Three essays on law and economics

Abstract

This thesis is composed of three papers that analyse the interaction of law and economics. The first paper is a study of the attempts to use whistleblowers to control corporate crime. The paper asks which type of reward system is likely to promote welfare enhancing levels of whistle-blowing: large rewards will tempt more whistleblowers, but some of these may have fabricated the evidence in the hope of misleading the courts. The optimal level of rewards depends on the accuracy of the legal system, and if the legal system never makes mistakes then corporate crime can be eradicated. In the second paper the focus shifts from the individual to the firm and to opportunities for profiting in the stock market. The paper comes in two parts. The first investigates predation when the predator can take short positions in the shares of the predated firm. The second part investigates the effect of long and short positions in one's competitors' shares on cartel stability. In the third paper I return to the individuals within a law breaking firm, but this time I concentrate on the executives and their remuneration. The paper empirically tests whether the executives in firms that breached the UK competition laws were compensated for the extra risks inherent in breaking the law. In the rest of this introduction I describe each paper in more detail.