Chicago Global

Comparative Maternity Leave

It is well known that the United States has one of the least generous parental leave policies in the world. A current project of mine is to try to explain why this is so, and then to project the likely future path of law and private practice in this area.  I am very eager for insights arising out of other countries' law and practices, and so I welcome readers' comments and observations.

I begin with a few observations, and then I will return in a subsequent post to a few theories. First, in the U.S. only recently has law required employers to hold jobs for employees who take leave to give birth, beyond that leave which they may have under disability clauses. Meanwhile, most other countries, ranging from rich ones to poor ones, promise paid leave for weeks or months. Some extend the leave to fathers, but for the present I focus on the most basic maternity leave. In some countries the cost of paid leave is shared between the government and the employer. My first observation is that the U.S. system is "upside down" compared to others, and can be seen either as regressive (in terms of income) or simply as designed to respond to market pressures against a backdrop in which there is an expectation of participation in the labor force by women. Thus, many private firms in the United States offer astonishingly generous leave (astonishing as compared with other countries) to highly paid employees.  Many law firms give several months paid leave in the event of maternity, and yet paralegals or secretaries at the same firms may get only a few weeks of paid leave. In many other countries, indeed in most, the "paid leave" is capped at something like the social insurance wage.  A banker or lawyer in the U.S. might get $100,000 worth of leave time; the secretary in the same firm might get $3,000; the delivery-person who works for a vendor to that firm might get $0 (or perhaps we should put some option value on the promise of the job held open, as required by law).  Meanwhile, in many other countries all three persons would get the equivalent of perhaps $10,000. We might say that the private market perceives that generous maternity leave is a means of attracting women to high-end jobs, and perhaps of retaining them as well, while the political "market," or moral climate, in most countries is more egalitarian, to be sure, but not necessarily more generous in terms of overall cost or aggregate benefits.

It goes without saying that if private employers offer real (market wage rather than minimum wage or social insurance level) paid leave to enough employees, there is less political pressure for the social insurance approach. Note also that birth rates do not explain very much of the international variance.  They explain a little, such as Scandinavian generosity, perhaps (longer leaves, with paternity included if not required), but not much.

I do not believe that any system ties its benefits to retention. Many systems have vesting periods, so that one cannot begin work and then very soon thereafter earn paid leave. But I do not think any requires that a portion of benefits be forefeited if the beneficiary does not return to work. I will return to this possibility - and to why we are likely to abhor it in a future post.

EU merger control: a new episode in the coordinated effects saga

Today the Court of First Instance (CFI), the first level of judicial review of the EU Commission decisions has annulled the authorization granted by the Commission to the Sony BMG merger.

The transaction involving the two music powerhouses was a 5-to-4 merger in the European market of online music, raising concerns as to the possible creation of a collective dominant position.

Under both US and EU merger control rules, a merger results in a substantial lessening of competition when it makes collusion on the post-merger market more likely or more effective than it was on the pre-merger market (coordinated effects).

The assessment of coordinated effects, heavily relies on the principles of oligopoly theory, as shaped by the work of George J. Stigler (See Stigler, A Theory of Oligopoly). In particular, a conclusion on coordinated effects may be reached considering (i) the ability of the parties resulting form the merger to reach a common, profit-maximizing strategy, (ii) the ability of the same parties to detect deviations from such a strategy, and (iii) the ability to timely punish firms deviating from the concerted strategy.

The EU Commission has adopted this approach in assessing the Sony - BMG merger and has authorized it, considering that, in the pre-merger market, there was no sufficient evidence of retaliation by or against any firm active in the online market and, therefore, the third prong (ability to punish) of the above test was not met. However, the CFI has found that the latter conclusion is flawed.

The Court has stated that, in order for the third prong of the test to be satisfied, it is not necessary that retaliation has actually taken place in the pre-merger market, being enough that retaliation mechanisms are in place on the market and ready to be employed against deviating firms.

This position is justified by the consideration that, where coordination is effective on the pre-merger market and all the players abide to the common strategy, there is no need for punishment. Therefore, absence of punishment should not be mistaken with absence of effective collusion in the pre-merger market. Of course, it is true that a definitive conclusion on coordinated effects can only be reached by taking into account all the structural features of the market and the behavior of the firms on that market.

During this year I have had the chanche to study the Commission decision on SonyBMG and to compare it with some other EU merger cases involving coordinated effects, such as Gencor and Airtours. The Sony BMG decision by the EU Commission appeared prima facie inconsistent with the previous Commission practice. Of course this was primarily due to the CFI judgment in Airtours. However, my impression was that the EU Commission, after Airtours, was adopting a correct economic approach to coordinated effects, but combined with a burden of proof which was too heavy to be appropriate in merger control cases. I have analyzed the problem in a paper which I posted on SSRN in May and can be downloaded here.

Libertarian Paternalism and a Nationwide DNA Database

In numerous countries, there is considerable debate about establishing or expanding national DNA databases as an investigation tool for criminal law enforcement. The potential benefits of such a database seem enormous in this field: A comprehensive DNA database would not only help to solve crimes more easily, it would also function to prevent future crimes by preventing multiple crimes committed by the same offender and deterring crimes from being committed by other offenders. Finally, DNA evidence can play a large role in exonerating innocent suspects either if the true perpetrator is identified using the "genetic fingerprint" or if the innocent suspects genetic material is not found at the scene of crime.

Privatization: a bitter bite for consumers

In 1990, a century after the enactment of Sherman Act, the Italian Parliament adopted law no. 287, introducing competition law (as it is called in Europe) in Italy, a country with too many monopolies.

Since that date, many privatizations have been carried out. Telecommunications, Energy (oil, gas, electricity, water) and Highways. They have all been extremely profitable, since have allowed the new owners to exploit in the competitive market infrastructures and licences (i.e. essential facilities) respectively built and granted under the public monopoly and paid for by taxpayers money. The economic potential of these companies became clear when they were listed on the Milan stock exchange and many investors slept in tents set in front of the banks' doors to be the first one to buy the newly issued shares. Of course, the shares have been sky-rocketing since their issuance!!!!

Privatization seemed the dawn of a new era of prosperity and many foresaw increased competition and lower prices to the benefit of Italian consumers. The truth, instead, was that the wave of privatizations has replaced the public monopolist with private monopolists. There are several evidences of this phenomenon.

Toward a Theory of Country Size

It is well known that following consolidation, during which it might have looked as if countries were destined to combine into a few supercountries, we entered a period of secession and disintegration, with the number of countries growing.  One puzzle associated with this is why there are so many federations.  What follows is the beginning of a theory of size and confederation - and I look forward to comments before putting this in the form of a full-blown theory.

My starting point is that resources are not spread evenly across regions, so that when one part of a country is rich (as from salt deposits (long ago) or natural harbors or oil reserves), it will prefer to be on its own in order not to share its wealth with a larger group.  But of course these pockets of wealth will be vulnerable to attack (trade wars and embargos for starters, but then military invasions too) if they are on their own and not in reliable alliances.  "Optimal" country size is thus about compromising security (which is positively correlated with size) with the cost of sharing valuable resources.  Risk averse people might agree on a large country size if they did not know whether they would be rich or poor, but once they discover regional wealth, that region can be expected to be exploited.

Employees’ Misperception about their Rights

An interesting study shows that employees do not perceive to be employed at will. Pauline T. Kim, Bargaining with Imperfect Information: A Study of Worker Perceptions of Legal Protection in an At-Will World, 83 Cornell L. Rev. 105 (1997). The employees in such studies were presented with several descriptions of discharges of workers, identifying the reason for each discharge, and asking whether these discharges were lawful. The result showed a tendency that employees perceive to be better protected than they actually are by the employment at will doctrine and its exceptions in the respective states. They live under the impression that termination of their employment relationship is possible only for job-related reasons, which resembles much more the for cause rule than the at will doctrine that actually governs their employment. "Workers appear to systematically overestimate the protections afforded by law, believing that they have far greater rights against unjust or arbitrary discharges than they in fact have under an at-will contract." Kim, at 106.

While it seems plausible in many areas that laymen do not know the exact legal rules due to a lack of information, this systematic misperception poses a puzzle. The goal of this blog post is to show to what extend this misperception can be explained by systematic errors and biases tied to the heuristics that employees use to evaluate the degree of their legal protection. Furthermore, I will draw conclusions on what that means for the employment at will doctrine.

The creation of the International Court for Cambodia

New Steps towards International Justice

Very significant news for the international human rights community flourished one month ago, when, on March 14th, the United Nations and the government of Cambodia signed a series of multiple agreements for the creation and establishment of the legal foundations for the Extraordinary Chambers in the Courts of Cambodia (ECCC), a special tribunal that will try Khmer Rouge leaders accused of horrific crimes, including mass killings and genocide.

Under these international agreements, a newly created ad hoc trial court and a Supreme Court within the Cambodian legal system will investigate those most responsible for crimes and serious violations of Cambodian and international law between April 17, 1975 and January 6, 1979.

The international community has witnessed that during the last decade, unprecedented steps have been taken to limit the impunity of atrocious war crimes and crimes against humanity. Since the early 1990´s we are witnessing the creation of new international criminal justice mechanisms which apply universal jurisdiction to hold perpetrators of the most serious crimes that the human race has ever committed.

Has Globalization Become a Stale Cookie?

Something interesting is happening at this very moment in Europe. Something which is likely to teach a valuable and unforgettable lesson about the scope and the destiny of globalization.

The EU common market, the powerful engine behind European Union economic aggregation and growth rests on four fundamental freedoms: the free movement of goods, the free provision of services, the freedom of establishment and the free flow of capitals. 

Roughly speaking, free movement of goods means that there are no customs, tariffs or non-tariff barriers between EU Member States. Free provision of services means that anyone who is qualified to provide a service in a Member State can do the same in any other Member State. Freedom of establishment means that sudents, workers and corporations can elect their residence in any Member State without restrictions. Free flow of capitals means that investors may invest their capital in any Member State without nationality-based restrictions.

These fundamental (I would say constitutional) liberties of the European Union are now at jeopardy, due to the new taste of national governments for protectionism. The EU Commission sensed the threat posed to European aggregation and is fighting back to keep the common market open and competitive.

Governing the World by Law and Lottery?

International Organizations face numerous difficulties due to lack of popular support around the world. They are often seen as inefficient bodies with ineffective policies. The so-called "democratic deficit" is frequently source of complaints. Others are worried about the increasing influence of NGOs that are susceptible to influence from their specific donors. This lack of popular support not only makes enforcement of international policies more difficult. It also increasingly results in violent protest against international organizations, as witnessed at meetings of the WTO, IMF, and the World Bank.

Reasons for the failures of international organizations can be found in principal-agents problems. The principals (the citizens of member states) have little control over the actions of their agents (the different international organizations). The delegation of competencies to international organizations provides no adequate procedures that ensure that the principals can influence the performance of their bureaucratic agents.

Increased transparency could solve the acceptance problem among the world citizen. However, knowledge about the different policies and the reasoning behind it alone does not bring better control over the agents due to the lack of political accountability of the international actors.

Also the more narrow and strict definition of the competencies of international organization as well as of the standards under which they act could tighten the grip on these bodies. This way the detection of failures and the distribution of responsibility for them would be easier. But this approach does not allow for the principals taking consequences out of the failures of their agents.

Relativization of Sovereign Immunity

Every year countries turn to foreign private financial entities in order to obtain finance for several different reasons, from specific projects to be able to pay its short-term internal obligations. However, although it is not the rule, sometimes a country interrupts the payment of its debts with foreign private creditors, not performing its obligations assumed with such foreign private financial entities. And because of that, those financial entities have filed lawsuits in foreign courts in order to recover their losses from the defaults.

Such facts bring to discussion a matter that has been occupying scholars and judges for many years: if countries that are debtors do not perform their obligations assumed before foreign private creditors, can such foreign private creditors charge, in foreign courts, such debts? According to the traditional principle of sovereignty of nations, every and any judicial lawsuit against one State can only be filed in the national courts of such State. In the last decades, however, we have seen a relativization of this principle.

Sovereign immunity can be divided in two parts, that can not be confused: the immunity of jurisdiction, that is related to the immunity of a nation to have a lawsuit filed against it before a foreign court; and the immunity of enforcement, that is related to the immunity of a nation to have an enforcement lawsuit filed against it before a foreign court.

Foreclosure in Indonesia

A dispute between Deutsche Bank and Beckkett Pte Ltd, a Singapore registered group, gained attention among business people both in the western and in the eastern world. It involves one of the first cases following the Asia crisis in the late 90s in which a western creditor to an Indonesian business was able to seize collateral and dispose of it. Therefore, the dispute is relevant both as a legal and as an economic and political issue.

The (undisputed) and simplified facts are as follows: In 1997 Deutsche Bank granted a bridging loan in an amount of $ 100m to a majority owned subsidiary of Beckkett called Asminco Bara Utama. The loan was intended to finance the expansion of Beckkett’s stake from 15% to 40% in Adora Indonesia, one of the largest Indonesian coal mines. The loan was secured by the 40% stake of Beckkett in Adora. Furthermore, Beckkett provided a guarantee. The following year, Asminco defaulted on the loan. After lengthy negotiations Deutsche Bank finally decided to foreclose on the shares and to sell them to another Indonesian business tycoon, Edwin Soeryadjaya, for $ 44.2m.

On February 21, 2006 Beckkett sued Deutsche Bank before the Singapore High Court asking to cancel the sale, return the shares as well as damages and payment for any lost dividends. First, Beckkett claims that Deutsche Bank was obliged under the loan agreement to raise a long term loan agreement when the bridge loan was due. Second, it alleges that Deutsche Bank disposed of the pledged shares at a too low price in order to wind up the guarantor, Beckkett.

Deutsche Bank, counterseeking the remaining amount that is still owed from the loan, both contests the alleged collusion with the buyer when selling the shares and its obligation to raise another loan fund. Moreover, it argues that Beckkett is only interested in the shares of the coal mine company as the price for Indonesian coal has risen significantly after the sale of the shares. With the recent upswing in global commodity prices, that stake is now estimated to be worth more than $400 million.

One Indonesian journalist reports on a blog that one of the parties invited six Indonesian journalists – not including him – to fly to Singapore paying for hotel, air tickets and meals to cover the trial (http://yosef-ardi.blogspot.com/2006/02/beckkett-vs-deutsche-bank-media-law.html). A day later, the journalist reports, an article on the trial was published in the newspaper Bisnis Indonesia. 80% of the article consisted of Beckkett’s arguments. For the journalist, it was clear which party invited the six journalists.

What makes the case so interesting for the business world is less its legal details. More important is its impact on the economic and political situation in the country.

Banning Age Discrimination in Employment - US Lessons for European Lawmakers

In 2000, the European Union adopted Directive 2000/78/EC prohibiting, among others, direct or indirect discrimination on grounds of age in employment. This Directive contains precise definitions of direct and indirect discrimination and of harassment and allows certain exceptions to the principle of equal opportunities, which are defined as legitimate in a limited range of circumstances. Substantial changes in Member State legislation have been observed in recent years in direct consequence of the adoption of the EU legislation. However, some countries, including Germany, have not fully transposed the provisions yet. The Commission has already initiated infringement proceedings against certain Member States and is due to publish a report in 2006 on the state of transposition of Directive 2000/78/EC. The latest deadline for transposing the Directive into German law is December 31, 2006. The German parliament is in the process of meeting that deadline by enacting the Antidiscrimination Act (ADG).

Valuable Secrets in Antitrust Enforcement

With its 2002 Leniency Notice, the EU Commission has established the Leniency Program, one of the most effective tools for prosecuting illegal cartels pursuant Art. 81 of the EC Treaty.

Under the Leniency program, a company involved in a cartel can ‘blow the whistle’ and cooperate with the Commission by providing detailed evidence on its own involvement, as well as that of other undertakings, in the cartel.

The program rewards the first whistleblower with a 100% rebate on the fine applicable to him (participating in the program does not avoid ‘conviction’ for the infringement) - if the information provided allows the Commission to open an investigation - and grants lower rebates to other companies that cooperate after the opening of the investigation.

Great part of the evidence the applicant company submits to the Commission is documentary evidence – notes of meetings, flights schedules and tickets, e-mails – but the most valuable documents are corporate statements, with which corporate officials and attorneys explain to the Commission’s case handlers the functioning of the cartel.

Corporate statement, however, have a highly undesirable downside, when the applicant company is involved in a trans-national cartel and is being tried (or faces a trial) in a third-country jurisdiction (often the US) as a defendant in an antitrust private lawsuit.

The rules of pre-trial discovery, in fact, require the parties to disclose any documents relevant to the claim at trial, including, therefore, any written corporate statements rendered to the EU Commission. The risk of having to disclose self-incriminating information often restraints companies involved in cartels from cooperating with the EU Commission and puts the leniency program – so far a successful enforcement tool – at jeopardy.

Uncle Sam sticks his nose

On February 3, 2006, the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury, enforced an American statute in Mexican territory forcing Mexico City’s Sheraton Hotel, a Mexican company and subsidiary of a U.S. corporation (Starwood Hotels and Resorts Worldwide, Inc.), to expel a group of Cuban citizens out of the premises of the said hotel. The group of Cubans was staying at the hotel attending business meetings with executives of American companies. (1)

The OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. (2)

The abovementioned episode was an extraterritorial application of “The Cuban Liberty and Democratic Solidarity Act” -also known as the Helms-Burton Act-. The Act was primarily designed by the U.S. Congress to inhibit foreign countries and U.S. corporations (or their subsidiaries based in third countries), from doing business in or with Cuba.

In fact, the Act expressly urges the President to encourage foreign countries to restrict trade and credit relations with Cuba.

The extraterritorial application of the Helms-Burton Act, had a major impact in Mexico’s political setting and raised the question: How far is the U.S. willing to go with the extraterritorial application of its public policy in order to pursue their international purposes?

Bird Flu Reaches Chicago

At a time when avian influenza is spreading in numerous countries, the recent research of Malani* and Laxminarayan** has struck my particular interest. The paper was presented at the University of Chicago Law and Economics Workshop and examines the incentives of countries to invest in disease surveillance and to report possible outbreaks of diseases using a game-theoretic model. It also evaluates the different policy instruments the World Health Organization (WHO) uses to encourage countries to detect and report the outbreak of diseases.

The policy instruments of the WHO that are discussed include subsidies for surveillance, medical assistance to control outbreaks, and trade sanctions for failure to report outbreaks. In addition, the paper considers the possibility of conditioning surveillance subsidies on the WHO’s right to audit a country’s surveillance measures.

The countries’ incentives to disclose an outbreak of a disease are conflicting. On the one hand, international assistance in coping with a disease and preventing an epidemic can be of great economic value. On the other hand, reporting an outbreak can inflict great economic costs by triggering trade sanctions and embargos by other countries. Through backward induction, these incentives also influence the country’s decision on whether and how much to invest in surveillance. Only if reporting the outbreak seems desirable, a country will consider it in its interest to detect the disease by investing in surveillance. And if reporting seems harmful, limited surveillance could be desired.

Enjoying Italian soccer in a Chinese living room

90 are the minutes in a soccer game and 90 is the number Italians traditionally associate with fear. In this story, fear is what three major pay-tv and pay per view broadcasters operating in Italy are dealing with. Soccer is currently Italy’s most productive (and indebted) industry. Plus, like in any good ‘global economy’ thriller these days, China is also involved. But let’s start from the beginning….

Rupert Murdoch’s Sky, Silvio Berlusconi’s Mediaset and La7 (controlled by former telecom incumbent Telecom Italia) hold broadcasting rights for Italian Serie A (first division soccer), for satellite pay-tv (Sky) and for digital terrestrial pay-per-view (the others). Somehow (in a seemingly lawful way), such rights were sold to a number of Chinese broadcasters which merrily undertook to display the games on tv and on their Internet websites. An Italian peer-to-peer website, before each game, published the links to the live events broadcasted in China and a remarkable share of the Italian soccer audience began to link to Chinese websites and watch live premium soccer on laptop rather than subscribing pay-tv or pay-per-view.