The paper discusses the function of law in the formation of global financial markets and how this process affects at the same time the traditional concept of law. The examples used to illustrate this point include the prohibition of insider trading, the battle over accounting standards, the...

The modern state has monopolized the legitimate use of force. This concept is twofold. First, the state is empowered with enforcement rights; second, the rights of the individuals are restricted. In a simple model of property rights with appropriation and defense activity, we show that a...

The paper uses the findings of psychology, behavioral economics, and behavioral ethics to revisit three main related assumptions of the rational-choice approach to equity, by developing three main points: first, not only bad people try to circumvent the law; second, behavior depends on the...

This paper presents a theoretical model in which governments regulate economic activity and individuals bypass the regulations by paying bribes to the public officials who monitor their businesses; the amount of the bribe is the subject of bargaining. The paper then introduces a policy that...

Escalating penalties for repeat offenders are a pervasive feature of punishment schemes in various contexts, but economic theory has had a hard time rationalizing the practice. This paper reviews the literature on escalating penalties, and then develops a theory based on uncertainty on the part...

We claim that Posner's nuisance rule maintains the efficiency feature even under severe informational asymmetry. This paper, as a critical assessment of an overly complicated order-reporting mechanism by Kim [2002], argues that Posner's original value-reporting mechanism alone is enough to...

In trials witnesses often slant their testimony in order to advance their own interests. To obtain truthful testimony, the law relies on cross-examination under threat of prosecution for perjury. We show that perjury law is an imperfect truthrevealing mechanism. Moreover, we develop a...

Applying an indirect evolutionary approach with endogenous preference formation, we show that a legal system can induce players to reward trust even if material incentives dictate to exploit trust. By analyzing the crowding out or crowding in of trustworthiness implied by various verdict rules,...

We analyze whether corporate leniency programs should grant full immunity to the first self-reporting firm regardless of the amount of evidence provided. We distinguish between two firms, one of them providing high and one only low evidence. We show that awarding full amnesty also to the low...

We argue that a higher degree of de facto independence of the legal system from other government branches as well as strong public trust in the working of the legal system may reduce the average inflation rate of countries through two channels: by lowering transaction costs in the economy and by...