use complex pricing schemes including third degree price discrimination and a menu of two part tariffs our findings illustrate the importance of considering the market structure for bribes when designing anticorruption policy

voting power in the proxy process abstract the likelihood that a firm will enact a management sponsored antitakeover charter amendment depends on ownership structure this implies that the adoption of antitakeover amendments may be anticipated then announcement returns provide a biased estimate of wealth effects an estimator that corrects for the bias induced by anticipation indicates that the enactment of an antitakeover amendment is associated with a statistically significant decrease in shareholder wealth the voting power of employee stock ownership plans and the chief executive officer plays a prominent role in determining whether a firm will adopt this type of takeover defense

corruption and development a review of issues in this paper we start with a discussion of some of the different denotations of the problem of corruption we then consider the ways in which the damaging consequences of corruption operate in a developing economy while not ignoring its possible redeeming features in some cases we pursue the question of why corruption is perceptibly so different in different societies and also persistent finally we examine the feasible policy issues that arise in this context

on corporate governance a study of proxy contests abstract this paper examines a sample of firms experiencing proxy contests for seats on their board of directors dissident shareholders usually fail to obtain a majority of board seats nevertheless they capture some seats via mechanisms such as cumulative voting in over half of the sample contests regardless of proxy contest outcome positive and statistically significant share price performance is associated with the contest that finding is predicted by the standard economic analysis of proxy contests in which the challenges benefit shareholders by improving corporate performance the finding runs counter to the claim of berle 1962 that the economists view of proxy contests is a wholly imaginary picture a portion of the positive share price changes taking place in the early stages of some proxy contests is not permanent however and as suggested by manne 1962 is at least partially attributable to temporary increases in the market value of the vote attached to corporate shares

deal structuring in philanthropic venture capital investments financing instrument valuation and covenants philanthropic venture capital phvc is a financing option available for social enterprises that like traditional venture capital provides capital and value added services to portfolio organizations differently from venture capital phvc has an ethical dimension as it aims at maximizing the social return on the investment this article examines the deal structuring phase of phvc investments in terms of instrument used from equity to grant valuation and covenants included in the contractual agreement by content analyzing a set of semi structured interviews and thereafter surveying the entire population of phvc funds that are active in europe and in the united states findings indicate that the non distribution constraint holding for non profit social enterprises is an effective tool to align the interests of both investor and investee this makes the investor behaving as a steward rather than as a principal conversely while backing non profit social ventures philanthropic venture capitalists structure their deal similarly as traditional venture capital as the absence of the non distribution constraint makes such investments subject to moral hazard risk both in terms of perks and stealing and social impact focus

eight questions about corruption this paper will discuss eight frequently asked questions about public corruption 1 what is corruption 2 which countries are the most corrupt 3 what are the common characteristics of countries with high corruption 4 what is the magnitude of corruption 5 do higher wages for bureaucrats reduce corruption 6 can competition reduce corruption 7 why have there been so few recent successful attempts to fight corruption 8 does corruption adversely affect growth

corporate earnings and financings an empirical analysis this article examines the long term behavior of corporate earnings around three corporate financing events sales of common stock convertible bonds and straight bonds the article shows that earnings declined for all issuers and that more capital is raised the larger the earnings decline these findings indicate that external financings are motivated by earnings declines no evidence is found of a relationship between the size of the subsequent earnings downturn or the amount of capital raised and stock price reactions to the financing announcements these findings suggest that security sales did not systematically provide new information about either the magnitude of subsequent earnings downturn or the amount of financing copyright 1990 by the university of chicago

from pigou to extended liability on the optimal taxation of externalities under imperfect financial markets an important contribution of economics to public policy rests on the precept that price signals should force producers of externalities to internalize the welfare of other economic agents pigou 1920 s celebrated insight on the taxation of externalities provided an intellectual foundation for a variety of policies from pollution taxes permits to experience rating pigovian taxation s policy appeal is limited if the polluter has insufficient resources to pay the damage when it occurs to defend pigovian taxation in the presence of judgment proof agents its proponents point at the many institutions extending liability to third parties yet little is known about the validity of pigou s analysis in this context the paper analyzes the costs and benefits of extended liability and investigates whether full internalization is called for in the presence of agency costs between potential polluters and providers of guarantees its contribution is two fold it first shows that the better the firms corporate governance and the stronger their balance sheet the more closely taxes should track the corresponding externality it then develops the first analysis of extended liability when guarantors themselves may be judgment proof and the extension of liability may give rise to further externalities relatedly it derives the curvature of the optimal taxation of externalities in a multiplant firm

making things stick enforcement and compliance environmental rules and regulations are only useful insofar as firms can be persuaded to comply with them in full or in part we survey the rapidly growing literature on the enforcement aspects of environmental policy the difficulties facing any regulatory agency are likely to be exacerbated by information problems penalty constraints and the evasion efforts of firms and we emphasize the role that recent innovative approaches to implementation can play in bolstering more traditional enforcement instruments copyright 1998 by oxford university press

dividends safety and liquidation when liabilities are long term and stochastic abstract this paper investigates the optimal management of a firm faced with a long term liability that occurs at a random date three issues are analysed the optimal dividend policy optimal expenditure on safety to delay the occurrence of the liability and the optimal liquidation date of the firm an owner faced with dynamic unlimited liability never liquidates and therefore accumulates capital to the golden rule level for long term liabilities dividend payments and safety expenditure are non decreasing over time the owner protected by limited liability may liquidate the firm in finite time in order to avoid paying the liability if this is the case then it accumulates less capital than the dynamic unlimited liability owner and may decrease dividend payments and safety expenditure over time the paper shows that a finite liquidation date is more likely to be optimal when the arrival rate of the liability occurrence increases over time

the system of administrative and political corruption canal irrigation in south india the paper describes how some irrigation engineers raise vast amounts of illicit revenue from the distribution of water and contracts and redistribute part to superior officers and politicians it argues that the corruption system which is centred on control of personnel transfers is an important supply side reason for poor performance of canal irrigated agriculture insofar as the same system operates in other government departments it may be more important for understanding indian politics and the political influences on economic development than has previously been realised

environmental accidents under moral hazard and limited firm liability we study optimal government policy when firms operations involve a risk of a large environmental accident firms do not have sufficient assets to cover such costs and the risk is affected by firms efforts which are unobservable to outsiders when firms profits and government revenues have equal weights in the social welfare function a first best can be implemented and requires that the firm be subsidized heavily when operating with no accident and all its assets confiscated in the event of an accident with a lower weight on firm profits the solution is always second best with lower subsidies to the firm and a firm effort lower than at the first best solution when firm investments affect both the required accident preventing effort for given risk and the work effort required for a given output the first best never involves specific investment subsidies while a second best solution generally always does

strict liability as a deterrent in toxic waste management empirical evidence from accident and spill data abstract this paper examines whether strict liability imposed on polluters has reduced uncontrolled releases of toxics into the environment we fit regressions relating spills of selected chemicals to the type of liability in force in a state and to state manufacturing activity for some chemicals spills are more numerous in states imposing strict liability this could be due to unobserved state characteristics with small firms being responsible for a disproportionate number of spills regardless of the liability structure alternatively separate regressions for the two liability regimes suggest that only under strict liability are small firms responsible for a disproportionate number of spills

a theory of misgovernance this paper tries to explain why government bureaucracies are often associated with red tape corruption and lack of incentives the paper identifies two specific ingredients that together can provide an explanation the fact that governments often act precisely in situations where markets fail and the presence of agency problems within the government we show that these problems are exacerbated at low levels of development and in bureaucracies dealing with poor people we also argue that we need to posit the existence of a welfare oriented constituency within the government in order to explain red tape and corruption

the making of policy institutionalized or not this paper develops a framework for analyzing different policymaking styles their causes and their consequences in latin america finding that lower institutionalization and greater use of alternative political technologies apts are more likely the lower the cost of using these technologies the higher the potential damage they can cause the lower the wealth of the economy and the more asymmetric the distribution of de jure political power moreover strategic complementarity exists in the use of alternative political technologies for instance bribes by the rich and protests by the poor are likely to be countervailing forces and will both occur in polities with weaker political institutions

direct equity financing a resolution of a paradox when raising new equity capital managers have historically rejected the direct offer method favoring instead the seemingly more expensive underwritten public issue this paper provides a resolution for this equity financing paradox by demonstrating empirically that firms which engage in direct offers enjoy a comparative cost advantage that is more than sufficient to account for the absolute reported cost differences between the two methods of equity financing

liability and large scale long term hazards this paper analyzes the application of liability to large scale long term hazards the key features distinguishing such hazards are the long temporal separation between exposure to a hazard and disease and the large damages when injuries finally emerge the large scale of damages creates a strong incentive to avoid liability payments and the long temporal separation creates numerous avenues through which parties can avoid paying possible damage awards the analysis focuses on the incentive to avoid paying damages by vertically divesting production tasks associated with serious occupational risks such divestiture can lower liability costs if the small firm operating the risky stage goes out of business before latent injuries emerge or has insufficient assets to pay damages and declares bankruptcy when suits are filed the paper then presents an empirical regression analysis of small firm entry into the u s economy between 1967 and 1980 the period in which liability laws were changing the point estima

the effect of management s choice between negotiated and competitive equity offerings on shareholder wealth this paper investigates the effect on shareholder wealth of two events that change management s choice between negotiated and competitive underwritten equity offerings these two events are the suspension and termination of suspension of rule 50 this rule is based on the public utility holding company act of 1935 and requires certain utilities to use the competitive method the results indicate that the shareholders of the affected utilities experience an abnormal negative return on the announcement of the suspension of rule 50 and an abnormal positive return on the announcement of the termination of suspension this evidence is consistent with the joint hypothesis i competitive offerings are less costly than negotiated offerings and ii manager shareholder agency costs are a determinant of the corporate choice between these two methods of raising equity

the economics of repeated extortion we provide a simple model of repeated extortion in particular we ask whether corrupt government officials opportunism to demand more once entrepreneurs have made sunk investments entails further distortion in resource allocations if the choice of technology is left to the entrepreneurs the dynamic path of demand schedules will induce entrepreneurs to pursue a fly by night strategy by adopting a technology with an inefficiently low sunk cost component the unique equilibrium is characterized by a mixed strategy of the government official in future demand our model thus explains why arbitrariness is such a central feature of extortion we also investigate implications of the stability of corrupt regimes for dynamic extortion and discuss alternative applications for our framework

informational lobbying and political contributions abstract interest groups can potentially influence political decision makers by offering contributions and by providing relevant information that sways the decision in the group s favor what mix of these two instruments should an interest group choose and how does the use of one instrument affect the effectiveness of the other in this paper we identify an information externality that raises the cost of offering contributions and show that this indirect search cost reduces the group s incentive to gather information when contributions are allowed furthermore we analyze how competition among lobby groups as providers of information and contributions affect the choice and effectiveness of the instruments we show that the information externality rewards the group that can abstain from information search and focus its influence on contributions

cutting environmental penalties to protect the environment abstract when pollutants are persistent and the polluter has private information regarding the occurrence of accidental releases and the cost of clean up we show that the penalty regime which most effectively protects the environment will involve penalties which are less than maximal the extent to which these penalties will be less than maximal is interestingly a non monotonic function of the persistence of the hazardous substance being handled with the highest penalties being appropriate in the case of pollutants of medium persistence our analysis complement consisting work which predicts that setting the penalties faced by some classes of violator below their maximal level may be compliance enhancing see for example harrington journal of public economics 1988 37 29 53 greenberg journal of economic theory 1984 32 1 13 kambhu journal of regulatory economics 1989 1 103 114

accidents waiting to happen liability policy and toxic pollution releases proponents of environmental policies based on liability assert that strict liability imposed on polluters induces firms to handle hazardous wastes properly we examine unintended pollution releases relating them to the liability imposed on polluters by state mini superfund laws we find that strict liability reduces the frequency and severity of pollution releases but that its effects vary with firm size smaller firms are associated with more pollution releases in states with strict liability suggesting that in these states smaller firms may have specialized in riskier production processes their number however has not necessarily grown in response to the state s liability policy

on being asset constrained in litigation contests this paper establishes that being asset constrained may be advantageous for defendants in litigation contests an active asset constraint of defendants i may increase decrease defendant plaintiff contest effort ii may lower the sum of plaintiff and defendant contest effort iii lowers expected defendant payment and iv makes a symmetric contest asymmetric

changing rules in tort law and the market for childhood vaccines much attention has been focused on the changes in the legal environment that have swept this country in the past two or three decades one of the more important changes has been the movement toward strict products liability although this evolution has not been complete in many cases it has become much easier for injured consumers to obtain compensation from manufacturers the increased availability of compensation made possible by this evolution has been hailed as a great victory for consumer interests assailed for its economic inefficiency and blamed for increasing the costs and risks of engaging in business and thus causing a decline in the competitiveness of american industry 1 while there exists a well developed theoretical literature on the relative efficiency of alternative liability rules 2 little reliable evidence has yet been generated on the actual consequences of this evolution 3 it is to this issue that this article is addressed the evidence generated here comes from the market for childhood vaccines a market which is particularly

bribe or die gender differences in entrepreneurship in emerging markets this paper examines the relation between gender differences in entrepreneurship and firm level bribery one of the most impactful business obstacles to private sector growth using data from a comp

taxation fines and producer liability rules efficiency and market structure implications this paper analyzes the comparative efficiency of producer liability rules and regulatory policy in short run and long run competitive equilibria with endogenous product safety pigouvian taxes on output and safety provision fail to achieve the long run social optimum an appropriately designed policy involving fines on accidents and subsidies on safety provision achieves efficiency however the optimal policy may involve the taxation not the subsidization of product safety tort liability also leads to efficient outcomes but may be associated with perverse structural changes for example increased liability exposure may induce de novo entry in hazardous sectors even with fully capitalized firms the control of external diseconomies created by worker consumer and environmental exposure to hazardous substances is a pervasive problem in many industries consumers and workers are routinely exposed to health risks associated with radiation cigarette smoking diethylstilbestrol des asbestos saccharin dioxin vinyl chloride beta napthylamine benzidine coke oven emissions and various occupational carcinogens arising from the use of basic materials such as pesticides petroleum coal paraffin iron ore nickel and chromium other industries involved with petroleum production nuclear power generation metal mining and smelting pulp milling and solid waste disposal pose the threat of contamination through accidental spills into the environmental medium the unifying feature of these problems is that the extent of external damages whether embodied in the probability of product failure or in the likelihood of human and environmental exposure to hazardous substances is determined jointly by a producer s choice of output and safety provision two important forms of externality control in hazardous sectors of the economy are producer liability rules and direct regulatory control through the use of output pigouvian taxation and fines on injuries this paper provides a comparative analysis of the relative efficiency properties of producer liability rules and regulatory policy in both short run and long run competitive equilibria the essential feature of the model is that the provision of product safety in the hazardous sector is endogenized as a choice variable of the firm the extent or magnitude of external damages can be limited for example by removing carcinogens from consumer products by following re entry guidelines after the application of pesticides by requiring safety

drilling like there s no tomorrow bankruptcy insurance and environmental risk this paper measures the effects of bankruptcy protection on industry structure and environmental outcomes in oil and gas extraction using administrative data from texas i exploit variation in an insurance requirement that reduced firms ability to avoid liability through bankruptcy among small firms the policy substantially improved environmental outcomes and reduced production most production was reallocated to larger firms with better environmental records but high cost production where social cost may have exceeded social benefit decreased these results suggest that incomplete internalization of environmental costs due to bankruptcy is an important determinant of industry structure and safety effort in hazardous industries

the effect of pre emptive right amendments on shareholder wealth abstract pre emptive rights allow existing shareholders to purchase a new offering of shares before the general public this paper investigates the effect on shareholder wealth of removing pre emptive rights from corporate charters two hypotheses are constrasted 1 shareholder wealth maximization suggests that management uses this extra degree of freedom to pick the least cost method for raising new equity hence the amendment increases shareholder wealth 2 management welfare maximization holds that management will use the passage of the amendment to maximize their own welfare sometimes to the detriment of shareholders hence the amendment decreases shareholder wealth the evidence indicates that the amendment decreases shareholder wealth

interpreting common stock returns around proxy statement disclosures and annual shareholder meetings numerous studies have analyzed the stock market reaction to information released in proxy statements two possible biases in proxy statement research are suggested frequently misspecification of the return benchmark and a sample selection bias from analyzing only clean events this paper presents evidence that most of the conclusions of existing studies are not affected by these potential biases a significantly positive abnormal return was found around a random sample of shareholder meeting dates the result indicates that interpreting event study results for announcements occurring around annual shareholder meetings must be conducted carefully the results are consistent with the findings of kalay and loewenstein 14 who argue that risk and expected return can increase around predictable information producing events alternatively the study can be viewed as being consistent with several recent studies that find anomalous results using daily return data and large samples

an empirical investigation of the impact of antitakeover amendments on common stock prices abstract antitakeover amendments are amendments to a corporation s charter that impede the ability of an outsider to gain control of the firm a number of individuals and institutions have onjected to such amendments on the grounds that they are not in the best interests of the shareholders of the firms that adopt them this paper employs event time methodology to investigate the impact of antitakeover amendments on the common stock prices of firms that adopt them the results indicate that the announcement of such amendments is associated with a positive revaluation of stock price contrary to the concerns of their critics we conclude that antitakeover amendments are proposed by managers who seek to increase the value of the firm and are approved by stockholders who share that objective