1,721,100 research outputs found
Optimal contracts with enforcement risk
No full textI build a model where potentially biased judges verify complex contractual contigencies. when judges are unbiased judicial state verification induces parties to write flexible contracts. When judges are biased, parties write noncontingent contracts to protect themselves against costly judicial errors
Dynastic management
No full textThe most striking difference in corporate-governance arrangements between rich and poor countries is that the latter rely much more heavily on the dynastic family firm, where ownership and control are passed on from one generation to the other. We argue that if the heir to the family firm has no talent for managerial decision making, dynastic management is a failure of meritocracy that reduces a Örmís Total Factor Productivity. We present a simple model that studies the macreconomic causes and consequences of dynastic management. In our model, the incidence of dynastic management depends, among other factors, on the imperfections of contractual enforcement. A plausible calibration suggests that, via dynastic management, poor contract enforcement may be a substantial contributor to observed cross country differences in aggregate Total Factor Productivity
Overruling and the Instability of Law
No full textWe investigate the evolution of common law under overruling, a system of precedent change in which appellate courts replace existing legal rules with new ones. We use a legal realist model, in which judges change the law to reflect their own preferences or attitudes, but changing the law is costly to them. The model's predictions are consistent with the empirical evidence on the overruling behavior of the US Supreme Court and appellate courts. We find that overruling leads to unstable legal rules that rarely converge to efficiency. The selection of disputes for litigation does not change this conclusion. Our findings provide a rationale for the value of precedent, as well as for the general preference of appellate courts for distinguishing rather than overruling as a law-making strategy
Presidential lecture: identity politics
No full textWe offer a theory of changing dimensions of political polarization based on
endogenous social identity. We formalize voter identity as in Bonomi et al.
(2021), but add parties that compete on policy and spread stereotypes to persuade
voters. Parties are historically connected to different social groups, whose
members are more receptive to the party messages. An endogenous switch from
class to cultural identity accounts for three major changes: i) growing cultural
conflict between voters and parties; ii) dampening of redistributive conflict,
despite rising inequality; iii) a realignment of lower class voters from the left
to the right. The incentive of parties to spread stereotypes is a key driver of
identity-based polarization. Using survey data and congressional speeches we
show that - consistent with our model - there is evidence of of i) and ii) in the
voting realignment induced by the “China Shock” (Autor et al. 2020)
Judicial Discretion in Corporate Bankruptcy
No full textWe study a demand-and-supply model of judicial discretion in corporate bankruptcy. On the supply side, we assume that bankruptcy courts may be biased for debtors or creditors, and subject to career concerns. On the demand side, we assume that debtors (and creditors) can engage in forum shopping at some cost. A key finding is that stronger creditor protection in reorganization improves judicial incentives to resolve financial distress efficiently, preventing a "race to the bottom" toward inefficient uses of judicial discretion. The comparative statics of our model shed light on a lot of evidence on U.S. bankruptcy and yield novel predictions on how bankruptcy codes should affect firm-level outcomes. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.
Credit Constraints, Competition, and Meritocracy
No full textThis paper studies a simple model of the talent-ownership mismatch — or failure of meritocracy — brought about by credit market imperfections that arise as a consequence of agency problems in the borrower-lender relationship. Our model highlights the interaction between the market for firms and the labor market. The key mechanism is that — for given severity of the credit market imperfections — an increase in the wage brings about greater meritocracy. Specifically, a higher wage increases the incentive of untalented firm owners to relinquish the control of their firms, because it improves the payoff they get as workers and reduces — by increasing labor costs — the profit they earn as entrepreneurs
The modern impact of precolonial centralization in Africa
No full textWe empirically assess the possibility, stressed by African scholars, that stronger precolonial political institutions allowed colonial and postcolonial African governments to better implement modernization programs in rural areas. Using anthropological data, we document a strong positive association between the provision of public goods such as education, health, and infrastructure in African countries and the centralization of their ethnic groups’ precolonial institutions. We develop an empirical test to distinguish among alternative explanations for this finding. The evidence supports the view that precolonial centralization
improved public goods provision by increasing the accountability of local chiefs. Our results stress the importance for developing countries to create mechanisms to monitor local administrators of public projects. These mechanisms should be consistent with these countries’ preexisting and informal arrangements
Finance and the preservation of wealth
No full textWe introduce the model of asset management developed in Gennaioli, Shleifer, and Vishny (GSV, 2014) into a Solow-style neoclassical growth model with diminishing returns to capital.
Savers rely on trusted intermediaries to manage their wealth (claims on capital stock), who can charge fees above costs to trusting investors. In this model, the ratio of financial income to GDP increases with the ratio of aggregate wealth to GDP. Both rise along the convergence path to steady state growth. We examine several further implications of the model for management fees, unit costs of finance, and the consequences of shocks to trust and to the capital stock
Identity, beliefs, and political conflict
Full text linkWe present a theory of identity politics that builds on two ideas. First, when policy conflict renders a certain social divide—economic or cultural—salient, a voter identifies with her economic or cultural group. Second, the voter slants her beliefs towards the stereotype of the group she identifies with. We obtain three implications. First, voters’ beliefs are polarized along the distinctive features of salient groups. Second, if the salience of cultural policies increases, cultural conflict rises, redistributive conflict falls, and polarization becomes more correlated across issues. Third, economic shocks hurting conservative voters may trigger a switch to cultural identity, causing these voters to demand less redistribution. We discuss U.S. survey evidence in light of these implications
- …
