Behavioral Economics and Institutional Innovation

Behavioral economics has played a fundamental role historically in innovation in economic institutions, even long before behavioral economics was recognized as a discipline. Examples from history, notably that of the invention of workers’ compensation, illustrate this point. Though scholarly discussion develops over decades, actual innovation tends to occur episodically, particularly at times of economic crisis. Fortunately, some of the major professional societies, the Verein fur Sozialpolitik, the American Economic Association and their successors, have managed to keep a broad discourse going, involving a variety of research methods including some that may be described today as behavioral economics, thereby maintaining an environment friendly to institutional innovation. Further, the broad expansion of behavioral economics that is going on today can be expected to yield even more such important institutional innovations.Economic innovation, Invention, Psychological economics, Institutional economics, Social insurance, Workers’ compensation, American Economic Association, Germany, Verein fur Sozialpolitik

Beyond Title VII: Rethinking Race, Ex-Offender Status, and Employment Discrimination in the Information Age

More than sixty-five million people in the United States—more than one in four adults—have had some involvement with the criminal justice system that will appear on a criminal history report. A rapidly expanding, for-profit industry has developed to collect these records and compile them into electronic databases, offering employers an inexpensive and readily accessible means of screening prospective employees. Nine out of ten employers now inquire into the criminal history of job candidates, systematically denying individuals with a criminal record any opportunity to gain work experience or build their job qualifications. This is so despite the fact that many individuals with criminal records have never been convicted of a crime, as one-third of felony arrests never result in conviction. And criminal records databases routinely contain significant errors, including false positive identifications and sealed or expunged information. The negative impact of employers’ reliance on criminal records databases falls most heavily on Black and Latino populations, as studies show that the stigma of having a criminal record is significantly more damaging for racial minorities than for Whites. This criminal record “penalty” limits profoundly the chance of achieving gainful employment, creating new and vexing problems for regulators, employers, and minorities with criminal records. Our existing regulatory apparatus, which is grounded in Title VII of the Civil Rights Act of 1964 and the Fair Credit Reporting Act, is ill-equipped to resolve this emerging dilemma because it fails to address systematic information failures and the problem of stigma. This Article, therefore, proposes a new framework drawn from core aspects of anti-discrimination laws that govern health law, notably the Americans with Disabilities Act, and the Genetic Information Nondiscrimination Act. These laws were designed to regulate the flow of information that may form the basis of an adverse employment decision, seeking to prevent discrimination preemptively. More fundamentally, they conceptualize discrimination through the lens of social stigma, which is critical to understanding and prophylactically curbing the particular discrimination that results from dual criminal record and minority status. This health law framework attends to the interests of minorities with criminal records, allows for more robust enforcement of existing laws, and enables employers to make appropriate and equitable hiring decisions, without engaging in invidious discrimination or contributing to the establishment of a new, and potentially enduring, underclass

A Natural Experiment on Sick Pay Cuts, Sickness Absence, and Labor Costs

This study estimates the reform effects of a reduction in statutory sick pay levels on various outcome dimensions. A federal law reduced the legal obligation of German employers to provide 100 percent continued wages for up to six weeks per sickness episode to 80 percent. This measure increased the ratio of employees having no days of absence by about 7.5 percent. The mean number of absence days per year decreased by about 5 percent. The reform might have reduced total labor costs by about EUR1.5 billion per year which might have led to the creation of around 50,000 new jobs.

Share options as part of executive remuneration: aligning the interests of stakeholders

Performance-based remuneration, often in the form of share options, has been endorsed by researchers throughout the world as a way to align the interests of stakeholders and executive management. The wave of corporate scandals raised concerns regarding the design of executive remuneration and the extent to which share options truly align the interests of executive management and stakeholders. This article investigates the impact of share options on managerial behaviour. The article proposes changes at an internal governance level with respect to the remuneration of directors so as to align the interests of the remaining stakeholders. The article also discussesthe disclosure of directors’ remuneration. The article concludes by presenting a summarised best practice framework

Should Issuers be on the Hook for Laddering? An Empirical Analysis of the IPO Market Manipulation Litigation

nder Section 11 of the Securities Act of 1933, firms making public offerings of securities are strictly liable to investors for any material misstatements in the registration statements that accompany those offers. This strict liability regime is premised on the notion that issuers are best placed to avoid misstatements in the registration statement. Section 11 gives other potential defendants a “due diligence” defense to reflect their lesser ability to ensure the accuracy of the registration statement. The recent spate of “laddering” lawsuits alleging manipulation of the aftermarket for certain stocks issued in “hot” initial public offerings (IPOs) presents a role-reversal in that underwriters, rather than issuers, are alleged to be the principal wrongdoers. This paper compares a randomly selected sample of the defendant-issuers in the IPO laddering lawsuits with a matched sample of IPO firms not included in the laddering litigation. We find few differences between the sued firms and the match firms that would suggest that the issuers are culpable for laddering schemes. These findings call into question – at least under some circumstances – the deterrent value of the strict liability regime of Section 11 for corporate issuers. We propose a due diligence defense for issuers for statements in the registration statement relating to situations in which the primary wrongdoer is not the issuer

Should Issuers be on the Hook for Laddering? An Empirical Analysis of the IPO Market Manipulation Litigation

nder Section 11 of the Securities Act of 1933, firms making public offerings of securities are strictly liable to investors for any material misstatements in the registration statements that accompany those offers. This strict liability regime is premised on the notion that issuers are best placed to avoid misstatements in the registration statement. Section 11 gives other potential defendants a “due diligence” defense to reflect their lesser ability to ensure the accuracy of the registration statement. The recent spate of “laddering” lawsuits alleging manipulation of the aftermarket for certain stocks issued in “hot” initial public offerings (IPOs) presents a role-reversal in that underwriters, rather than issuers, are alleged to be the principal wrongdoers. This paper compares a randomly selected sample of the defendant-issuers in the IPO laddering lawsuits with a matched sample of IPO firms not included in the laddering litigation. We find few differences between the sued firms and the match firms that would suggest that the issuers are culpable for laddering schemes. These findings call into question – at least under some circumstances – the deterrent value of the strict liability regime of Section 11 for corporate issuers. We propose a due diligence defense for issuers for statements in the registration statement relating to situations in which the primary wrongdoer is not the issuer

The Sum of Its Parts: The Lawyer-Client Relationship in Initial Public Offerings

This Article examines the impact of the quality of a lawyer\u27s working relationship with his or her client on one of the most important types of capital markets deal in a company\u27s existence: its initial public offering (IPO). Drawing on data from interviews with equity capital markets lawyers at major law firms, and analyzing data from IPOs in the United States registered with the Securities and Exchange Commission between June 1996 and December 2010, this study finds a strong association between several measures of IPO performance and the familiarity between the lead underwriter and its counsel, as measured by the number of times a particular law firm serves as counsel to a managing underwriter within a relatively short time period. Performance is gauged according to a stock\u27s opening day returns, price performance over thirty, sixty, and ninety trading days, correct price revision, litigation rates, and the speed at which deals are completed. I also analyze the relationships between the lawyers for the lead underwriter and the lawyers for the issuer. The analysis shows some benefits from familiarity, albeit generally smaller than those associated with the underwriter-lawyer relationship. In all cases, the positive effects of repeated interaction diminish the further back in time the previous collaborations occurred. To rule out selection and reverse causality, I perform a number of tests using smaller subsets of the data to remove observations that are plausibly selection driven. I also show that the relationships between familiarity and deal quality occur independently of the level of the lawyers\u27 experience. These findings support the conclusion that lawyers\u27 relational skill can positively influence deal outcomes, independent even of substance and process knowledge. I hypothesize that the core advantage of repeated interaction is the formation of more effective lawyer-client team dynamics

Should Issuers be on the Hook for Laddering? An Empirical Analysis of the IPO Market Manipulation Litigation

On December 6, 2000, the Wall Street Journal ran a front-page story exposing abuses in the market for initial public offerings (IPOs). The story revealed tie-in agreements between investment banks and initial investors seeking to participate in hot offerings. Under those agreements, initial investors would commit to buy additional shares of the offering company\u27s stock in secondary market trading in return for allocations of shares in the IPO. As the Wall Street Journal related, those [c]ommitments to buy in the after-market lock in demand for additional stock at levels above the IPO price. As such, they provide the rocket fuel that sometimes boosts IPO prices into orbit on the first trading day. This process of encouraging purchases in the aftermarket at ever-higher prices has come to be known as laddering. This Article presents a study of the role and extent of culpability of issuers of stock in such laddering schemes

The Global Employer: Showcasing New Developments for Multinational Employers

Baker & McKenzie’s Global Employment Practice Group is pleased to present its 54th issue of The Global Employer™ entitled “Showcasing New Developments for Multinational Employers.” This issue contains a collection of articles on legal developments from nine jurisdictions that examine changes to employment and labour laws and practices and explore developments in compensation and benefits. Included, you will find information pertaining to a new collective redundancy procedure in France aimed at providing for a more secure labor market; new measures in Spain intended to promote employment among young people under 30; the codification of requirements for the negotiation of social plans in Switzerland; effects on UK redundancy laws in light of being found in breach of EU directives; emboldened labor agency agendas in the US; a discussion from Argentina on the rights of employees and employers when it comes to monitoring in the workplace; new developments for stock option plans in Brazil; changes to the calculation of payroll taxes in Colombia; and the promotion and protection of labor rights in Peru