Liability Regime Research Articles

Modeling Monopoly Money: Government as the Source of the Price Level and Unemployment

Many of the claims put forth by Modern Monetary Theory (MMT) center around the state’s monopoly over its own currency. In this paper I interrogate the plausibility of two claims: 1) MMT’s theory of the price level—that the price level is a function of prices paid by government when it spends—and 2) the claim that the cause of deficient effective demand is the state’s failure to supply government liabilities so as to meet the demand for net financial assets. I do so by building a model of “monopoly money” capable of producing these two outcomes.

The EU Fiscal Risk Matrix – from government debt to climate liabilities

The aim of the article is to identify the main components of government overall liabilities based on the Fiscal Risk Matrix classification introduced by the World Bank in 1999, and to estimate the amount and structure of these liabilities in European Union countries (EU Fiscal Risk Matrix). The climate liabilities definition and methodology included in the EU Fiscal Risk Matrix is also a novelty of the research. The study covered EU member states in the period 2018–2019, taking into account available data from the Eurostat database. On this basis, the EU Fiscal Risk Matrix was developed with the estimated structure of the burden of government liabilities for individual countries and the EU as a whole. The article used statistical and comparative analysis. The major conclusion of our research involves the proposal to implement a unified European methodology of government overall liabilities classification based on the EU Fiscal Risk Matrix to assess the fiscal debt burden and transparency of fiscal policy.

БОРГОВІ ЗОБОВ’ЯЗАННЯ ДЕРЖАВИ: СТАТИСТИЧНИЙ АНАЛІЗ

The article analyzes the meaning of the concept of "public debt" according to the views of domestic and foreign scholars. The essence of this term according to norms of the Budget code of Ukraine is investigated. The activity of public authorities in the management of debt obligations of our state is considered. The state and dynamics of public debt of Ukraine for the period 2015-2019 are studied. The structure of public debt of Ukraine according to its division into external and internal is analyzed, and the shares of external and domestic debt in the total amount of public and state-guaranteed debt are determined. The dynamics of public debt obligations in terms of the amount of public and state-guaranteed debt is shown. The structure of external and internal debts of the state budget of Ukraine to the main creditors and the dynamics of payments for its repayment are described. The dynamics of the ratio of public debt to GDP of Ukraine is calculated and analyzed. The activity of a new state structure – the Debt Agency of Ukraine – in the field of debt management of our state has been studied. It is determined that a significant problem of the state is to ensure the debt burden. Ways to solve the problem of debt burden are proposed, among which an important measure is proposed – to strengthen control over the effective use of borrowed projects. It is determined that the best step in improving the system of management of debt obligations of the state can be stimulated the development of the internal capital market with the involvement of private reorientation from external to internal prevention. In modern conditions, both market economies and developing countries have inherent needs for additional funds to cover the budget deficit. This situation necessitates the constant search for additional sources of financing government liabilities, in particular, such as loans. Thus, the additional funds raised make it possible to increase total expenditures under conditions of lower national income only through a balanced and effective government policy in the field of borrowing. However, the downside of debt obligations is that sooner or later they must be repaid and interest paid for the use of these borrowed funds. The purpose of the study is to determine the structure and dynamics of public debt of Ukraine, as well as the features of its repayment.

The Advent of Artificial Intelligence in Space Activities: New Legal Challenges

Artificial Intelligence (AI) – the ability of a computer or a robot to perform tasks commonly associated with intelligent beings – represents both a new challenge and a significant opportunity for the future of space activities. Indeed, increasing connectivity and symbiotic interactions between humans and intelligent machines raise significant questions for the rule of law and contemporary ethics, including the applicable rules relating to liability in case of damage arising from advanced AI. AI also encompasses a series of complex issues that cut across social, economic, public policy, technological, legal, ethical and national security boundaries. The development of AI-based autonomous systems is equally relevant in the context of military operations and on the battlefield, particularly with the use of drones and, more controversially, Lethal Autonomous Weapons Systems. After outlining the legal and ethical challenges posed by this technology, this article focuses on AI systems for space operations that give rise to questions about how these interact with existing legal concepts and technical standards. This article also describes how space law is relevant and applicable to AI use in the context of space missions. The specific attributes of autonomous space systems may also require further consideration as to the traditional application of the authorization of space missions, the international responsibility of States and the liability regime in case of damage. As a precursor to more detailed research in the future, this article seeks to introduce some of the more significant legal issues that AI-driven automated processes might pose for space operations.

The Prospectus Regulation. The long and winding road

This study focuses on three main topics: it firstly goes through the purposes of mandatory disclosure, it then develops an analysis on prospectuses and supplements ap-proved in seven EU countries, and it finally sets out the new regulatory framework. The first part highlights the twofold importance of prospectuses, as a means of re-ducing informational asymmetry and helping investors make informed investment decisions. This chapter compares all the pros and cons of mandatory disclosure and some of the main scholars’ viewpoints on this topic. There is plenty of literature supporting the idea that information overload is counterproductive while others maintain that it is crucial to well-functioning markets. Above all, empirical research shows that market efficiency is also un-dermined by behavioural biases, which is typical of both retail and sophisticated investors. For all these reasons, policymakers have gradually addressed these problems introducing a simplified prospectus with Directive 2001/107/EEC (UCITS III), the Key Investor Information Document (KIID) with Directive 2009/65/EU (UCITS IV), the prospectus summary with Pro-spectus Regulation 1129/2017. Therefore, it is certainly true that standardization - while preserving the content of disclosed information - is a core challenge that policymakers are currently facing. Since the two main objectives of Prospectus Regulation 1129/2017 are market effi-ciency and investor protection, the second part presents an overall assessment of whether and to what extent it has achieved its original purposes. Market efficiency was measured through prospectus activity while investor protection was assessed by looking at the number of pages and the dimensions of prospectuses and supplements. Data was compared from seven EU countries. Overall, the total number of approved prospectuses in the years 2006-2018 fell dramatically and the number of prospectuses passported in and out of the coun-tries analysed presents substantial differences. The research also reveals substantial discrep-ancies in the average number of pages of the documents approved in each country. Above all, the macroscopic divergencies highlight the different levels of complexity in the opera-tions underlying the placement of securities, and consequently the need for an alternative market disclosure. The third part concerns the new regulatory framework and it deals with all the main innovations brought about by the latest Prospectus Regulation 1129/2017 such as: the new prospectus summary, the new rules on risk factors, the simplifying disclosure regime for SMEs and SMEs growth market and the Universal Registration Document. Despite its primary intent of achieving harmonization in the prospectus regime, the Regulation does not deter-mine a common set of rules in terms of liability. This means that securities litigation and liability regimes related to securities issuances are largely based on national law, thus result-ing in a highly fragmented framework. Especially with regard to civil liability regimes related to national supervisory authorities, the national legislations of the countries analysed seem to follow divergent paths. This work analyzes and compares those differences, and then offers some final tips for avoiding liability fragmentation within the EU countries, which is finally recognized as one of the main obstacles to achieving regulatory harmonization while at the same time granting market efficiency and investor protection.

Liability Rules and Prevention for Risky and Ambiguous Activities: Theory and Experimental Evidence

We develop a formal model to compare the incentive effect of strict liability rules in a risky and ambiguous environment. The firm's business activity entails a risk of technological disaster, which likelihood is a decreasing function of prevention. To assess our theoretical predictions, we design a lab experiment by varying the legal regime and the environment. Consonant with our theory, we obtain that limited liability stimulates subjects' investment in prevention in comparison to unlimited liability when only risk matters. Besides, subjects opt for more prevention under the regime of unlimited liability when shifting from risk to ambiguity. Nevertheless, this last theoretical finding is not observed with limited liability. Empirical results from panel fixed effect regressions confirm the treatment effects. We also collect some additional characteristics about the subjects' social preferences during the experiment.

Euskadiko Kooperatiben Lege berria

On December 20, 2019, the Basque Parliament approved Law 11/2019, on Cooperatives in the Basque Country, which has become the current regulation for cooperatives in the territory. While it retains the spirit, tendencies, and content of the law it has replaced, it has also provided significant innovations and interpretation issues in various areas, which can certainly be debatable. In the legal analysis of cooperatives, the study of those issues is of particular interest, especially in view of the importance of Basque cooperatives in the world. This work therefore reviews the main aspects and innovations of the new law, focusing on the most important aspects (such as the provisions on gender equality, digitalisation, the duties of administrators, the regulation of the liability regime of members, or news on hiring employees in worker cooperatives) always keeping a critical eye.

Corporate Liability Design for Human Rights Abuses: Individual and Entity Liability for Due Diligence

Abstract In this article, I critically review the economic theory of corporate liability design, focusing on the allocation of liability between a corporation and its individual human agents. I apply this theory to transnational commercial contexts where human rights abuses occur and assess the likely efficacy of some putative liability regimes, including regimes requiring corporations to undertake human rights due diligence throughout their global supply chains. I advance a set of general considerations justifying the efficacy of due diligence in relation to alternative liability regimes. I argue, however, that due diligence regimes will likely under-deter severe human rights abuses unless they are supported by substantial entity-level sanctions and, in at least some cases, by supplementary liability for individual executives. The analysis has significant policy implications for current national and international efforts to enforce human rights norms against corporations.

Shifts in compensation for environmental damage: reflections on China's new Soil Pollution Law

During the past decades, the deteriorating soil quality has become an urgent environmental issue on China's policy agenda. The enactment of the first national law for addressing soil pollution in 2018 has been regarded as a major legislative and regulatory development of China's environmental law, since it fills the legal void on soil protection. So far, China's Soil Pollution Law has received scant attention. This article presents an analysis of the liability regime for soil pollution created by this newly adopted law from legal and theoretical perspectives. Two historical shifts have been achieved in this law: first, it represents an important change in adopting an integrated regulatory framework for combatting soil contamination instead of a scattering of provisions and rules; second, it represents a significant shift towards an administrative liability regime, distinct from the environmental liability regimes for other types of environmental damage. This article argues also that several unsettled issues within this liability regime may pose challenges to improving soil quality.

Duplication of Harm in Tort Law

The article addresses the issue of causation in cases where there are two successive events, each of which is sufficient to cause the same damage. Such cases are considered under the title ‘successive causes’ or ‘duplicated harm’. In such a scenario the issue arises: which of the two evens shall be considered as a legal cause of the damage. On the one hand, if the concept of damage denotes actual changes in the physical world, then each of the events can be considered as a cause of damage. However, if the concept of damage denotes economic losses (resulting from the changes in physical world), then only the first event can be considered as a cause of damage.The author focuses on the cases involving harm to plaintiff’s health. The peculiarity of these cases is that the loss of earning capacity, in contrast to property damage, is continuous. Deciding on which of the two successive injuries shall be considered as a legal cause of the damage necessitates navigating through different tenets of tort law, which may contradict each other. Among those tenets there are: principle of full compensation (restitutio in integrum), ‘vicissitudes principle’, the principle that defendant ‘must take the victim as he finds him’ and ‘court does not speculate when it knows’. However, the paramount tenet is the principle of the full compensation, while other tenets must be seen as subsidiary.The author analyzes English case law, in particular cases of Baker v. Willoughby and Jobling v Associated Dairies Ltd. Courts’ arguments are scrutinized.Eventually the author argues in favor of the view that after the occurrence of the second incident the loss of earning capacity shall be considered as having two causes at the same time. This opens the way for the application of the regime of joint and several liability. Nevertheless, it should be borne in mind that injuries may and usually does cause moral damage as well. And the issue of compensating moral damage have to be contemplated separately.

Artificial intelligence and legal liability: towards an international approach of proportional liability based on risk sharing

ABSTRACT This paper critically examines the allocation of liability when autonomous artificial intelligence (AI) systems cause accidents. Problems of applying existing principles of legal liability in AI environment are addressed. This paper argues that the sharing of risk as a basis for proportionate liability should be a basis for a new liability regime to govern future autonomous machines. It is argued that this approach favors the reality of parties’ consent to taking the risk of unpredictable AI behavior over the technicality of existing principles of legal liability. The suggested approach also encourages transparency and responsible decisions of developers and owners of AI systems. A flowchart to clarify possible outcomes of applying the suggested approach is provided. The paper also discusses the need for harmonization of national laws and international cooperation regarding AI incidents crossing national borders to ensure predictability of legal rules governing the liability ensuing from AI applications.

Chronicle of international repositories foretold: a survey in the future of nuclear liability law

Abstract International repositories, which will be operated in underground geological structures and where spent nuclear fuel originating from several states will be disposed, have been discussed as an option to construction of national underground repositories for several decades. Such international repositories manifest several advantages as compared with exclusive national repositories. Fact is, that despite obvious benefits, that may establishment of international repositories imply for smaller states, these installations will also represent a considerable source of risk, as dangerous substances will be deposited in them for hundreds of years. Consequently, prospective construction of international repositories in the future must be accompanied by existence of an effective regime of liability for damages, that may potentially occur. This article aims to address the question, if the currently existing international framework is capable to cover risks arising from operation of prospective international repositories, or if a new legal framework is to be established in this regard.

Breach of the Mandatory Bid Rule: Minority Shareholders’ Protection in the Public vs. Private Enforcement Debate

The mandatory takeover bid has been broadly investigated in the literature. The economics of such control acquisition and the pros and cons of the mandatory bid rule are nowadays well-established. Uncertainty still reigns with respect to the fundamental question whether private law remedies are available to minority shareholders in the case of a breach of the duty to make a takeover bid. Statutory law across Member States is essentially silent on this matter, and at a supranational level the CJEU’s case law does not offer valid precedents. European policymakers rely on public enforcement mechanisms, while an action for damages against the bidder is not made available or only reluctantly accepted by the courts. Italy is an outlier, allowing today – after the consolidation of the principles expressed in the leading case Fondiaria-SAI – the recourse to private enforcement remedies. This article shows that, for the purpose of good functioning and competitiveness of capital markets, private enforcement plays an important role against violations of the mandatory bid rules. Thus, public enforcement, which often proved to be ineffective or bypassed especially in cases of acting in concert, should be complemented by the recognition of civil liability of the bidder for breach of the duty to launch a takeover bid. Furthermore, the legal regime of such liability is outlined, thereby investigating the (contractual or tortious) nature of the bidder’s liability and the operativeness of such a regime (e. g., amount of damages, application of compensatio lucro cum damno rule).

Controlled remuneration. about the remuneration of senior officials and directors in state-owned companies

Controlled remuneration in state-owned companies, or those assisted by the state - giving them grant-in-aids -, is a matter that raises a certain sensibility. Therefore, there’s a need to combine - particularly in the corporate scope - the concept of transparency and good corporate governance. This sensitivity, which is increasingly demanded within private companies, shall be even more pronounced within the public business sector. The worldwide-known concept of Corporate Governance has been developing an essential leading role for years, which is directly linked to the desire of having companies with better functioning. In this sense, and as an example, the most recent expression of this can be found in the Law of Spain, exclusively with regard to the private sector, in the Act 21/2014, of 3rd December, by which the Spanish Capital Company Act is consolidated for the amelioration of corporate governance. Among the introduced amends, the most highlighted ones are notably those affecting the governing body. For instance, the duties of diligence and loyalty are specified and there’s a more detailed regulation of the liability regime of administration members regarding management, organization and functioning of the board of directors, enhancing its supervising role in terms of performance of directors with executive functions and, more specifically, establishing stricter controls on remuneration of senior official positions.

Precision and Manipulation of Non‐financial Information: The Curious Case of Environmental Liability

This paper develops a model showing how the environmental liability regime and the precision of the disclosed environmental performance indicator affect managers’ incentives (1) to reduce actual pollution and (2) to manipulate the reported pollution. I assume a company with a separation of ownership and control which can be held liable for environmental damages and distinguish between a negligence regime and strict liability. The results suggest that if there is no manipulation but only a lack of precision of the disclosed environmental performance indicator, a negligence rule induces lower actual pollution levels than strict liability even though a negligence rule is considered to be more lenient. If managers are able to manipulate the disclosed environmental performance indicator, they will do so and actual pollution levels will generally increase. While manipulation makes it easier for shareholders to escape liability under a negligence regime, shareholders suffer from manipulation under strict liability due to higher actual pollution and higher expected damage compensation payments. Therefore, the manipulation level is higher under a negligence regime. My analysis contributes to the environmental performance and disclosure literature by showing that the liability regime is an important determinant affecting environmental reporting and actual pollution decisions.

By Insurers, For Insurers: The UK’s Liability Regime for Autonomous Vehicles

Abstract The United Kingdom has enacted legislation to govern the liability of highly autonomous vehicles. The chosen method is peculiar, with liability placed on motor (auto) insurers despite the lack of a corresponding liability on road users. This article seeks to explain why the UK government was so invested in maintaining mass market motor insurance policies (instead of a system based on motor manufacturer liability) and suggests that the answer lies in insurers’ desire to harvest customer data. We are the product.

La embargabilidad en el régimen económico de las cooperativas de viviendas de Euskadi

Las cooperativas de viviendas tienen varias particularidades respecto al resto de clases de cooperativas, destacando entre ellas el régimen económico de las cantidades desembolsadas por los socios. Aportaciones que llevan aparejado un reflejo contable determinado, con afección directa sobre el Patrimonio Neto de la sociedad, que resulta además diferente al de otros tipos jurídicos societarios. Cuestiones que, irremediablemente, afectan al régimen de responsabilidad de la propia sociedad y de los socios que la conforman frente a las deudas con terceros acreedores. Así, regulando la Ley vasca el carácter embargable o no de aquéllas partidas que conforman el Patrimonio Neto, se estima interesante el estudio de la embargabilidad de las aportaciones desembolsadas por los socios, formen o no éstas parte del mismo.
 Recibido: 19 mayo 2020Aceptado: 05 agosto 2020

The 100% Reserve Reform: Calamity or Opportunity?

This paper considers the various 100% Reserve plans that have appeared since the interwar period and have since then been adapted. In all formulations of those schemes, Government liabilities (cash, central bank reserves and short-term Treasuries) back banks’ sight deposits. This organization contrasts with current so-called “fractional reserve banking”, in which, as a result of reserve requirements imposed by the central bank (Drumetz et al., 2015), reserves back only a small fraction of sight deposits. The paper briefly presents the six categories of plans. It then highlights their common features as well as their differences, showing that the differences are more numerous than the common features. The criticisms voiced against the different formulations of 100% Reserves are exposed, adding those of the author and distinguishing between the doubts expressed on the validity of the analysis on one hand, and some undesirable consequences of the reform on the other. In spite of these criticisms, it then shown that the 100% Reserve reform is becoming topical, with recent private sector, central banks and political initiatives that relate to it. Overall, the 100% Reserve reform does not appear as a meaningful opportunity to improve the functioning of banking systems. Furthermore, at least one of its variants could easily turn into a calamity. Fortunately, it is not that variant that is getting more topical.

Robert C. Merton and the Science of Finance

Starting with his 1970 doctoral dissertation and continuing to today, Robert C. Merton has revolutionized the theory and practice of finance. In 1997, Merton shared a Nobel Prize in Economics “for a new method to determine the value of derivatives.” His contributions to the science of finance, however, go far beyond that. In this article I describe Merton's main contributions. They include the following: 1. The introduction of continuous-time stochastic models (the Ito calculus) to the theory of household consumption and investment decisions. Merton's technique of dynamic hedging in continuous time provided a bridge between the theoretical complete-markets equilibrium model of Kenneth Arrow and the real world of personal financial planning and management. 2. The derivation of the multifactor Intertemporal Capital Asset Pricing Model (ICAPM). The ICAPM generalizes the single-factor CAPM and explains why that model might fail to properly account for observed market excess returns. It also provides a theory to identify potential forward-looking risk premia for use in factor-based investment strategies. It is therefore both a positive and normative theory. 3. The invention of Contingent Claims Analysis (CCA) as a generalization of option pricing theory. CCA applies the technique of dynamic replication to the valuation and risk management of a wide range of corporate and government liabilities. Merton's CCA model for the valuation and analysis of risky debt is known among scholars and practitioners alike as the Merton Model. 4. The development of financial engineering, which employs CCA to design and produce new financial products. Merton was the first to apply CCA to analyze government guaranty programs such as deposit insurance, and to suggest improvements in the way those programs are managed. He and his students have applied his insights at both the micro and macro policy levels. 5. And finally, the development of a theory of financial intermediation that explains and predicts how financial systems differ across countries and change over time. Merton has applied that theory, called functional and structural finance, to guide the design and regulation of financial systems at the levels of the firm, the industry, and the nation. He has also used it to propose reforms in pensions, sovereign wealth funds, and macrostabilization policy. This article is one of a pair of articles published in this volume about Robert C. Merton's contributions to the science of financial economics. This article was originally published in Volume 11 of the Annual Review of Financial Economics. The other article in this pair is “ Robert C. Merton: The First Financial Engineer ” by Andrew W. Lo.

Liability for damage caused by unsafe innovative food – a legal perspective

The subject of the considerations presented in the article are issues related to the liability for placing unsafe innovative food on the market. They are aimed at answering the question of whether the tort liability regime based on the risk principle meets the requirements of the modern agri-food sector and provides effective protection of consumer’s health and life against threats that may result from product innovations. The adoption of legal solutions providing for producer’s strict liability for an unsafe product must be assessed positively. They facilitate the consumer’s ability to seek redress for damage caused by an unsafe product. Unfortunately, these regulations do not take into account fully the specific nature of food, especially innovative food, limiting the possibility of redressing damage caused by this type of food.