Legal Competition, Political Process and Irreversible Investment Decisions

26 Pages Posted: 3 Mar 2008

See all articles by Bruno Deffains

Bruno Deffains

Université Paris II - Panthéon-Assas; Institut Universitaire de France

Dominique Demougin

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Governance & Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Abstract

We compare the effects of competition for the design of labor laws in an environment characterized by irreversible investments in human and physical capital. We compare autarky with a two-country cases, assuming that capital is mobile and labor immobile. We distinguish two cases. In the first, the political system is free from capture, while in the second, we examine the case where labor captures the institutional design problem. We find that in the former case legal competition reduces welfare while in the latter it improves the overall outcome.

Keywords: legal competition, hold up, political process, firms organization

JEL Classification: K

Suggested Citation

Deffains, Bruno and Demougin, Dominique, Legal Competition, Political Process and Irreversible Investment Decisions. Available at SSRN: https://ssrn.com/abstract=1099454 or http://dx.doi.org/10.2139/ssrn.1099454

Bruno Deffains (Contact Author)

Université Paris II - Panthéon-Assas ( email )

12 place du Pantheon
Paris cedex 05, 75005
France

Institut Universitaire de France ( email )

103, bld Saint-Michel
75005 Paris
France

Dominique Demougin

EBS Universität für Wirtschaft und Recht - EBS Business School - Department of Governance & Economics ( email )

International University Schloss Reichartshausen
Campus Wiesbaden, Soehnleinstrasse 8A
Wiesbaden, 65201
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Muenchen, 81679
Germany

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