YI LU, University of Hong Kong - School of Business
Email: xzhongkanson@business.hku.hk
IVAN P.L. PNG, National University of Singapore
Email: IPNG@comp.nus.edu.sg
ZHIGANG TAO, University of Hong Kong - School of Business
Email: ZTAO@HKU.HK

This study addresses the apparent puzzle that China achieved sustained and rapid economic growth despite weak institutions. From a World Bank survey of 1,616 manufacturing enterprises in 18 cities, we extracted two measures of institutional quality: property rights protection (share of government officials oriented toward helping rather than hindering business), and contract enforcement (likelihood that the legal system would uphold contract and property rights in business disputes). We found that enterprises that were more reliant on the external environment grew faster in regions with better institutions. To address concerns of endogeneity, we used the population in the respective city around 1918-19 as an instrument for property rights, and an indicator of whether the city was British administered in the late Qing Dynasty as an instrument for contract enforcement. Our results were more pronounced for private enterprises and in poorer cities.

KIRSTEN FOSS, Copenhagen Business School - Department of Industrial Economics & Strategy (IVS)
Email: kf.int@cbs.dk
NICOLAI J. FOSS, Copenhagen Business School - Center for Strategic Management and Globalization
Email: njf.smg@cbs.dk

To add insight in new value creation, opportunity discovery should be integrated with strategic management theory. Based on the resource-based view and the economics of property rights we build a framework that accomplishes this. Our key argument is that property rights and transaction costs are important antecedents of opportunity discovery. We identify two mechanisms that establish this influence, and examine alternative ways in knowledge, transaction costs, and property rights influence opportunity discovery and sustainable advantage.

ERIC LANGLAIS, University of Nancy II
Email: eric.langlais@univ-nancy2.fr

There exist evidence that asymmetrical information do exist between litigants: not in a way supporting Bebchuk (1984)'s assumption that defendants' degree of fault is a private information, but more likely, as a result of parties' predictive power of the outcome at trial (Osborne, 1999). In this paper, we suggest an explanation which allows to reconcilie different results obtained in experimental economics. We assume that litigants assess their estimates on the plaintiff's prevailing rate at trial using a two-stage process. First, they manipulate the available information in a way consistent with the self-serving bias. Then, these priors are weighted according to the individual's attitude towards risk. The existence of these two different cognitive biases are well documented in the experimental literature. Within this framework, we study their influence in a model of litigation where the self-serving bias of one party is private information. We show that the influence of the former is consistent with the predictions of the "optimistic approach" of trials. However, we show that the existence of risk aversion and more generally non neutrality to risk, is more dramatic in the sense that it has more unpredictable effects.

JODY S. KRAUS, University of Virginia School of Law
Email: jodykraus@virginia.edu

In his classic monograph, The Death of Contract, Grant Gilmore argued that Christopher Columbus Langdell, Oliver Wendell Holmes, and Samuel Williston trumped up the legal credentials for their classical bargain theory of contract law. Gilmore's analysis has been subjected to extensive criticism, but its specific, sustained, and fundamental charge that the bargain theory was based on a fraudulent misrepresentation of precedential authority has never been questioned. In this Essay, I argue that Gilmore's case against the classical theorists rests on the suppressed premise that the precedential authority of cases resides in the express judicial reasoning used to decide them. In contrast, I argue that the classical theorists implicitly presuppose that the precedential authority of cases consists in the best theory that explains their outcomes, even if that theory is inconsistent with the case's express judicial reasoning. The classical view of precedential authority completely defuses Gilmore's charge of fraud. In Gilmore's view, merely demonstrating the inconsistency between the proposition for which the classical theorists cited a case and the express reasoning in that case suffices as proof of misrepresentation. But in the classical theorists' view, the express reasoning in a case is simply a theory of its precedential authority, which, like any theory, can be wrong. Thus, the classical theorists simply reject Gilmore's claim that a case cannot properly be cited for a proposition inconsistent with its express reasoning. The real dispute, then, between Gilmore and the classical theorists is over the nature of precedential authority and not the content of contract law.

Having reframed the classic death-of-contract debate, I then trace these competing conceptions of precedential authority through the major schools of contemporary contract theory. I argue that a contract theory's embrace of one view instead of the other can be explained by the relative priority it accords to each of the two components in a conception of adjudicative legitimacy. A conception of adjudicative legitimacy consists in a theory of what it means for a decision to be based on law and a theory of what is required for law to be justified. I explain why theories according priority to the former tend to subscribe to the precedents-as-outcomes view, while theories according priority to the latter tend to favor the express reasoning view. The Essay concludes by arguing that the economic analysis of contract law subscribes to the precedents-as-outcomes view and therefore is the contemporary jurisprudential successor to the late nineteenth-century classical theorists.

DOV FOX, Yale Law School
Email: dov.fox@yale.edu
CHRISTOPHER L. GRIFFIN, Yale Law School
Email: christopher.griffin@yale.edu

This Article explores the powerful ways in which changes in the law can bring about unexpected changes in social behavior that is unrelated to that which the law regulates. We puzzle through this unexamined phenomenon by considering the relation between a major antidiscrimination law, the Americans with Disabilities Act (ADA), and a routine reproductive practice, selective abortion on the basis of Down syndrome. Our empirical analysis of U.S. natality data suggests that the ADA has the surprising effect of preventing the existence of the very class of people the law was intended to protect. We explain this paradox by showing how the ADA's implementation mechanism generates stigmatizing attitudes toward people with disabilities. The law's requirement that those seeking its protection prove the limitations caused by their disability does damage to our understandings and expectations about what it means to be disabled. Using formal regression analysis, we find suggestive evidence that the ADA significantly increased the incidence of decisions to terminate a pregnancy following a positive test for Down syndrome. We discuss the implications of this expressive externality for disability, reproduction, and antidiscrimination law in the United States.

PETER GRAJZL, Central European University - Department of Economics
Email: grajzlp@ceu.hu
VALENTINA P. DIMITROVA-GRAJZL, Central European University - Department of Public Policy
Email: dimitrova@ceu.hu

We develop a model of lawmaking to study efficiency implications of, and variation in, jurisdictions' choices between promulgation of indigenously developed laws and legal transplants. Our framework emphasizes the sequential nature of lawmaking, the ubiquity of uncertainty, considerations about ex-ante promulgation versus ex-post adjustment costs, and the importance of the political context of legal reform. In discerning the patterns of inefficiencies in both transplantation and indigenous lawmaking, we elucidate the role of heterogeneity of interests and adaptability of a legal system. We also find that domestic corruption per se does not justify transplantation of foreign legal models. Our results support the view that local conditions are a crucial determinant of the appropriate path of legal reform.