My first job was to work for the management of a large German bank in Frankfurt, which for the right reasons does not exist any more. What I learned on the job was basically how to circumvent regulatory laws and the control of auditors.
At the time regulatory laws prohibited to lend more than a particular quota of equity capital to one debtor to avoid the concentration of risk. This rule was not more than a joke. The bank was grossly overexposed to an Asian government and received a higher interest for those credits. It established a subsidiary in Liechtenstein, which in Liechtenstein was not a bank but an ordinary and unregulated business. It lent money to this subsidiary, which again lent it to the Asian state. Thus the balance sheet was kept clean and the auditor made his check mark.
The bank had a subsidiary, which specialized in giving risky credits to foreign debtors. When I was there, it became clear that this subsidiary had accumulated a dangerously high amount of foul credits. Several of our team had nothing to do than to telephone and travel around the world to save a least part of them. On staff meetings this was a never ending but secret story.
A little later the bank sold this subsidiary to another German bank. For this purpose the subsidiary set up a balance sheet, approved by a large auditing firm. In this financial statement the foul credits appeared with their face value. The auditing firm had not gone through the files carefully enough to see that a foul apple was to be passed on to somebody else. The sold bank went bankrupt a year later and the CEO, who thought he had bought it for a bargain price was fired. The CEO who had sold it as well as the auditing firm had nothing to fear.
When my bank itself set up its balance sheet, it turned out that the profits were a bit low and that the owners would like to see higher profits. No problem. Another subsidiary was established, a real estate company, which bought estate from the bank at an overvalued price. Thus an additional nice profit showed up in the balance sheet and again the auditors accepted this as long as the overvaluation was not scandalously high. By the way, this and other, similar methods are used by managers, whose salaries exist in large parts of bonus payments.
Such practices played a big role in the global financial meltdown. And you can see how difficult it will be to regulate this internationally. It is even questionable, whether this is possible at all.
Financial regulatory agencies get sometimes captured by bank interests as well as by ideology. The IMF has played a disastrous role for many developing countries and countries in transition. Its mantra of “privatise, liberalise and stabilise”, the policy of the so called “Washington Consensus” has led to stagnation in Latin America and to collapse in Russia, because it overlooked the importance of institutions for a market economy. (See the writings of Acemoglu, Rodrick and others). Empirical studies (Frankel, Roubini) about IMF lending have revealed that the facts support better the bailout hypothesis than the stabilisation hypothesis. In other words, it is more likely that these credits were used to bail out banks, especially US banks than to stabilise the debtor countries. Should the IMF be trusted to oversee the world financial system for the benefit of the ordinary taxpayer? I have doubts. To reform large organisations is as difficult as to reform political parties or churches.
Assume that the problem of regulatory capture can be successfully solved. An international regulatory agency must have access to all financial data worldwide. Is this transparency at all possible? It might be possible to eliminate some white spots on the financial landscape for instance in Switzerland, Iceland or Estonia. But the main problem is not these unregulated havens, it is China. China has become the most important player in the world financial markets with foreign reserves of over 1.7 trillion dollars and a current account surplus of more than 370 billion dollars in 2008. Does anyone believe that the Chinese government will let an international regulatory agency look into its deck of cards? Chinese banks are state controlled and state owned. The government uses them to steer the economy and to make politics. China is a nation with a long standing tradition of secrecy. Its most fabulous monument is the “forbidden city”. Another important financial player is Saudi Arabia. Does anyone really believe that these two countries will open all of their books to international controllers?
A third question mark goes to the auditors. The scandals and omissions, in which they are involved and which they did not prevent have accumulated so much, that some people start asking, whether this profession is of any use at all. Here at least something can be done, sharpen the liability of auditors. I have proposed this in several articles before. So far liability does not work. Courts are reluctant to define due levels of care, which are different from those, which the auditors have defined for themselves. And courts set very and in my view unreasonably high hurdles for the proof of causation. In other words, courts prefer to make type-one-errors over making type-two-errors. They should and could strike the balance between both types of error better.
Sunday, February 22, 2009
Saturday, February 21, 2009
University reform
It would be interesting to share some thoughts on the need to reform European university systems. After all, some of the best European law and economics professors, e.g. Gerrit de Geest, Nuno Garoupa, and Franscesco Parisi, not to mention Bebchuk or Hart, are now working in the States. The question, to my mind, is what should be done to reform the European systems.
My view is that we need to address three issues: First, state funding is not going to increase much over time, due to the demographic strains on the public budget. Hence, it is important that students pay part of the cost of college, if not from the first year than at the graduate level.
Second, the idea that a certain fraction of a generation should go to college is misguided. In Denmark, that policy is implemented by paying universities per student who passes exams; a recipe for a lowering of academic standards. Some of our students should not have been allowed in; they learn very little, and would most likely be better off in a different and less abstract teaching environment. They are also a strain on the system. Third, we should think carefully about how we can ensure competition among universities in attracting students and professors.
I realize that reforms have been implemented in parts of Europe. In Denmark, the taboo about letting students pay is very strong; it is considered a vital part of the welfare state that students not pay, to ensure equal opportunity. (However, most students are from well-to-do families, and one could set up a system of stipends for the gifted students from poor families).
In my view, addressing this taboo is vital; a Coasian bargain should be struck between the prospective student and the talented people who might or might not choose to become university professors (and who, increasingly, choose the latter, or choose to go abroad).
It would be interesting to hear about experiences from other countries.
My view is that we need to address three issues: First, state funding is not going to increase much over time, due to the demographic strains on the public budget. Hence, it is important that students pay part of the cost of college, if not from the first year than at the graduate level.
Second, the idea that a certain fraction of a generation should go to college is misguided. In Denmark, that policy is implemented by paying universities per student who passes exams; a recipe for a lowering of academic standards. Some of our students should not have been allowed in; they learn very little, and would most likely be better off in a different and less abstract teaching environment. They are also a strain on the system. Third, we should think carefully about how we can ensure competition among universities in attracting students and professors.
I realize that reforms have been implemented in parts of Europe. In Denmark, the taboo about letting students pay is very strong; it is considered a vital part of the welfare state that students not pay, to ensure equal opportunity. (However, most students are from well-to-do families, and one could set up a system of stipends for the gifted students from poor families).
In my view, addressing this taboo is vital; a Coasian bargain should be struck between the prospective student and the talented people who might or might not choose to become university professors (and who, increasingly, choose the latter, or choose to go abroad).
It would be interesting to hear about experiences from other countries.
Tuesday, February 17, 2009
The Wonderful World of Youtube
By Hans-Bernd Schäfer
Since 2005 you can download videos in the internet about almost everything and almost everybody and you can exchange views about them with other viewers around the world. Whatever your taste might be you find some people in the world to communicate with and share views about the uploaded video. This is really a big leap in communication, so it sounds. But there are clear signs, that youtube gets captured by intolerant users. And the youtube rules support this trend. Rule 1: Everybody who uploads a video can delete any comment. Rule2: Users can thumb down a comment as spam. And the content gets deleted after several users have marked it.
Make a try. Go to any youtube movie which attracts extremists. The “Original Panzerlied”, a German march song from World War II is a good example. Most of the posted comments are from neo-Nazis or an extreme rightist scene. That is what you expect? You should not because the youtube rules are so democratic, that comments get deleted if several users declare it as spam. Consequently you should not find such comments because for every neo-Nazi there should be at least around 10 others who report the comment as spam. Why does this not happen? Perhaps only extremists listen to old military music, undisturbed by anyone else. Youtube provides hundreds if not thousands of warm places for such extremists. You also find relatively few critical comments about these videos. Again the reason might be self selection. Only neo-Nazis themselves view and comment these videos. But it is equally possible that the person who uploaded the movie has deleted comments he did not like.
Make another try. Go to Wagner music in youtube. Siegfried’s funeral march is a good example. Here we have a different audience and a different set of comments. Music lovers, Wagner worshipers and again neo-Nazis come up with their praise of Wagner music, albeit for different reasons. But again the neo-Nazis texts are seldom eliminated. Why not? Probably because many users simply do not care or they believe they do not have a right to censorship or because it is simply too laborious to press two buttons. The rule that several uncoordinated censors can trigger a mechanism to delete a hate comment is ineffective. Some people might say that this is not so bad. Each comment can be read and speaks for or against itself. Most users of youtube are tolerant or disinterested enough not to censor extreme views.
Now comes the crucial observation. Make again another try. Post a critical comment about Siegfried’s funeral march in youtube. As long as you write something like “the tempo could be “Largo” rather than “Grave”” you are on the safe side. This might even trigger a debate and you can pride yourself with having written an upstream comment. But if you post a factual but critical and dismissive comment you get lost. Many Wagner fans around the world have been intolerant since Wagner music exists. A hundred years ago Wagnerianers had no problem with denouncing Brahms music as contradictory and Mendelssohn Bartholdy music as shallow. But if somebody criticized their master he had to be prepared that a fan gave him a hit on his head with his violin. This attitude still persists with the hard core Wagner fans. They report your comment as spam and it gets deleted. What kind of check youtube makes –if any- after it receives several spam reports remains obscure. Probably it is an automatic and programme generated decision.
These are only two examples, but such a self selection mechanism works for many topics in politics, literature, the arts or show business. A few intolerant people can agonise many other users in a group of commentators.
If you upload a video in youtube, you can censor any comment. Politicians can upload their videos and silence their critics. The latter is not likely to happen, as it becomes public and spoils the politician’s reputation. But newspapers did report such a case in the USA.
And this is what I see as a danger. Youtube gets kidnapped by people with high stakes or extreme convictions combined with low tolerance. They capture the comment spaces and delete comments they dislike. Thus youtube creates circles of like-minded and intolerant people. This is the opposite of a discourse. At the end of the day you might find thousands of fractured and like-minded communities, whose most intolerant members have kicked out all those who do not share their views.
This is mildly speaking a case of unintended consequences of a rule. It must be abolished. This does not guarantee a big change to the better as this problem has been observed for chat rooms before. But currently youtube rules support and subsidize the most intolerant of its users.
Since 2005 you can download videos in the internet about almost everything and almost everybody and you can exchange views about them with other viewers around the world. Whatever your taste might be you find some people in the world to communicate with and share views about the uploaded video. This is really a big leap in communication, so it sounds. But there are clear signs, that youtube gets captured by intolerant users. And the youtube rules support this trend. Rule 1: Everybody who uploads a video can delete any comment. Rule2: Users can thumb down a comment as spam. And the content gets deleted after several users have marked it.
Make a try. Go to any youtube movie which attracts extremists. The “Original Panzerlied”, a German march song from World War II is a good example. Most of the posted comments are from neo-Nazis or an extreme rightist scene. That is what you expect? You should not because the youtube rules are so democratic, that comments get deleted if several users declare it as spam. Consequently you should not find such comments because for every neo-Nazi there should be at least around 10 others who report the comment as spam. Why does this not happen? Perhaps only extremists listen to old military music, undisturbed by anyone else. Youtube provides hundreds if not thousands of warm places for such extremists. You also find relatively few critical comments about these videos. Again the reason might be self selection. Only neo-Nazis themselves view and comment these videos. But it is equally possible that the person who uploaded the movie has deleted comments he did not like.
Make another try. Go to Wagner music in youtube. Siegfried’s funeral march is a good example. Here we have a different audience and a different set of comments. Music lovers, Wagner worshipers and again neo-Nazis come up with their praise of Wagner music, albeit for different reasons. But again the neo-Nazis texts are seldom eliminated. Why not? Probably because many users simply do not care or they believe they do not have a right to censorship or because it is simply too laborious to press two buttons. The rule that several uncoordinated censors can trigger a mechanism to delete a hate comment is ineffective. Some people might say that this is not so bad. Each comment can be read and speaks for or against itself. Most users of youtube are tolerant or disinterested enough not to censor extreme views.
Now comes the crucial observation. Make again another try. Post a critical comment about Siegfried’s funeral march in youtube. As long as you write something like “the tempo could be “Largo” rather than “Grave”” you are on the safe side. This might even trigger a debate and you can pride yourself with having written an upstream comment. But if you post a factual but critical and dismissive comment you get lost. Many Wagner fans around the world have been intolerant since Wagner music exists. A hundred years ago Wagnerianers had no problem with denouncing Brahms music as contradictory and Mendelssohn Bartholdy music as shallow. But if somebody criticized their master he had to be prepared that a fan gave him a hit on his head with his violin. This attitude still persists with the hard core Wagner fans. They report your comment as spam and it gets deleted. What kind of check youtube makes –if any- after it receives several spam reports remains obscure. Probably it is an automatic and programme generated decision.
These are only two examples, but such a self selection mechanism works for many topics in politics, literature, the arts or show business. A few intolerant people can agonise many other users in a group of commentators.
If you upload a video in youtube, you can censor any comment. Politicians can upload their videos and silence their critics. The latter is not likely to happen, as it becomes public and spoils the politician’s reputation. But newspapers did report such a case in the USA.
And this is what I see as a danger. Youtube gets kidnapped by people with high stakes or extreme convictions combined with low tolerance. They capture the comment spaces and delete comments they dislike. Thus youtube creates circles of like-minded and intolerant people. This is the opposite of a discourse. At the end of the day you might find thousands of fractured and like-minded communities, whose most intolerant members have kicked out all those who do not share their views.
This is mildly speaking a case of unintended consequences of a rule. It must be abolished. This does not guarantee a big change to the better as this problem has been observed for chat rooms before. But currently youtube rules support and subsidize the most intolerant of its users.
Monday, February 16, 2009
Law and Economics and the Global Economic Crises
As Avishalom Tor wrote in the previous posting, an interesting discussion on the causes of and remedies to the global economic crises took place in the EMLE midterm meeting in Hamburg. The discussion, however, was conducted in the framework of the dominant economic paradigm – trust in the operation of markets, focusing on traditional market failures and extensive discussion of the failure of regulation in correcting these market failures, under the assumption that wealth maximization is the prime goal of policy makers including the law. I believe that the current economic crises ought to prompt us to re-think about the paradigm and indeed about Law and Economics and its future development. I would like to mentions here two points among many others meriting discussion– psychology and fundamental values.
The behavioral approach in economics and in Law and Economics established itself in recent years as an important addition to economic analysis. However, until now this approach has focused on various phenomena on the level of the individual player and mainly in the context of micro-economics and individual behavior in market conduct. The recent global crises prove the need to extend this approach in additional avenues, among which are macro economic theory. Trust in the economic system, for example, can be of major importance to economic results. It has been thus far assumed, for example, that despite individual psychological effects, which distort individual conduct in the stock markets, on the aggregate level one has to analyze stock markets in a pure rational framework. The current crises prove this to be wrong. Overall fall of trust can bring to irrational micro and macro market activities. If people would not trust their countries economy and government, rescue packages introduced by various governments in order to stimulate the economy might not do the job. Economists analyze real economic activities but it seems that the psychological factors exercise a significant role in economic performance.
Beyond shaking the crud rationality assumption used by traditional economic models, the behavioral approach so far has not produced other methodological tools and models to analyze operation in economic and non-economic markets. Likewise, its findings negate the accuracy of traditional economic models but are far from being rigorously incorporated into existing models. This is an important challenge for the years to come.
The second point is in the realm of normative economic analysis and the philosophical foundations and values that has been dominating economic theories in the last few decades. One of the sources of the current global crises is borderless greediness. The corporate world and its actors were trying to make more and more money, far beyond is needed for good life. This behavior is reflection of the prime and sole normative goal set by economic policies in recent decades – maximization of wealth and growth, which is also reflected by most of scientific writings including Law and Economics work. The success of the Chicago school, intertwined with the Regan-Thatcher ideology leaving its marks on the policies of both left and right in the western world, affected not only policy-makers and scholarly analysts and advisers, but also individual conduct, as the very ones that brought to the bubbles causing the financial crises.
Behavioral studies have shown the there is no perfect correlation between wealth and happiness, growth and utility, and these findings are another reason for change of values within economic policy and indeed the economic science. I think that we – the Law and Economics community - have to take seriously a re-visit in the philosophical foundations of our own works.
The behavioral approach in economics and in Law and Economics established itself in recent years as an important addition to economic analysis. However, until now this approach has focused on various phenomena on the level of the individual player and mainly in the context of micro-economics and individual behavior in market conduct. The recent global crises prove the need to extend this approach in additional avenues, among which are macro economic theory. Trust in the economic system, for example, can be of major importance to economic results. It has been thus far assumed, for example, that despite individual psychological effects, which distort individual conduct in the stock markets, on the aggregate level one has to analyze stock markets in a pure rational framework. The current crises prove this to be wrong. Overall fall of trust can bring to irrational micro and macro market activities. If people would not trust their countries economy and government, rescue packages introduced by various governments in order to stimulate the economy might not do the job. Economists analyze real economic activities but it seems that the psychological factors exercise a significant role in economic performance.
Beyond shaking the crud rationality assumption used by traditional economic models, the behavioral approach so far has not produced other methodological tools and models to analyze operation in economic and non-economic markets. Likewise, its findings negate the accuracy of traditional economic models but are far from being rigorously incorporated into existing models. This is an important challenge for the years to come.
The second point is in the realm of normative economic analysis and the philosophical foundations and values that has been dominating economic theories in the last few decades. One of the sources of the current global crises is borderless greediness. The corporate world and its actors were trying to make more and more money, far beyond is needed for good life. This behavior is reflection of the prime and sole normative goal set by economic policies in recent decades – maximization of wealth and growth, which is also reflected by most of scientific writings including Law and Economics work. The success of the Chicago school, intertwined with the Regan-Thatcher ideology leaving its marks on the policies of both left and right in the western world, affected not only policy-makers and scholarly analysts and advisers, but also individual conduct, as the very ones that brought to the bubbles causing the financial crises.
Behavioral studies have shown the there is no perfect correlation between wealth and happiness, growth and utility, and these findings are another reason for change of values within economic policy and indeed the economic science. I think that we – the Law and Economics community - have to take seriously a re-visit in the philosophical foundations of our own works.
A Quick Report on the 2009 EMLE Midterm Meeting
I have just returned from a weekend in Hamburg, where the 2009 Midterm Meeting of the EMLE program took place this year. Hamburg was lovely as usual, and the meeting was most successful. On Friday morning the workshop component took place, with multiple parallel sessions where graduate students and EMLE faculty members (including many active EALE members) presented many interesting papers. Topics ranged from general concepts in law and economics, through torts, criminal law and procedure, financial markets, corporate governance, competition law, and more.
The afternoon, in the Hamburg Chamber of Commerce, featured an impressive panel of experts on “Financial Market Crisis from a Law and Economics Perspective.” The illustrious list of experts, included Prof. Dr. Thomas Eger (Director of the EMLE Programme, University of Hamburg), Prof. Dr. Rolf Eggert (President of the German Central Bank (Bundesbank), Hamburg Office), Dr. Dr. Michael Hingst (Senior Partner White and Case, Hamburg Office), Jun. Prof. Dr. Patrick C. Leyens (University of Hamburg), Henry Marquenie (CEO CAK Group, Amsterdam), Prof. Dr. Markus Nöth (University of Hamburg), Thomas Schmitz-Lippert (Head of the International Department, German Federal Financial Supervisory Authority (BaFin), Bonn). The panel was most interesting, participants - under the excellent direction of Professor Eger - made clear and concise contributions and generated an interesting and engaged discussion from the audience.
After the panel, the Student Award Ceremony featured an award to an excellent thesis by Giovanni Formica on “Law and Economics of Bundling by Non-Dominant Firms.” Giovanni also presented his thesis in a clear, engaging way, developing a two-pronged argument: First, that dominance is neither necessary nor sufficient for bundling to generate anticompetitive effects, which are strongly dependant on case-specific characteristics. And, second, that extant US and EU law implicitly account for this reality, although the explict legal regimes on both sides of the Atlantic do not acknolwedge it. (The presentation concluded with a call for a modified rule of per-se legality for the above practice.)
Finally, the academic portion of the conference concluded with an invited lecture by Professor Bruce Kobayashi of GMU Law School on “Jurisdictional Competition for Limited Liability Companies.” Bruce's interesting empirical paper (co-authored with Larry Ribstein) documents the incorporation trends of LLCs, finding inter alia that these new (and increasingly popular) business organizations flock disproportionately to Delaware as they increase in size, much like US public corporations.
All in all, this excellent event (and the many social activities surrounding it) was admirably organized and executed by the team of the Hamburg Institute of Law and Economics, headed by Professors Eger and Leyens, and assisted by their excellent staff!
The afternoon, in the Hamburg Chamber of Commerce, featured an impressive panel of experts on “Financial Market Crisis from a Law and Economics Perspective.” The illustrious list of experts, included Prof. Dr. Thomas Eger (Director of the EMLE Programme, University of Hamburg), Prof. Dr. Rolf Eggert (President of the German Central Bank (Bundesbank), Hamburg Office), Dr. Dr. Michael Hingst (Senior Partner White and Case, Hamburg Office), Jun. Prof. Dr. Patrick C. Leyens (University of Hamburg), Henry Marquenie (CEO CAK Group, Amsterdam), Prof. Dr. Markus Nöth (University of Hamburg), Thomas Schmitz-Lippert (Head of the International Department, German Federal Financial Supervisory Authority (BaFin), Bonn). The panel was most interesting, participants - under the excellent direction of Professor Eger - made clear and concise contributions and generated an interesting and engaged discussion from the audience.
After the panel, the Student Award Ceremony featured an award to an excellent thesis by Giovanni Formica on “Law and Economics of Bundling by Non-Dominant Firms.” Giovanni also presented his thesis in a clear, engaging way, developing a two-pronged argument: First, that dominance is neither necessary nor sufficient for bundling to generate anticompetitive effects, which are strongly dependant on case-specific characteristics. And, second, that extant US and EU law implicitly account for this reality, although the explict legal regimes on both sides of the Atlantic do not acknolwedge it. (The presentation concluded with a call for a modified rule of per-se legality for the above practice.)
Finally, the academic portion of the conference concluded with an invited lecture by Professor Bruce Kobayashi of GMU Law School on “Jurisdictional Competition for Limited Liability Companies.” Bruce's interesting empirical paper (co-authored with Larry Ribstein) documents the incorporation trends of LLCs, finding inter alia that these new (and increasingly popular) business organizations flock disproportionately to Delaware as they increase in size, much like US public corporations.
All in all, this excellent event (and the many social activities surrounding it) was admirably organized and executed by the team of the Hamburg Institute of Law and Economics, headed by Professors Eger and Leyens, and assisted by their excellent staff!
Friday, February 6, 2009
The endowment effect and expropriation
I have just read an interesting article arguing that property law should incorporate the endowment effect which although not undisputed seems to be empirically well founded. The article is `Current Empirical Premises to the Disclosure of the Secrets of Property in Law. A Foundation and a Guidline for Future Research´ by Geir Stenseth, and can be found here: http://www.anci.ch/doku.php?id=start
Geir goes through the empirical and theoretical work on the endowment effect. As becomes clear, the psychological foundations of the endowment effect are unclear. Recent findings suggest that there may be a genetic element (the effect can allegedly be found also in chimpanzees (!)). One explanation is that may be conducive to survival to spend more resources to fight for possessions than to try to acquire the possessions of others. Stenseth also discusses psychological explanations of investing oneself in the one's possessions. His point is that property law, e.g. the laws of expropriation (eminent domain) should reflect the empirical findings. He also notes that the endowment effect has importance for the use of property rules versus liability rules. If the endowment effect is substantial, that argues, of course, in favor of overcompensating (when comparing with market values) owners when expropriating their land or house.
In Denmark, local municipalities have recently expropriated land where no vital public interest was at stake, e.g. for the establishment of golf courses. A recent law proposal from the conservative-liberal (in the European sense) government requires this to be done through zoning regulations but does not constitute a fundamental break from the very free access of state authorities to expropriate private property. In Sweden, however, a new proposal suggests overcompensating owners (paying up to 125% of the market value).
An interesting example that research in the borderline between psychology, economics and law can inform public policy.
The issue also seems to me to have broader implications. The notion of entitlement is central to the recent paper by Hart and Moore on contracts as reference points. That appears to be connected to the endowment effect and to the theory of loss aversion that stresses the existence of a reference point from which losses are keenly felt.
I contacted Stenseth to suggest that he present his ideas at the EALE conference in Rome, which he is considering.
Geir goes through the empirical and theoretical work on the endowment effect. As becomes clear, the psychological foundations of the endowment effect are unclear. Recent findings suggest that there may be a genetic element (the effect can allegedly be found also in chimpanzees (!)). One explanation is that may be conducive to survival to spend more resources to fight for possessions than to try to acquire the possessions of others. Stenseth also discusses psychological explanations of investing oneself in the one's possessions. His point is that property law, e.g. the laws of expropriation (eminent domain) should reflect the empirical findings. He also notes that the endowment effect has importance for the use of property rules versus liability rules. If the endowment effect is substantial, that argues, of course, in favor of overcompensating (when comparing with market values) owners when expropriating their land or house.
In Denmark, local municipalities have recently expropriated land where no vital public interest was at stake, e.g. for the establishment of golf courses. A recent law proposal from the conservative-liberal (in the European sense) government requires this to be done through zoning regulations but does not constitute a fundamental break from the very free access of state authorities to expropriate private property. In Sweden, however, a new proposal suggests overcompensating owners (paying up to 125% of the market value).
An interesting example that research in the borderline between psychology, economics and law can inform public policy.
The issue also seems to me to have broader implications. The notion of entitlement is central to the recent paper by Hart and Moore on contracts as reference points. That appears to be connected to the endowment effect and to the theory of loss aversion that stresses the existence of a reference point from which losses are keenly felt.
I contacted Stenseth to suggest that he present his ideas at the EALE conference in Rome, which he is considering.
Tuesday, February 3, 2009
A first posting
Dear all,
As you may know, I am going to be the moderator of this blog. I hope that all members of this blog (members of EALE boards) will contribute regularly on topics that might range from research- to teaching- to policy-oriented issues. Or to topics concerning our association. Or whatever is likely to interest our community. May we create a lively meeting point to enlighten and inspire us! :-)
Best, Henrik
As you may know, I am going to be the moderator of this blog. I hope that all members of this blog (members of EALE boards) will contribute regularly on topics that might range from research- to teaching- to policy-oriented issues. Or to topics concerning our association. Or whatever is likely to interest our community. May we create a lively meeting point to enlighten and inspire us! :-)
Best, Henrik
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