The Law and Economics of Hedge Fund Regulation: A Comparison between the U.S. and the EU

This doctoral dissertation seeks to assess and address the potential contribution of the hedge fund industry to financial instability. In so doing, the dissertation investigates three main questions. What are the contributions of hedge funds to financial instability? What is the optimal regulatory strategy to address the potential contribution of hedge funds to financial instability? And do new regulations in the U.S. and the EU address the contribution of hedge funds to financial instability? With respect to financial stability concerns, it is argued that despite their benefits, hedge funds can contribute to financial instability. Hedge funds’ size and leverage, their interconnectedness with Large Complex Financial Institutions (LCFIs), and the likelihood of herding behavior in the industry can potentially undermine financial stability. Nonetheless, the data on hedge funds’ size and leverage suggest that these features are far from being systemically important. In contrast, the empirical evidence on the interconnectedness of hedge funds with LCFIs and their herding behavior is mixed. Based on these findings, the thesis focuses on one particular aspect of hedge fund regulation: direct vs. indirect regulation. In this respect, a major contribution of the thesis to the literature consists in the explicit discussion of the relationships between hedge funds and other market participants. Specifically, the thesis locates the domain of the indirect regulation in the inter-linkages between hedge funds and prime brokers. Accordingly, the thesis argues that the indirect regulation is likely to address the contribution of hedge funds to systemic risk without compromising their benefits to financial markets. The thesis further conducts a comparative study of the regulatory responses to the potential contribution of hedge funds to financial instability through studying the EU Directive on Alternative Investment Fund Managers (AIFMD) and the hedge fund-related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

Determining the effect of regulation on Microfinance Institutions Financial Self-Sustainability. A Cross-Country Comparison

Microfinance is an initiative which seeks to address financial inclusion, micro-entrepreneurship, and poverty reduction without over burdening governments. However, the current sector of microfinance is still heavily dependent on the good will of donors. The over-reliance on donations is a feature which threatens the long term sustainability of microfinance. Much has been written about this reliance, but research to date hasn’t empirically examined the effect of regulation as a mediator. This is a critical area of study because regulation directly affects Microfinance Institutions’ (MFI) innovation, and innovation is what shapes the future of microfinance. This thesis considers the role that regulation plays in affecting MFI’s and their ability to innovate in products, services and long-term sustainability via access to capital. Interviews were undertaken with stakeholders in MFI’s, NGO’s, Self-Regulating Bodies, and Regulators in India, Pakistan, and Bangladesh. This thesis discusses findings from interviews in relation to regulatory measures regarding financial self-sustainability of MFI’s. The conclusions of this thesis have implications for policy and inform the microfinance literature.

Quantifying the Economics of Medical Malpractice - A View from a Civil Law Perspective

Life is full of uncertainties. Legal rules should have a clear intention, motivation and purpose in order to diminish daily uncertainties. However, practice shows that their consequences are complex and hard to predict. For instance, tort law has the general objectives of deterring future negligent behavior and compensating the victims of someone else's negligence. Achieving these goals are particularly difficult in medical malpractice cases. To start with, when patients search for medical care they are typically sick in the first place. In case harm materializes during the treatment, it might be very hard to assess if it was due to substandard medical care or to the patient's poor health conditions. Moreover, the practice of medicine has a positive externality on the society, meaning that the design of legal rules is crucial: for instance, it should not result in physicians avoiding practicing their activity just because they are afraid of being sued even when they acted according to the standard level of care. The empirical literature on medical malpractice has been developing substantially in the past two decades, with the American case being the most studied one. Evidence from civil law tradition countries is more difficult to find. The aim of this thesis is to contribute to the empirical literature on medical malpractice, using two civil law countries as a case-study: Spain and Italy. The goal of this thesis is to investigate, in the first place, some of the consequences of having two separate sub-systems (administrative and civil) coexisting within the same legal system, which is common in civil law tradition countries with a public national health system (such as Spain, France and Portugal). When this holds, different procedures might apply depending on the type of hospital where the injury took place (essentially whether it is a public hospital or a private hospital). Therefore, a patient injured in a public hospital should file a claim in administrative courts while a patient suffering an identical medical accident should file a claim in civil courts. A natural question that the reader might pose is why should both administrative and civil courts decide medical malpractice cases? Moreover, can this specialization of courts influence how judges decide medical malpractice cases? In the past few years, there was a general concern with patient safety, which is currently on the agenda of several national governments. Some initiatives have been taken at the international level, with the aim of preventing harm to patients during treatment and care. A negligently injured patient might present a claim against the health care provider with the aim of being compensated for the economic loss and for pain and suffering. In several European countries, health care is mainly provided by a public national health system, which means that if a patient harmed in a public hospital succeeds in a claim against the hospital, public expenditures increase because the State takes part in the litigation process. This poses a problem in a context of increasing national health expenditures and public debt. In Italy, with the aim of increasing patient safety, some regions implemented a monitoring system on medical malpractice claims. However, if properly implemented, this reform shall also allow for a reduction in medical malpractice insurance costs. This thesis is organized as follows. Chapter 1 provides a review of the empirical literature on medical malpractice, where studies on outcomes and merit of claims, costs and defensive medicine are presented. Chapter 2 presents an empirical analysis of medical malpractice claims arriving to the Spanish Supreme Court. The focus is on reversal rates for civil and administrative decisions. Administrative decisions appealed by the plaintiff have the highest reversal rates. The results show a bias in lower administrative courts, which tend to focus on the State side. We provide a detailed explanation for these results, which can rely on the organization of administrative judges career. Chapter 3 assesses predictors of compensation in medical malpractice cases appealed to the Spanish Supreme Court and investigates the amount of damages attributed to patients. The results show horizontal equity between administrative and civil decisions (controlling for observable case characteristics) and vertical inequity (patients suffering more severe injuries tend to receive higher payouts). In order to execute these analyses, a database of medical malpractice decisions appealed to the Administrative and Civil Chambers of the Spanish Supreme Court from 2006 until 2009 (designated by the Spanish Supreme Court Medical Malpractice Dataset (SSCMMD)) has been created. A description of how the SSCMMD was built and of the Spanish legal system is presented as well. Chapter 4 includes an empirical investigation of the effect of a monitoring system for medical malpractice claims on insurance premiums. In Italy, some regions adopted this policy in different years, while others did not. The study uses data on insurance premiums from Italian public hospitals for the years 2001-2008. This is a significant difference as most of the studies use the insurance company as unit of analysis. Although insurance premiums have risen from 2001 to 2008, the increase was lower for regions adopting a monitoring system for medical claims. Possible implications of this system are also provided. Finally, Chapter 5 discusses the main findings, describes possible future research and concludes.

The Law and Economics of Eco-labels

Eco-labels and certification are one of the many environmental policy tools that have been under scrutiny in recent years. This is because the damages of environmental degradation are becoming more apparent over time. Hence there is a pressure to come up with tools that help solve even small parts of the problem. Eco-labels have been around for over 30 years. However the market, the environment and eco-labels have changed drastically during this period. Moreover, in the last 5 years there has been a sudden increase in eco-labels making them more visible in the market and to the average consumer. All this has made evident that little is known about the effectiveness of eco-labels as environmental policy tools. Hence, there is a call to find answers regarding the actual effects of eco-labels on the market and on the environment. While this work cannot address whether eco-labels have an environmental impact it addresses the effects of eco-labels on the markets. Moreover, this work aimed to find the role of law in eco-labelling. In addition, it aims to find a legal solution that would improve the performance of eco-labelling and certification.

Three Essays in Economics of Gender

During recent decades, economists' interest in gender-related issues has risen. Researchers aim to show how economic theory can be applied to gender related topics such as peer effect, labor market outcomes, and education. This dissertation aims to contribute to our understandings of the interaction, inequality and sources of differences across genders, and it consists of three empirical papers in the research area of gender economics. The aim of the first paper ("Separating gender composition effect from peer effects in education") is to demonstrate the importance of considering endogenous peer effects in order to identify gender composition effect. This fact is analytically illustrated by employing Manski's (1993) linear-in-means model. The paper derives an innovative solution to the simultaneous identification of endogenous and exogenous peer effects: gender composition effect of interest is estimated from auxiliary reduced-form estimates after identifying the endogenous peer effect by using Graham (2008) variance restriction method. The paper applies this methodology to two different data sets from American and Italian schools. The motivation of the second paper ("Gender differences in vulnerability to an economic crisis") is to analyze the different effect of recent economic crisis on the labor market outcome of men and women. Using triple differences method (before-after crisis, harder-milder hit sectors, men-women) the paper used British data at the occupation level and shows that men suffer more than women in terms of probability of losing their job. Several explanations for the findings are proposed. The third paper ("Gender gap in educational outcome") is concerned with a controversial academic debate on the existence, degree and origin of the gender gap in test scores. The existence of a gap both in mean scores and the variability around the mean is documented and analyzed. The origins of the gap are investigated by looking at wide range of possible explanations.

Essays in the Economics of Ageing

In the first paper, I assess if financial incentives may be used as an effective device to induce workers to postpone retirement by evaluating the Italian so called “super bonus” reform. The bonus consisted in economic incentives given for a limited period to private sector workers who had reached the requirements for seniority pension. Crucially for this study, public workers were not entitled to the bonus. Using data from the Bank of Italy Survey on Household Income andWealth, and exploiting the DID-Probit strategy proposed by Blundell et al. (JEEA, 2004), I assess the effect of the bonus on the decision to postpone retirement, by comparing private and public workers before and after the reform. Results suggest a reduction of 12ppt in the proportion of private workers who decided to retire among those qualifying for retirement. Results also suggest, not trivially, that most of the effect of the reform is driven by low-income workers. Finally, I propose an estimate of the extensive margin elasticity of Italian older workers. The second study estimates a structural reduced form of the “option value” model developed by Stock and Wise (1990) using Italian data from the Survey of Health, Ageing and Retirement in Europe (SHARE).Exploiting exogenous changes in social security wealth (SSW) results show a significant effect in the expected direction of SSW and of marginal incentives to retire. Results are robust even after controlling for individual heterogeneity and its correlation with financial incentives. Using detailed information on individuals, the results also highlights the importance of individual and job characteristics, which have been very little explored by this literature, as determinants of retirement. This suggests the potential of “tagging” in the design of social security incentives in order to reduce choice distortions and improve the overall efficiency of the system.

Sanctions and public enforcement of insider trading laws in Europe

The recent financial crisis triggered an increasing demand for financial regulation to counteract the potential negative economic effects of the evermore complex operations and instruments available on financial markets. As a result, insider trading regulation counts amongst the relatively recent but particularly active regulation battles in Europe and overseas. Claims for more transparency and equitable securities markets proliferate, ranging from concerns about investor protection to global market stability. The internationalization of the world’s securities market has challenged traditional notions of regulation and enforcement. Considering that insider trading is currently forbidden all over Europe, this study follows a law and economics approach in identifying how this prohibition should be enforced. More precisely, the study investigates first whether criminal law is necessary under all circumstances to enforce insider trading; second, if it should be introduced at EU level. This study provides evidence of law and economics theoretical logic underlying the legal mechanisms that guide sanctioning and public enforcement of the insider trading prohibition by identifying optimal forms, natures and types of sanctions that effectively induce insider trading deterrence. The analysis further aims to reveal the economic rationality that drives the potential need for harmonization of criminal enforcement of insider trading laws within the European environment by proceeding to a comparative analysis of the current legislations of height selected Member States. This work also assesses the European Union’s most recent initiative through a critical analysis of the proposal for a Directive on criminal sanctions for Market Abuse. Based on the conclusions drawn from its close analysis, the study takes on the challenge of analyzing whether or not the actual European public enforcement of the laws prohibiting insider trading is coherent with the theoretical law and economics recommendations, and how these enforcement practices could be improved.

The role of the NadR regulator during infection and its implication for the coverage of a new Meningococcus B vaccine

Background: Neisseria meningitides represents a major cause of meningitis and sepsis. The meningococcal regulator NadR was previously shown to repress the expression of the Neisserial Adhesin A (NadA) and play a major role in its phase-variation. NadA is a surface exposed protein involved in epithelial cell adhesion and colonization and a major component of 4CMenB, a novel vaccine to prevent meningococcus serogroup B infection. The NadR mediated repression of NadA is attenuated by 4-HPA, a natural molecule released in human saliva. Results: In this thesis we investigated the global role of NadR during meningogoccal infection, identifying through microarray analysis the NadR regulon. Two distinct types of NadR targets were identified, differing in their promoter architectures and 4HPA responsive activities: type I are induced, while type II are co-repressed in response to the same 4HPA signal. We then investigate the mechanism of regulation of NadR by 4-HPA, generating NadR mutants and identifying classes or residues involved in either NadR DNA binding or 4HPA responsive activities. Finally, we studied the impact of NadR mediated repression of NadA on the vaccine coverage of 4CMenB. A selected MenB strains is not killed by sera from immunized infants when the strain is grown in vitro, however, in an in vivo passive protection model, the same sera protected infant rats from bacteremia. Finally, using bioluminescent reporters, nadA expression in the infant rat model was induced in vivo at 3 h post-infection. Conclusions: Our results suggest that NadR coordinates a broad transcriptional response to signals present in the human host, enabling the meningococcus to adapt to the relevant host niche. During infectious disease the effect of the same signal on NadR changes between different targets. In particular NadA expression is induced in vivo, leading to efficient killing of meningococcus by anti-NadA antibodies elicited by the 4CMenB vaccine.

Fresh Produce Safety and Good Agricultural Practices: Stakeholders' Perception and Consumers' Choice in Thailand

Concerns of Thai consumers on food safety have been recently increasing, especially in urban areas and for fresh produce because food safety scandals, such as chemical residues on fresh produce (e.g., cabbage) still frequently occur. The Thai government tried to meet consumer needs by imposing in the domestic market a stronger regulation aimed at increasing the baseline level of food safety assurance and by introducing a voluntary standard (based on Good Agricultural Practices or GAPs and known as Q-GAP) and the related food safety label (i.e., Q mark). However, since standards and regulations are weakly implemented in the domestic market compared to exported products, there is still a lack of Thai consumers’ confidence in the safety of local food products. In this work the current situation of GAPs adoption in Thai fresh produce production is analysed. Furthermore, it is studied whether Thai consumers place value on food safety labels available on the market, to know whether consumer demand could drive the market of certified safer products. This study contains three essays: 1) a review of the literature, 2) a qualitative study on stakeholders' perception toward GAPs adoption and 3) a quantitative study, aimed at analysing consumers' preferences and willingness-to-pay for food safety labels on fresh produce using a discrete choice experiment. This dissertation contributes to the economics of quality assurance and labelling, specifically addressing GAPs and food safety label in the fresh produce supply chain. Results show that Q-GAP could be effectively used to improve food safety in Thai domestic market, but its credibility should be improved. Stakeholder’s awareness toward food safety issues and the delivery of reliable and sound information are crucial. Thai consumers are willing to pay a premium price for food safety labelled produce over unlabelled ones. Implications for both government and business decision-makers are discussed.