J

ASERS
Biannually
Volume II Issue 1(3) Summer 2011
ISSN 2068-696X

Summer 2011 Volume II, Issue 1(3)

Editor in Chief Co-Editors
Russell Pittman International Technical Assistance Economic Analysis Group Antitrust Division, USA Eric Langlais EconomiX CNRS and Universit Paris Ouest-Nanterre, France

Volume II Issue 1(3) Summer 2011

Madalina Constantinescu Spiru Haret University, Romania

Contents:
Macroeconomic Analysis of Corruption among developing Countries James P. Gander Economics Department, University of Utah, Salt Lake City, USA 4 Accomplishing Human Rights Justice in the Context of Assets Confiscation: an Evaluation of the United Kingdom Drug Laws Enforcement Kato Gogo Kingston School of Law, University of East London, United Kingdom 9 Ex-Post Assessment of Merger Effects: the Case of Pfizer and Pharmacia (2003) Nina Leheyda ZEW Centre for European Economic Research, Germany The Relationship between common Management and Ecotourism Regulation: Tragedy or Triumph of the Commons? A Law and Economics Answer Danilo Sam LUISS Guido Carli University of Rome, Italy 78 Rule of Law, Legal Development and Economic Growth: Perspectives for Pakistan Hasan Lubna Pakistan Institute of Development Economics, Islamabad, Pakistan

Editorial Advisory Board

Huseyin Arasli Eastern Mediterranean University, North Cyprus Jean-Paul Gaertner Ecole de Management de Strasbourg, France Shankar Gargh Editor in Chief of Advanced in Management, India Arvi Kuura Prnu College, University of Tartu, Estonia Piotr Misztal Technical University of Radom, Economic Department, Poland Journal of Peter Sturm Advanced Universit deResearch 1in Law Grenoble Joseph Fourier, France Economics is and designed to provide Rajesh K. Pillania outlet Managementan Developement for theoretical and Institute, India empirical research Rachel Price-Kreitz interface on the Ecole de Managementeconomics between de Strasbourg, France law. and The Journal explores Andy Stefanescu the various University of Craiova, Romania understandings that Laura Ungureanu economic Spiru Haret University, Romania Hans-Jrgen Weibach, University of Applied Sciences - Frankfurt am Main, Germany

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Rethinking of Rights and Procedural Complexity in Transfer of Share: a Review under Company Law in Bangladesh Zahid Rafique Department of Law, Prime University, Bangladesh 60

Patrick Beschorner ZEW Centre for European Economic Research, Germany Kai Hschelrath ZEW Centre for European Economic Research and WHU Otto Beisheim School of Management, Germany 18

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Call for Papers

Journal of Advanced Research in Law and Economics Winter_Issue

2011

Journal of Advanced Research in Law and Economics

Journal of Advanced Research in Law and Economics is designed to provide an outlet for theoretical and empirical research on the interface between economics and law. The Journal explores the various understandings that economic approaches shed on legal institutions. Journal of Advanced Research in Law and Economics publishes theoretical and empirical peer-reviewed research in law and economics-related subjects. Referees are chosen with one criteria in mind: simultaneously, one should be a lawyer and the other an economist. The journal is edited for readability; both lawyers and economists, scholars and specialized practitioners count among its readers. To explore the various understandings that economic approaches shed on legal institutions, the Review applies to legal issues the insights developed in economic disciplines such as microeconomics and game theory, finance, econometrics, and decision theory, as well as in related disciplines such as political economy and public choice, behavioural economics and social psychology. Also, Journal of Advanced Research in Law and Economics publishes research on a broad range of topics including the economic analysis of regulation and the behaviour of regulated firms, the political economy of legislation and legislative processes, law and finance, corporate finance and governance, and industrial organization. Its approach is broad-ranging with respect both to methodology and to subject matter. It embraces interrelationships between economics and procedural or substantive law (including international and European Community law) and also legal institutions, jurisprudence, and legal and politico legal theory. The quarterly journal reaches an international community of scholars in law and economics. Submissions to Journal of Advanced Research in Law and Economics are welcome. The paper must be an original unpublished work written in English (consistent British or American), not under consideration by other journals. Journal of Advanced Research in Law and Economics is currently indexed in RePec, CEEOL, EBSCO, ProQuest and IndexCopernicus. Invited manuscripts will be due till November 15th, 2011, and shall go through the usual, albeit somewhat expedited, refereeing process.

Deadline for submission of proposals: 15th November 2011 Expected Publication Date: 15th December 2011 Web: http://www.asers.eu/journals/jarle.html e-mail: jarle@asers.eu Full authors guidelines are available from: http://www.asers.eu/journals/jarle/instructions-for-authors

Volume II Issue 1(3) Summer 2011

MACROECONOMIC ANALYSIS OF CORRUPTION AMONG DEVELOPING COUNTRIES

James P. GANDER University of Utah, Economics Department, Salt Lake City, USA gander@economics.utah.edu Abstract Based on empirical data, a two-equation game-type corruption reaction function model was developed. A data to model approach was used rather than the usual a priori approach. The general hypothesis tested was the monkey see, monkey do principle. The latest data on corruption among developing countries was obtained from the Enterprise Surveys done by the World Bank Group in 2010. The key variables were the percent of domestic firms expecting to make informal payment to public officials to get things done, and the percent of foreign firms doing like wise. The time span is from 2002-2010. A variety of econometric methods were used. The statistical results were quite good and supported the hypothesis. Both reaction equations were positively sloped. Time had a reducing effect on the frequency of domestic corruption, yet it had an increasing effect on foreign corruption. Variations in the frequency of corruption across regions of countries were generally not significant. Keywords: firm, corruption, Game Model, developing countries JEL Classification: C51, D81, E60, K49, M29 1. Introduction In the true spirit of positive economics, I examine the most recent data on corruption in developing countries, using a few and very simple assumptions (not always made explicit). My intention is to use what data are available and to see essentially what the data is telling us about corruption. I do not ignore altogether the need and usefulness of an a priori modeling approach as a basis for forming the hypotheses of the positive (posterior) empirical approach. But, the modeling exercise is strictly idealistic in the sense that it serves more to orient the empirical work rather than to capture exactly any real world corruption behavior. The literature on the economics of corruption is extensive. I only give a brief survey here, which admittedly does not do justice to it. Nevertheless, my main concerns are with what data is available and what does it tell us about corruption. I very much let the facts (so called) speak for themselves or more precisely let the selected facts speak for themselves, where the selection is not based on a priori reasoning but is based on posterior reasoning (from the data to the model, rather than the reverse). The literature very much goes from the model to the data. To summarize briefly, the classical economic approach to the microeconomics of corruption (or bribery) as simplified by Menezes (2000, and the literature cited therein) and before him by Becker (1968), Becker and Stigler (1968), and Rose-Ackerman (1975, 1978), takes a buyer (government official)-seller (firm) approach involving specific types of information (like prices, quantities, quality, bribes, probability, profit gains, and penalties if caught). Closer to the a priori approach is the study by Ades and Di Tella (1999) which first focuses on the individual firm and the role of its market structure (competition) in affecting the amount of corruption engaged in and then turns to the macro data. Another interesting study from the supply side of corruption is Rose-Ackerman (1978 and 1999)s studies, which examine competition among government officials. A very recent macro study by Mon and Weill (2010) examines the effect of corruption on country productivity based on the quality of government institutions. Although not a regression study as is the present paper, Hellman, et al. (2000) questioned some 3,000 firms in 20 developing countries to obtain responses for several descriptive-type profiles of corruption across countries. Their corruption-type questions are similar to those used for the data of the present paper. In what follows, a simple game theory-type model based on positive posterior reasoning is developed in the next section. Then, the econometric models are presented and the data are explained in the following section. The empirical (statistical) results are then presented in the next section. The final section contains a summary and conclusions.

Journal of Advanced Research in Law and Economics

SUR(1) FOR on DOM 1.02 (23.86) YR 1.02 (1.98) DVA -5.51 (-1.98) DVL -2.34 (0.63)* DVO -0.25 (-0.08)* CON -2052 (-1.98) Rsq .63 -3.46 (-4.58) 2.62 (0.61)* -14.89 (-2.60) 6.00 (1.28)* 6981 (4.60) .17 SUR(2) OLS RE(1) RE(2) XTPCSE

Notes: All results have robust standard errors. Log forms of the models produced similar results and are not reported. GLS for the SURs runs produced singular error matrices. A 2-step approach was used. Sample size is 155 for all runs. RE(1) has 4 regional panels. RE(2) has 102 country panels. GLS regression was used. FE results were less satisfying and not reported. All coefficients for main variables are significant at p <.05 and in most cases p =.000. The * indicates a p > .05. The (.) has the t values or the z values. All Rsqs are significant. The XTPSCE run is cross section/time series analysis with panel corrected standard errors for heteroscedasticity using linear regression. Blank dummy variables were purposely dropped due to insignificance.

In general, the results in Table 1 are virtually the same and significant as far as goodness of fit goes. There are positive and significant signs for the DOM and FOR coefficients regardless of the model run (see the notes in Table 1 for model details). Similarly, the sign for the year coefficients is always negative and significant regardless of the run (with one positive exception). The dummy variables coefficients were usually not significant except for DVA (Africa region) in a few runs. All standard errors were adjusted for heteroscedasticity. For the first SUR(1) model, the Breusch-Pagan independence test was rejected. For the second SUR(2) model (where DOM is dropped from the FOR equation), the test was accepted as expected. Referring to the first full SUR(1) model, the domestic reaction equation is positively sloped (1/b1 = 1.09) and steeper than the foreign reaction equation (B1 = 1.02), as expected for stability (although a Chi-sq test of the equality of the coefficients was not rejected, p = .176). The domestic equation shifts inward overtime whereas the foreign equation shifts up over time (see, Figure 1). So, over time, the percent of domestic firms practicing corruption is falling for a given foreign value, while it is rising for foreign firms, for a given domestic value. Both equations follow the monkey see, monkey do principle, but over time domestic firms relative to foreign firms are becoming less corrupt. This result is born out by the single-equation runs (OLS, RE(1), RE(2), and XTPCSE) where DOM increases as FOR increases but decreases over time. Since the negative time coefficient is considerably larger (and significant with a Chi-sq = 21.05 and p = .000) than the positive monkey see, monkey do coefficient for the SUR(1) run, the dynamic picture is one of a contracting domestic corruption regime. In other words, there are forces not in the models operating over time which have a negative effect on domestic corruption. The data set used in this paper does not identify these forces, but we can surmise that they exist (for example, laws and regulations against bribery, a better court system, and improvement in the way government administration operates to facilitate domestic businesslicenses, permits, contracts, delays, and the like). 5. Summary and Conclusions Based on empirical data, a two-equation game-type corruption reaction function model was developed. A data to model approach was used rather than the usual a priori approach. The general hypothesis tested was
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Volume II Issue 1(3) Summer 2011 the monkey see, monkey do principle. The latest data on corruption among developing countries was obtained from the Enterprise Surveys done by the World Bank Group in 2010. The key variables were the percent of domestic firms expecting to make informal payment to public officials to get things done, and the percent of foreign firms doing like wise. The time span is from 2002-2010. A variety of econometric methods were used. In general, the statistical results were quite good and supported the hypothesis. Both reaction equations were positively sloped. Time had a reducing effect on the frequency of domestic corruption, yet it had an increasing effect on foreign corruption. Variations in the frequency of corruption across regions of countries were generally not significant. The interesting policy implication of the results is that over time developing countries are bring under control the practice of corruption to get things done, at least among domestic firms. On the other hand, foreign firms have been increasing their frequency of corruption over time. It is possible that foreign firms surmise that they are at a competitive disadvantage with respect to domestic firms when dealing with public officials (understandably so, considering the problems of doing business in a foreign country), so bribery is an effective and profitable (presumably) way to get things done. As domestic markets and relevant institutions develop and become more transparent, many of the business services formerly realized by practicing corruption will now be supplied at a price by other firms (for example, brokers and lobbyists). The cost to get things done will become more institutionalized and transparent, so, for example, the firms cost of obtaining a speedy utility connection (electric, water, and telephone) will be internalized into the price of the connection and subject to competitive market forces. Such market developments over time should also benefit foreign owned firms and reduce the practice of corruption among them. Only time will tell. References [1] Ades, A., and Di Tella, R. 1995. Rents, Competition, and Corruption, American Economic Review, September, 89(4): 982-993. [2] Becker, G. S. 1968. Crime and Punishment: An Economic Approach, Journal of Political Economy, March/April, 76(2): 169-217. [3] Becker, G., and Stigler, G. 1974. Law Enforcement, Malfeasance and the Compensation of Enforcers, Journal of Legal Studies, January, 3(1): 1-19. [4] Hellman, J. S., Jones, G., Kaufmann D., and Schankerman, M. 2000. Measuring Governance, Corruption, and State Capture, Policy Research Working Paper, 2312, The World Bank, World Bank Institute, Government, Regulation and Finance and European Bank for Reconstruction and Development, Chief Economists Office, April, i-v, and 1-53. [5] Mon, P.-G., and Weill, L. 2010. Is Corruption an Efficient Grease?. World Development. March, 38(3): 244259. [6] Menezes, F. 2000. The Microeconomics of Corruption: The Classical Approach, Economics Working Papers, No. 405, Graduate School of Economics, Getulio Vargas Foundation (Brazil), November: 1-13. [7] Rose-Ackerman, S. 1975. The Economics of Corruption, Journal of Public Economics, February, 4(2): 187203. [8] Rose-Ackerman, S. 1978. Corruption: A Study of Political Economy. New York, Academic Press. [9] Rose-Ackerman, S. 1999. Corruption and Government: Causes, Consequences, and Reform. Cambridge, UK, Cambridge University Press. [10] World Bank. Enterprise Surveys, The World Bank Group. Washington DC, USA, 2010. Also, www.enterprisesurveys.org/Portal/unprotected/RegisterExternal.aspx?LibId- 14 (accessed December 27, 2010).

Journal of Advanced Research in Law and Economics

ACCOMPLISHING HUMAN RIGHTS JUSTICE IN THE CONTEXT OF ASSETS CONFISCATION: AN EVALUATION OF THE UNITED KINGDOM DRUG LAWS ENFORCEMENT
Kato Gogo KINGSTON University of East London, School of Law, United Kingdom gkingstonlaw@yahoo.com Abstract It is estimated that crude oil, tourism and illicit drug trade are among the top five most financially inducing business in the world. Drug cartels conducts sophisticated and well organised activities including money laundering and monitoring of large networks of their couriers. In past the decade, the United Kingdom has incurred large expenditure on the treatment of drug related illnesses and, on the enforcement of drug control laws. Several drug laws are enacted to dealing with the waves of illicit drugs in the country. There is controversy over the ways by which the properties of the drug traffickers and suspected drug dealer, are seized by the State; in order to seize anyones private property prior to commencement of legal proceedings to effect permanent forfeiture, the law enforcement agencies are only required to show probable cause that the property being seized is acquired with the profit of drug crime alternatively, that the property facilitates drug criminal activities. Using data from academic materials and United Kingdom case laws, the paper argues that the United Kingdom drug trafficking laws particularly the enforcement of civil asset recovery under the Proceeds of Crime Act 2002 and, the Criminal confiscation under the Drug trafficking Act 1994 violates the International Human Rights Laws. Keywords: drugs, Human Rights, UK laws, criminal property JEL Classification: K10, K14, K29 1. Introduction Drug trafficking is currently one of the worlds fastest growing industry with multi-billion dollars value and, touching every country. According to the International Monetary Fund (IMF) estimation, between 2 and 5 percent of the worlds Gross Domestic Product are from money laundering (Annan 1998). In recent years, there has been a growing concern over the manner in which properties of drug traffickers are confiscated or forfeited pursuant to the provisions of the Customs and Excise Management Act 1979, the Police and Criminal Evidence Act 1984 (Codes of Practice; Modified Code C and Code D) Order 2002, and Drug Trafficking Act 1994. The only requirement for the law enforcement agencies to be able to confiscate a persons property and initiate court actions for permanent forfeiture is, if they can show probable cause which is the least standard of civil proof, that the property was used to facilitate drug related offences or that the property is a benefit of drug related offences. In civil proceedings, probable cause can be established by mere hearsay evidence. The acceptance of probable cause as yardstick to measuring guilt violates the persons right to fair hearing enshrined in various human rights laws, treaties and conventions such as Article 6 of the European Convention on Human Rights. It defeats the objects of the requirements for the presumption of innocence which is the cornerstone of legal proceedings in both criminal and civil charges. In the United Kingdom, in some cases, the accused persons are denied the right to question their accusers as to circumvent the burden of proof that their properties are not benefits of crime and are not aid to the crime of drug trafficking. In the circumstances where individual properties can be confiscated based on flimsy evidence such as the words of informants, who themselves are in some instances, accused criminals, ex-convicts and profitseekers that benefits from their testimonies, by infringing the due process of law and assisting in the violation of the human rights of the of the accused. In the making of drug policy and in the enactment of drug trafficking legislation worldwide, the policy/law makers are typically faced with two issues namely - supply reduction and demand reduction. The former involves making laws and policies tailored towards the reduction of narcotic supply and, the later is about the treatment of the treatment of drug related illnesses. The main objective of this paper is to critically evaluate the supply reduction efforts of the United Kingdom government.

Journal of Advanced Research in Law and Economics

The compelling of suspects to give evidence is a dent on the long standing legal principle of the rights to silence for example, in Brown v HM Advocate [1966] SLT 105 it was held that the express right contained in a human rights instrument is largely non-negotiable and in Teixera de Castro v Portugal 28 EHRR 101, paragraph 36; the European Court of Human Rights held that no policy no matter how commendable is fit to pass the test of legal scrutiny if its ultimate effect is to dilute fair trial rights and, in Matthews v UK [1999] ECHR 24833/94 the European Court of human Rights court ruled that, international treaties that are passed in the aftermath of the ECHR cannot be interpreted so as to limit convention rights (Kingston 2006). The convention rights it seems can only be infringed where the test for proportionality is passed. In de Freitas v Ministry of Agriculture [1998] 3 WLR 675, 684 the court outlined threefold test for proportionality inter alia: (i) Whether the legislative objective is sufficiently important to justify limiting a fundamental right; (ii) Whether the measures designed to meet the legislative objectives are rationally connected to it; and (iii) Whether the means used to impair the right or freedom are no more than is necessary to accomplish the objective (Kingston, 2006). In view of the tests in de Freitas, I argue that the UK asset confiscation system is irrational and devoid of proportional reasoning (Kingston, 2006) for example in R v Michael Tivnan [1998] EWCA Crim 1370 the Court of Appeal said that, the Drug Trafficking Act 1994 is draconian because (i) there is no time limit for the prosecution to apply for variation of confiscation orders and, (ii) drug trafficking forfeiture orders are not restricted by any requirement that the defendant's realisable assets must be proved to be directly derived from drug dealing or over the period of drug dealing but only by the amount of the total value of the benefits the defendant has derived from drug dealing and the realisable value of his assets at the time of the order or any further order (Kingston 2006). The UK drug trafficking laws including the new assets recovery regime enable the State to manipulate the trial processes in contravention of the laid down standards of various international human rights instruments, for example, the new principle of reasonable grounds of belief; and the mere suspicion which is inferred as probable cause gives the law enforcement agencies enough powers to seize an individuals personal assets with the support of the judiciary; as in R v Montila and others [2003] EWCA Crim 3082 where the court ruled that, on the true construction of s 49(2) of the 1994 Act it was not necessary, in order to prove an offence under the subsection, that the property concealed or disguised, converted, transferred or removed from the jurisdiction was the proceeds of drug trafficking or crime. The target of the subsection was as much the state of mind of the defendant as his conduct (Kingston, 2006). The United Kingdom legal system is fast becoming totalitarian as the will of the State is superseding the well establish human rights. For instance, Liberty (2001) submitted that the current system of criminal confiscation system not only destroys the essence of the presumption of innocence and also that, with regards to civil confiscation, it is improper for the laws to authorise the state a power to opt for extensive confiscation of defendants assets in circumstances where it does not have sufficient evidence to prosecute them in the criminal courts and that assuming that there is sufficient evidence to prosecute them, it would be wrong to allow the state to opt for an easier path of pursuing someone in the civil courts. The very contentious assets recovery regime is traceable to the ancient system of feudal forfeiture in rem- a legal procedure which focused on the criminal nature of property rather than the criminal conduct of the owner of the property for example in a very ancient case of United States v. La Vengeance 3 Dallas 297 (1796) the United States Supreme Court ruled that the seizure of the French ship carrying illegal arms was case of admiralty law which the cause was civil and that the matter was rested in rem and excluding the person of the defendant. 4. Conclusion The implications of the drift towards retribution and deterrence in the sentencing policy for drug traffickers are all too apparent. The increased numbers imprisoned will contribute to an already grossly overcrowded and deteriorating prison situation and drug related crime will increase (Henham 1994). This study has assessed aspects of drug policy enforcement within the context of United Kingdom legal framework, International Human Rights and international drug conventions. Although the study demonstrates that the United Kingdom is heavy handed in the control of drug trafficking, nevertheless the UK has been able to formulate and implement domestic drug control policy in a way that furthers harm minimization in relation to the availability of illicit drugs. The United Kingdom has also retained rooms to manoeuvre within the UN conventions (Dorn 2004).
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Volume II Issue 1(3) Summer 2011 This study has drawn attention to the intersection between domestic drug policies and international drug policies, particularly in relation to implementation policies. Whilst there is no apparent mismatch between the United Kingdom domestic drug policy and international policy goals, the latter face strong challenges. On one hand, there is at least some potential for reasonable progress to be made at home. On the other hand there is the possibility of being completely overwhelmed by abject failures internationally. At the heart of this conundrum is the still evolving relationship between supply reduction and drug policies (Dorn 2004). Supply reduction will tend to be short-lived unless effective action is also taken to address the demandside (for example, through drug treatment or effective prevention programmes). This is a matter of basic economic laws. If levels of demand are constant, a reduction in the supply of a drug will drive up the street price and make it more profitable for drug traffickers. If people with serious dependency problems are not being treated, they are unlikely to give up using illicit drugs. A similar point applies to the United Kingdom international initiatives towards reducing the production of drugs in Afghanistan, so long as demand for opiates subsist, successful initiatives to cut opium cultivation in one area will always lead to an increase in production elsewhere. References [1] Annan, K. 1998. Excerpt of statement at the UN Secretary General at the opening of the Twentieth Session of the General Assembly, Devoted towards countering drug Problem, 8-10 June [2] Burgess, R. 2003. Disrupting crack markets: A practice Guide; Drug Strategy Directorate (DSD), Home Office, London. [3] Dorn, N. (ed). 1999. Regulating European Drug Problems: Administrative Measures and Civil Law in the Control of Drug Trafficking, Nuisance and Use, Netherlands: Kluwer Law International. [4] Dorn, N. 2004. UK Policing Of Drug Traffickers And Users: Policy Implementation In The Contexts Of National Law, European Traditions, International Drug Coventions, And Security After 2001; Journal of Drug Issues, Summer. [5] Guardian Newspaper. 2005. Revealed: How Drugs War Failed, July 5. [6] Green, P. (ed). 1996. Drug Couriers A New Perspective, The Howard League Handbooks. Quartet Books. [7] Green, P., Mills, C., and Read, T. 1994. The Characteristics and sentencing of illegal drug importers; Britt. J. Criminal. 34 (4): 479-486. [8] Hammond, N.1994. The Value of Pre-sentence Reports on Foreign Nationals, Middlesex Probation Service: Cropwood Fellowship, University of Cambridge. [9] Hammond, N. 1995. PSRs on Foreign Drugs Traffickers: Present and Future, Probation Journal: 17-23, March. [10] Hammond, N. 1996. Turning the Clock Back: The implication for Pre-Sentence Reports of the criminal Justice and Public Order Act 1994, in Green P (ed). Drug Couriers: A New Perspective, The Howard League Handbooks. Quartet Books. [11] Henham, R. 1994. Criminal Justice and Sentencing Policy for Drug Offenders; 22, International Journal of the Sociology of Law 223: 225. [12] Home Office. 1989. Drug Trafficking and Serious Crime, Volume 1, House of Commons, Home Affairs Committee, Seventh Report, 8 November. [13] Home Office. 2004. The Drug Treatment and Testing Order: Early lessons, A Report by the Comptroller and Auditor General, HC 366 Session 2003-2004: 26 March. [14] Kingston, K. 2006. (Unpub) An Analytical Assessment of the United Kingdom Drug Trafficking Laws, A dissertation submitted in partial fulfilment of the requirements of the Master of Laws (LLM) degree at the School of Law, University of East London, England, September. [15] Lea, J. 2004. Hitting Criminals Where It Hurts: Organised crime and the erosion of due process, Cambrian Law Review (30): 81-96. [16] Liberty. 2001. (National Council for Civil Liberties), Proceeds of Crime: Consultation on Draft Legislation; May.
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Journal of Advanced Research in Law and Economics [17] Roe, S. 2005. Drug Misuse Declared: Findings from the 2004/05 British Crime Survey England and Wales, Home Office Statistical Bulletin, October. [18] Runciman, Viscountess .1999. Drugs and The Law, Report of the Independent Inquiry Into The Misuse of Drugs Act 1971, the Police Foundation document, Home Office, London. [19] Tarzi A, and Hedges J. 1990. A study of Foreign Nationals: A prison within a prison, Inner London Probation Service. [20] Tiggey, M., Harocopos, A., Turnbull, P. J., and Hough, M. 2000. Serving Up: The impacts of low-level Police Enforcement on Drugs Market, Police Research Series Paper 133, November. Online at http://rds.homeoffice.gov.uk/rds/prgpdfs/prs133.pdf [accessed 1/7/06 and 9/11/2010]. [21] Willoughby, D. 1988. Cocaine, Opium, Marijuana: Global Problems, Global Response, New York: USIS, (1): 1-17. Cases

Allenet de Ribemont v France A 308 (1995) 20 EHRR 557. Brown v HM Advocate [1966] SLT 105. de Freitas v Ministry of Agriculture [1998] 3 WLR 675. Matthews v UK [1999] ECHR 24833/94. R v Aramah [1982] 4 Cr. App R (S) 407. R v Belinski (1987) 9 Cr App R (S) 360. R v Dickens (1990) 12 Cr App R (S) 191. R v Winters [2008] WLR (D) 387. R v Oakes [1986] 1 SCR 103. R v Briggs-Price [2009] UKHL 19. R v Aroyewuni [1994] Crim. LR 695. R v Gallagher (1990) 12 Cr App R (S) 224. R v Jones (1981) 3 Cr App R (S) 51. R v Lambert and others [2001] 2 WLR 211. R v Michael Tivnan [1998] EWCA Crim 1370. R v Montila and others [2003] EWCA Crim 3082. Teixera de Castro v Portugal 28 EHRR 101. United States v. La Vengeance 3 Dallas 297 (1796). Van Mechelen v Netherlands 25 EHRR 647. Woolmington v DPP [1935] AC 462, 48.

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Volume II Issue 1(3) Summer 2011

EX-POST ASSESSMENT OF MERGER EFFECTS: THE CASE OF PFIZER AND PHARMACIA (2003)
Nina LEHEYDA ZEW Centre for European Economic Research, Germany leheyda@zew.de Patrick BESCHORNER ZEW Centre for European Economic Research, Germany Kai HSCHELRATH ZEW Centre for European Economic Research and WHU Otto Beisheim School of Management, Germany hueschelrath@zew.de Abstract The paper studies the effects of the Pfizer and Pharmacia (2003) merger on competition in the Swiss pharmaceutical market and compares the assessment of the Swiss Competition Commission (COMCO) with the post-merger market developments. We find that the merger has had a miniscule impact on the Swiss pharmaceutical market. This has primarily to do with the fact that the product portfolios of both companies have shown no or only slight overlaps. In both cases of potential anticompetitive effects, the companies successfully proposed to divest some of their assets in order to prevent a further strengthening of their dominant position. The remedies included products in the development phase which were not available on the market at the time of the decision. Keywords: mergers, ex-post evaluation, pharmaceutical markets JEL Classification: K21, L42, L62 1. Introduction An assessment of the competitive effects of a merger is an integral part of an overall ex-post evaluation of competition policy. Reflecting upon this key role, the number of internal and external studies conducted by competition authorities and outside experts, respectively that focus on an evaluation of merger enforcement has increased significantly during the last couple of years.1 Generally, an ex-post assessment of merger decisions aims to evaluate whether the predictions of the competition authorities at the time of the merger decisions coincide with the actual effects of the mergers. In particular, it allows one to investigate the question whether the economic arguments applied by the antitrust authorities to evaluate the competitive effects of mergers have performed well in predicting the price and market share effects of the mergers. Furthermore, an ex-post assessment may shed light on the question whether the merger decision was the best possible in the sense that no alternative decision of the competition authority would have led to a better performance in terms of total or consumer welfare, respectively. The pharmaceutical industry has recently experienced numerous mergers and acquisitions. Control of pharmaceutical mergers involves, on the one hand, the standard analysis focusing on actual and potential price competition as well as market share effects of the merger. On the other hand, however, price competition in pharmaceutical markets may be rather restricted as drugs prices in most countries are subject to regulation. Competition may possibly take place along other dimensions such as innovation or advertising which are often much more difficult to assess in practice. Furthermore, market shares may also bear little information in such
The authors would like to thank Joseph Clougherty, Sven Michal, Samuel Rutz, Frank Stssi, Spyros Arvanitis, Martin Wrter, David Beil for helpful comments on drafts of the study and Dace Lauberte for excellent research assistance. This paper is based on a larger project on the evaluation of the economic effects of the Swiss Cartel Act commissioned by the Swiss State Secretariat for Economic Affairs SECO (see Hschelrath et al., 2008). The complete project report Studien zu den Auswirkungen des Kartellgesetzes can be downloaded from the ZEW website (www.zew.de) or the website of the Swiss Competition Commission (www.weko.admin.ch). Please note that the report is available in German language only. 1 See especially Pautler (2003) and LEAR (2006) for academic literature overviews and, for example, Competition Commission (2003), PricewaterhouseCoopers (2005), CRA International (2007), Competition Commission (2008a) and Deloitte (2009) for studies with a focus on practice. A general overview of ex-post evaluations of merger enforcement and merger remedies performed by competition authorities can be found in OECD (2005). 18

Journal of Advanced Research in Law and Economics whether such a partner has been found or what major obstacles have been encountered during the search process. Furthermore, there has been no publicly available information on the further development of this product since 2004. However, generally, the market for products for the treatment of ED has two strong new competitors Eli Lilly and Bayer Schering and as a result, Pfizer has considerably lost market share in the last couple of years. In this respect, one might raise doubts whether the divestiture of Apomorphine was really necessary to solve the competition concerns. Since both remedies were proposed by the merging parties, an investigation as to whether the same effect could have been achieved with weaker interventions is not necessary. Only Pfizers efforts to introduce a competitive product for the sold product Darifenacin to the market could be seen critically. A temporary noncompetition clause which would have given the buyer of the rights for Darifenacin a sufficiently long period of time to bring a competitive product into the market would have been worth consideration. In retrospect, it was revealed that with Novartis, a competent buyer for Darifenacin was found. Thus, Pfizers efforts concerning Fesoterodine could be viewed as harmless. In the event that Darifenacin would not have developed into a competitive product that quickly, a deployment of the COMCO decision could have pronounced a temporary noncompete clause. This assessment holds under the provision that an equivalent regulation is not contained in the EU decision within the scope of the censored fall-back remedy. The general extent to which the COMCO may or can adopt the decision of the European Commission systematically should be considered from a legal point of view. In the present case, the chosen approach was reasonable. However, risks might still be contained in case this practice is thoughtlessly applied to future merger cases. The EU merger decision could be more detailed than the Swiss merger decision and pronounced undertakings could be withdrawn or weakened after the deployment of the COMCO has already been pronounced. In order to forestall such a case it is necessary to determine the minimum requirements for undertakings related to the Swiss market. In doing so, it could be ensured that the effective EU remedies meet the requirements in the Swiss market. It can be anticipated that globally active firms such as Pfizer rather meet the stricter commitments by the European Commission in order to be allowed to stay active in the European market than renounce the European market to meet possibly less strict Swiss commitments and focus solely on the Swiss market. Conversely, a stricter commitment in Switzerland involves the danger that a firm completely retreats from the Swiss market since it would potentially invoke a loss to a lesser degree than to renounce the European market a possibility which must also be taken into consideration. In the present case, the pronounced commitments are based on suggestions by the applicants. Thus, it can be assumed that the merging parties are unlikely to take any actions to abuse those commitments. The COMCO was also not exposed to the danger that its remedies were stricter than in the decision of the European Commission. However, what generally needs to be taken into account is that the merging parties typically have substantial information advantages with respect to the likely effect and consequences of merger remedies. 6. Conclusion The ex-post assessment of merger effects is a hot topic in antitrust law and economics. On the one hand, such analyses allow the identification of structural problems in the assessments of competition authorities and therefore contribute to the continuous improvement of practical antitrust policy. On the other hand, ex-post assessments of merger effects allow the estimation of the welfare contributions of antitrust policy through comparisons of the actual development after decisions and the counterfactual scenarios of no investigations and decisions. Against this background, the paper studies the effects of one particular merger, namely the merger of Pfizer and Pharmacia (2003) on competition in the Swiss pharmaceutical market and compares the assessment of the Swiss Competition Commission (COMCO) with the post-merger market developments. We basically find that the merger did not have a huge influence on the overall competitive landscape of the Swiss pharmaceutical market. This key finding is driven by the fact that the product portfolios of both companies show only two cases of critical overlaps and subsequent potential anticompetitive effects. In both cases, remedies were implemented which prevented the companies from strengthening their dominant market position. In particular, the imposed divestiture in the ED drugs market prevented that patent rights alone could have hindered market entry of new products. The patent issue was not subject to any assessment of competitive effects and as a consequence, the competition authority would not have been able to intervene for a possible case of market foreclosure. In case of the market for drugs for the treatment of urinary incontinence, a strengthening of the dominant market position of Pharmacia with its product Detrusitol could have been avoided
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Volume II Issue 1(3) Summer 2011 by the divestiture. With Novartis, a competent buyer was located which has already introduced the product to the market. In the other markets which showed significant overlaps in the business fields of both firms or in which one of the firms had a dominant market position, no effects of the merger can be expected either due to the existing price regulation in the Swiss pharmaceutical market or due to changes in Pfizers product portfolio. Furthermore, it is important to note that some potential effects of the merger on market parameters such as innovation behaviour, R&D efforts or employment can be at best analyzed on the global company level. A conclusion on the effect of the merger on these parameters cannot be isolated with the data at hand. In sum, it can be said that the COMCO was correct in its assessment of the overall impact of the merger on competition in the Swiss pharmaceutical market. Generally, the case study raises the question how mergers should be assessed from the competition authorities point of view when the merging firms are headquartered abroad and these firms have a strong global presence. Many effects take place on the global level such as the development of innovation and marketing strategies. Therefore, the undertakings must often be viewed as active on an international or world-wide market. Within this context, the question of an appropriate organization of international cooperation between competition authorities arises. Specifically, overlapping areas in merger control investigations should be detected to avoid the duplication of efforts and to make efficient use of the existing resources and expertise of the competition authorities - and also to minimize the administrative burden imposed on the merging parties. Although this paper has focused on an ex-post evaluation of a single merger decision, it nicely illustrates the fundamental problems of ex-post studies. In order to fully evaluate the work of the competition authority in a particular case, detailed data (and complementary information) is necessary to allow the use of more sophisticated econometric techniques. However, such information is typically difficult to acquire, largely due to data confidentiality issues. Furthermore, it should be reminded that this paper focused on an assessment of a single merger and therefore does not allow any conclusion on a more general level. An evaluation of the overall merger enforcement policy in Switzerland or another country is forced to use a much larger sample of mergers in order to allow the derivation of broader conclusions about the state of merger control and possible reform needs. References [1] Ashenfelter, Orley C., and Hosken, D. 2008. The effect of mergers on consumer prices: evidence from five selected case studies, NBER Working Paper No. 13859. [2] [3] Ashenfelter, Orley C., Hosken, D., and Weinberg, M. 2009. Generating evidence to guide merger enforcement, NBER Working Paper No. 14798. Bundesamt fr Statistik BFS. 2007. Beschftigte im Gesundheitswesen: Fakten und Trends auf der Basis der Betriebszahlungen von 1995 bis 2005, Analysen des Bundesamtes fr Statistik http://www.bfs.admin.ch/bfs/portal/de/index/themen/14/03/04/dos.html Cockburn, Ian and Henderson, R. 1996. Scale, scope and spillovers: the determinants of research productivity in the drug industry, RAND Journal of Economics, 27 (1): 32-59. Competition Commission. 2003. Comments by academic economists: covering note. Competition Commission. 2008a. Evaluation of the Competition Commissions past cases, Report of the Competition Commission. Competition Commission. 2008b. Understanding past merger remedies: report on case study research, Report of the Competition Commission. CRA. 2004. Innovation in the pharmaceutical sector, Study undertaken for the European Commission No ENTR/03/28 by Charles River Associates. CRA International. 2007. Ex post merger review: an evaluation of three Competition Bureau Merger Assessments, Final Report prepared for Canadian Competition Bureau. Danzon, P. M., Epstein, A., and Nicholson, S. 2004. Mergers and acquisitions in the pharmaceutical and biotech industries, Mimeo, Wharton School, University of Pennsylvania. Davies, S., and Lyons, B. 2007. Mergers and merger remedies in the EU: assessing the consequences for competition, Edward Elgar, Cheltenham.
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Journal of Advanced Research in Law and Economics [12] Deloitte. 2009. Review of merger decisions under the Enterprise Act 2002, A report prepared for the Competition Commission, Office of Fair Trading and the Department for Business, Enterprise and Regulatory Reform. DTI. 2006. The R&D Scoreboard 2006: the top 800 UK and 1250 global companies by R&D investment, Commentary and Analysis. Duso, T., Gugler, K., and Yurtoglu, B. 2007a. EU merger remedies: an empirical assessment, in Stennek, Johan and Vivek Ghosal (Eds.), The Political Economy of Antitrust, Contributions to Economic Analysis, North-Holland, pp.302-348. Duso, T., Neven, D. J., and Rller, L.-H. 2007b. The political economy of European merger control: evidence using stock market data, Journal of Law and Economics, 50 (3): 455-489. Duso, T., Gugler, K., and Yurtoglu, B. 2010. Is the event study methodology useful for merger analysis? A comparison of stock market and accounting data, International Review of Law and Economics, 30: 186192. European Commission. 2003. Case No. COMP/M.2922 Pfizer/Pharmacia, Decision from 27/02/2003. European Commission. 2005. Merger remedies study, DG Competition, October 2005. European Commission. 2008. Pharmaceuticals: competition/sectors/pharmaceuticals/overview_en.html Overview, http://ec.europa.eu/comm/

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Volume II Issue 1(3) Summer 2011 [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] Nastech. 2003a. Nastech to reacquire all intranasal Apomorphine product licenses and intellectual property and receive USD13.5 from Pharmacia, Nastech press release as of January 27. Nastech. 2003b. Nastech initiates Phase II intranasal Apomorphine trial for male erectile dysfunction, Nastech press release as of June 4. Nastech. 2003c. Nastech receives notice of allowance for apomorphine patent, Nastech press release as of July 24. Nastech. 2004. Nastech reports positive PYY obesity and Apomorphine sexual dysfunction clinical trial data, Nastech press release as of March 10. Nelson, P. and Sun, Su. 2001. Consumer savings from merger enforcement: a review of the antitrust agencies estimates, Antitrust Law Journal, 69 (3): 921-954. Nevo, A. 2000. Mergers with differentiated products: the case of the ready-to-eat cereal industry, RAND Journal of Economics, 31(3): 395-421. New York Times. 2002. Pfizer said to buy drug rival in USD60 billion deal, July 15. Novartis. 2003. Novartis bernimmt das neue Inkontinenzmittel Enablex@ (Darifenacin) von Pfizer fr eine schnell wachsende Patientengruppe, Press release as of March 18. Novartis. 2004. Novartis announces commercialization collaboration in Germany for Emselex@ for the treatment of overactive bladder, Press release as of December 17. OECD. 2001. Competition and regulation issues in the pharmaceutical industry, Policy Roundtables of Directorate for Financial, Fiscal and Enterprise Affairs Committee on Competition Law and Policy, DAFFE/CLP (2000)29. OECD. 2003a. Merger review in emerging high innovation markets, Policy Roundtables of Directorate for Financial, Fiscal and Enterprise Affairs Competition Committee, DAFFE/COMP(2002)20. OECD. 2003b. Merger remedies, Policy Roundtables of Directorate for Financial and Enterprise Affairs Competition Committee, DAF/COMP(2004)21. OECD. 2005. Evaluation of the actions and resources of the competition authorities, Policy Roundtables of Directorate for Financial and Enterprise Affairs Competition Committee, DAF/COMP (2005)30. Office of Fair Trading OFT. 2002. The development of targets for consumer savings arising from competition policy, Economic Discussion Paper No. 4, Report prepared for the Office of Fair Trading by Stephen Davies and Adrian Majumbar. Office of Fair Trading OFT. 2007. Consumer savings from merger control: merger simulation for impact estimation, Report of the Office of Fair Trading. Ornaghi, C. 2009. Mergers and innovation in Big Pharma, International Journal of Industrial Organization, 27, pp. 70-79. Pautler, P. A. 2003. Evidence on mergers and acquisitions, Antitrust Bulletin, Spring 2003. Pfizer. 2003. Financial Report, Available at www.pfizer.com Pfizer. 2004. Financial Report, Available at www.pfizer.com Pfizer. 2006. Pfizer einigt sich ber den Verkauf seines Consumer Healthcare-Geschfts fr 16.6 Mrd. US-Dollar an Johnson & Johnson, Pfizer press release as of 27.06.2006. PricewaterhouseCoopers. 2005. Ex post evaluation of mergers, A report prepared for the Office of Fair Trading, Department of Trade and Industry and the Competition Commission by PricewaterhouseCoopers LLP. Stern, S. 1996. Market definition and the returns to innovation: substitution patterns in pharmaceutical markets, POPI Working Papers No.36-96, MIT Sloan School of Management, Cambridge, Massachusetts.

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Journal of Advanced Research in Law and Economics [56] [57] Sullivan, T.E. 2003. Antitrust remedies in the U.S. and EU: advancing a standard of proportionality, Antitrust Bulletin, 48, Summer 2003, pp. 377-422. Tenn, S., and Yun, J. M. 2009. The success of divestitures in merger enforcement: evidence from the J&J-Pfizer transaction, Working Paper No 296, Bureau of Economics, Federal Trade Commission, Washington, DC. Weinberg, M. 2007. The price effects of horizontal mergers, Journal of Competition Law and Economics, 4(2): 433-447. WEKO. 1996. Verordnung ber die Kontrolle von Unternehmenszusammenschlssen (VKU) vom 17. Juni. WEKO. 2003. Pfizer Inc./Pharmacia Corp, in Recht und Politik des Wettbewerbs (RPW/DPC 2003/2). Werden, G. J., and Froeb, L. 2006. Unilateral competitive effects of horizontal mergers, in Paolo Buccirossi (Eds) Handbook of Antitrust Economics, pp. 43-105 (Cambridge, MA: MIT Press). Werden, G. J. 2008. Assessing the effects of antitrust enforcement in the United States, De Economist, 156(4): 433-451.

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Volume II Issue 1(3) Summer 2011

RULE OF LAW, LEGAL DEVELOPMENT AND ECONOMIC GROWTH: PERSPECTIVES FOR PAKISTAN
Hasan LUBNA Pakistan Institute of Development Economics, Islamabad, Pakistan lubna@pide.org.pk Abstract Rule of Law and strong legal systems are considered a pre-condition for sustained development. Their relative weakness in the under-developed world is considered as the main obstacle to growth. Strengthening Rule of Law and legal systems has, therefore, become a standard advice from the developing community. Pakistan, too, has witnessed a surge in demand for Rule of Law in recent years. Capitalizing on this domestically garnered mandate, this paper reviews the legal obstacles to economic growth in Pakistan. It finds significant impediments for growth and market development due to legal shortcomings in the case of Pakistan. Keywords: Rule of Law, legal development, economic growth JEL Classification: K10, O43 1. Introduction the reformer has enemies in all these who profit by the old order and only lukewarm defenders in all those who would profit by the new. Machiavelli, The Prince, Ch. VI

Recent times have witnessed an increased demand for Rule of Law in Pakistan. The movement for restoration of judiciary, which basically emerged and was sustained by the urban centers of Pakistan and later evolved into a broader consensus for strengthening Rule of Law, has been considered elitist by its critics. Their arguments connote Rule of Law as a luxury that is demanded by the urban elites only, while the poor in both urban and rural areas are concerned more about their livelihoods. This debate rages on in Pakistan at a time when the development community is unanimous in its prescription about Rule of Law as a solution to the ills of under-development19. This paper argues that Rule of Law and a strong legal system are necessary conditions for economically progressing and socially just societies both essential for improving the living conditions of masses in Pakistan. Since, economic growth and improvement in the welfare of its citizen is a prime concern for the Government of Pakistan, and realizing that economic development does not take place in a vacuum, the Government vows to develop an orderly framework for carrying out its economic reforms. It has undertaken an extensive reform of the laws relating to the banking and financial sector, commerce and industry, energy, information technology, social as well as administrative and judicial system20. The area, however, begs scholarly attention. The paper tries to fill this gap. The next section lays out how Rule of Law and legal development effect economic growth. The third section examines the Pakistans case in the light of this discussion. Section four concludes the paper. 2. Rule of Law, Legal Development and Economic Growth Rule of law as a concept seeks to ensure that government power is limited and that individual rights are protected. The essence of the rule of law is the sovereignty or supremacy of law over people and governments. The rule insists that every person, regardless of position or status in society, will be subject to the law and will be dealt with equally. The rule of law is more than your regulation by law but a guarantee of freedoms, human rights and equal treatment before the law (Watson 2003, 4).

Major international development and donor agencies place Legal Reforms Law and Development and Rule of Law on their to-do list for developing countries. The World Bank has Law and Development as a topic of development. Also see ADB (2004), APEC (2007). Carothers (1998) writes, one cannot get through a foreign policy debate these days without someone proposing the rule of law as a solution to the worlds troubles. 20 See Hassan (2000) for details.
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Journal of Advanced Research in Law and Economics Berg 2008). There are a number of laws (inheritance laws, rent laws, tenancy laws, preemption, oral gifts) that produce litigation. Courts are choked because of these litigations [ibid]. Long delays in the judicial process are yet another problem. Loopholes in the system promote litigation and cause delays. There are no meaningful cost sanctions (culture of not appearing before courts). As a result huge assets are stuck in the legal systems, with serious implications for market transactions (Hasan 2006). Procedural reforms like daily reporting of cases and automation can have a positive impact on court efficiency and have been an integral part of the Access to Justice Program of the Asian Development Bank (Armytage 2003). The quality of legal education has also degraded overtime due to mushroom growth of law colleges, which often disregard the rules that have been set by the Pakistan Bar Council (Government of Pakistan 2006). These declining standards of legal profession are a major factor in the weak judicial system in Pakistan. There is a perception that recourse to the legal system appears as an unfavorable and unattractive option for the underprivileged. The National Judicial Policy 2009 aims to tackle issues of backlog and delays, as well as the menace of corruption. It is still early to judge the impact of the policy in resolving perennial issues confronting the justice system in Pakistan (Government of Pakistan 2009). 4. Conclusion There is overwhelming evidence from around the world that economic growth is conditioned by the legal setting. Markets thrive in an environment where property and contractual rights are protected and enforced, and disputes are resolved efficiently by the judicial system. An independent, impartial and efficient judiciary, which protects the fundamental rights of the citizens and limits the discretionary powers of the state, is imperative for Rule of Law and a peaceful, ordered society. In Pakistan, legal system poses substantial impediments for the growth process as well for the development of markets. Our land, equity, and credit markets face several inefficiencies on account of weak laws and legal infrastructure. Removing these obstacles can unleash the growth potential of the economy. Reforming our judicial system is even more important for guaranteeing fundamental rights of the ordinary Pakistani citizen. Law and Economics is still an underdeveloped and little researched discipline in Pakistan. Scattered research exists that looks at various dimensions of legal development and growth, but there is a need to bring it under the umbrella of a larger research initiative on Law and Economics. This paper has sought to pioneer this effort. It was not the purpose of this paper to do an exhaustive research, but to set a research agenda for understanding the linkages between legal system and economic growth in Pakistan. Policy input from carefully investigated issues would be a welcome respite. References [1] Acemoglu, D., Johnson, S., and Robinson, J. A.. 2001. The Colonial Origins of Comparative Development: An Empirical Investigation. American Economic Review 91: December, 13691401. [2] Acemoglu, D., Johnson, S., and Robinson, J. A. 2002. Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution. Quarterly Journal of Economics 117: November, 1231 1294. [3] Acemoglu, D. 2003. The Root Cause. Finance and Development. June, 2730. [4] Acemoglu, D., Johnson, S., and Robinson, J. A.. 2005a. Institutions as the Fundamental Cause of Long-Run Growth. In P. Aghion and S. Durlauf (eds.) Handbook of Economic Growth. North Holland. [5] Acemoglu, D., Johnson, S., and Robinson, J. A.. 2005b. The Rise of Europe: Atlantic Trade, Institutional Change and Economic Growth. American Economic Review 95: June, 546579. [6] Ali, M. A, and Crain, W.M. 2002. Institutional Distortions, Economic Freedom, and Growth. Cato Journal, Vol. 21, No. 3: Winter, 415-426. [7] Ali, M. A., and Isse, H. S.. 2003. Determinants of Economic Corruption: A Cross-country Comparison. Cato Journal, Vol. 22, No. 3: Winter, 449-466. [8] Alon, I., and Chase, G.. 2005. Religious Freedom and Economic Prosperity. Cato Journal, Vol. 25, No. 2: Spring/Summer, 399-406. [9] Armytage, L. 2003. Pakistans Law and Justice Sector Reform Experience Some Lessons. Paper presented at the 13th Commonwealth Law Conference (14 April 2003). Melbourne.
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Volume II Issue 1(3) Summer 2011 [10] Asian Development Bank. 2004. Law and Policy Reform at the Asian Development Bank. Asian Development Bank, Manila, Philippines. [11] Asia-Pacific Economic Cooperation. 2007. APEC Economic Policy Report. APEC Secretariat, Singapore [12] Berggren, N. 2003. The Benefits of Economic Freedom A Survey The Independent Review, VIII (2): Fall, pp. 193 211. [13] Blue, R., Hoffman, R. and Berg, L. A. 2008. Pakistan Rule of Law Assessment Final Report. Prepared for the USAID/Pakistan by Management System International. Washington D C. [14] Buscaglia, E. 2000. Law and Economics of Development in Encyclopedia of Law and Economics. Edward Elgar and University of Ghent. Downloaded from: http://encyclo.findlaw.com/0580book.pdf. [15] Carothers, T. 1998. The Rule of Law Revival. Foreign Affairs, 77 (2): March/April, 95-106. [16] Chaudhry, I. M. 2007. Keynote Address of Mr Justice Iftikhar Mohammad Chaudhry, Honorable Chief Justice of Pakistan. Downloaded from: http://ljcp.gov.pk/njc/ [17] Cheema, A. 2003. Corporate Governance in Pakistan: Issues and Concerns. The NIPA Journal, 8(2): June, 7-19. [18] Cheema, A., Bari, F., and Siddique, O. 2003. Corporate Governance in Pakistan: Issues of Ownership, Control and the Law in Sobhan, F., and Werner, E. W. (eds.) A Comparative Analysis of Corporate Governance in South Asia. Bangladesh Enterprise Institute, Dhaka. [19] Cole, J. H. 2003. The Contribution of Economic Freedom to World Economic Growth, 198099. Cato Journal, Vol. 23, No. 2: Fall, 189-198. [20] Cooter, R. D. 1996. The Rule of State Law and the Rule-of-Law State: Economic Analysis of the Legal Foundations of Development. The Selected Works of Robert Cooter. Available at: http://works.bepress.com/robert_cooter/60 [21] Cross, F.B. 2002. Law and Economic Growth. Texas Law Review, 80 (7): June, 1737-1775. [22] Dam, K. 2006. Institutions, History and Economic Development. Chicago John M Olin Law and Economics. The Law School, University of Chicago. (Working Paper No. 271.) [23] Dicey, A.V. 1914. Introduction to the Study of the Law of the Constitution. Oxford. Available at: http://www.constitution.org/cmt/avd/law_con.htm [24] Djankov, S., Glaeser, E,. La Porta, R., Lopez-de-Silanes, F., and Shleifer, A.. 2003. The New Comparative Economics. Journal of Comparative Economics 31: December, 595-619. [25] Djankov, S., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A.. 2002. The Regulation of Entry. Quarterly Journal of Economics 117, 137. [26] Djankov, S., La Porta, R., Lopez-de-Silanes, F., and Shleifer, A.. 2003. Courts. Quarterly Journal of Economics 118: May, 453517. [27] Easterly, W. 2003. The Political Economy of Growth without Development: A Case Study of Pakistan. In D. Rodrik, ed., In Search of Prosperity: Analytical Narratives of Growth. Princeton, NJ: Princeton University Press. [28] Easterly, W., and Levine, R. 2003. Tropics, Germs, and Crops: How Endowments Influence Economic Development. Journal of Monetary Economics 50: January, 339. [29] Farr, W.K., Lord, R.A., and Wolfenbarger, J.L. 1998. Economic Freedom, Political Freedom, and Economic Well-Being: A Causality Analysis. Cato Journal, Vol. 18, No. 2: Fall, 247-262. [30] Feld, L.P. and Voigt, S. 2003. Economic Growth and Judicial Independence: Cross Country Evidence Using a New Set of Indicators. CESifo Working Paper No. 906. CESifo, Munich. [31] Galal, A. 2004. The Economics of Formalization; Potential Winners and Losers from Formalization in Egypt. Working Paper number 95, Egyptian Centre for Economic Studies

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Journal of Advanced Research in Law and Economics [32] Glaeser, E. and Shleifer, A.. 2002. Legal Origins. The Quarterly Journal of Economic: November, 1193 1229. [33] Goldsmith, Q.C. 2006. Government and the Rule of Law in the Modern Age. LSE Law Department and Clifford Chance Lecture Series on Rule of Law. Available at http://www.lse.ac.uk/collections/LSEPublicLecturesAndEvents/events/2006/20051214t1509z001.htm [34] Government of Pakistan. 2009. National Judicial Policy 2009 (Revised Edition). National Judicial (Policy Making) Committee. Secretariat, Law and Justice Commission of Pakistan. Islamabad. [35] Government of Pakistan. 2006. Report on the Policy Dialogue on Strengthening the Legal Education System. Access to Justice Program. Ministry of Law, Justice and Human Rights. Islamabad. [36] Government of Pakistan. 2005. Towards a Prosperous Pakistan: A Strategy for Rapid Industrial Growth. Ministry of Industries, Production, and Special Initiatives. Islamabad. [37] Greif, A. 1989. Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders. The Journal of Economic History 49: December, 857882. [38] Greif, A. 1993. Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders Coalition. American Economic Review 83, 525548. [39] Greif, A., Milgrom, P., and Weingast, B. R.. 1994. Coordination, Commitment and Enforcement: the Case of Merchant Guild. Journal of Political Economy 102: August, 745776. [40] Greif, A. 2003. Institutions and Impersonal Change: The European Experience. http://wwwecon.stanford.edu/academics/greif_228_2005/Greif%202005% 20Impersonal %20Exchange.pdf. [41] Greif, A. 2005. Commitment, Coercion and Markets: The Nature and Dynamics of Institutions Supporting Exchange. Downloaded from: http://www-econ.stanford.edu/faculty/Greif_Papers/Commitment_Coercion_ Markets.html [42] Grubel, H. G. 1998. Economic Freedom and Human Welfare: Some Empirical Findings. Cato Journal, Vol. 18, No. 2: Fall, 287-304. [43] Gwartney, J. and Lawson, R.. 2006. The Path To Development: When Does The Legal Environment Become Critical? Cato Institute Economic Development Bulletin, No. 7: April 10, 1-2. [44] Hasan, L. 2007. Myths and Realities of Long-run Development: A Look at Deeper Determinants. The Pakistan Development Review, 46 (1): 19-44. [45] Hasan, L. 2006. Conference Report on Law and Economics. The Pakistan Development Review, 46(1): Spring, 163-167. [46] Hassan, P. 2007. Environmental Protection, Rule of Law and Judicial Crisis in Pakistan. Paper presented at the International Congress on Environmental Law (22-24 May, 2007), Rio de Janeiro. [47] Hasan, L. 2006. Conference Report on Law and Economics. The Pakistan Development Review, 45 (1): Spring, 163-167. [48] Hassan, T. 2000. Legal Framework for Economic Development in Pakistan. Pakistan and Gulf Economist. (No. 50) 31 (11 December 2000). [49] International Labour Office. 2002. Creating a Conducive Policy Environment for Micro, Small and Medium Enterprises in Pakistan. ILO, Geneva. [50] Javid, A. and Iqbal, R.. 2007. Relationship Between Corporate Governance Indicators and Firm Value: A Case Study of Karachi Stock Exchange. PIDE Working Paper (14). Pakistan Institute of Development Economics, Islamabad. [51] Kardar, S. H. 2007. Establishing Property Rights through a Secure System of Land Management. PIDE Policy Viewpoint, No 3 (March). Pakistan Institute of Development Economics.

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Volume II Issue 1(3) Summer 2011 [52] Kaufmann, D., Kraay, A. and Mastruzzi, M.. 2010. The Worldwide Governance Indicators: Methodology and Analytical Issues. The World Bank Policy Research Working Paper Series 5430. The World Bank. Washington DC. [53] Kaufmann, D., and Kraay, A.. 2002. Growth without Governance. The World Bank Policy Research Working Paper Series 2928. The World Bank. Washington DC. [54] Khan, F. S. 2006. Property Rights and Taxonomy of Land Records: A case Study of Lahore. Paper presented at the 22nd Annual General Meeting of the Pakistan Society of Development Economics (19-22 December, 2006). Lahore. [55] Khwaja, A. I., and Mian, A.. 2005. Unchecked Intermediaries: Price Manipulation in an Emerging Stock Market. Journal of Financial Economics 78, 203-241. [56] La Porta, R., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R.. 1997. Legal Determinants of External Finance. Journal of Finance 52, 11311150. [57] La Porta, R., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R.. 1998. Law and Finance. Journal of Political Economy 106, 11131155. [58] La Porta, R., Lopez-de-Silanes, F., Shleifer, A., and Vishny, R.. 1999. The Quality of Government. Journal of Law, Economics and Organisation 15, 222279. [59] North, D. C. 1990. Institutions, Institutional Change and Economic Performance. New York: Cambridge University Press. [60] North, D., and Thomas, R. P.. 1973. The Rise of The Western World: A New Economic History. Cambridge University Press. [61] Norton, S. W. 1998. Poverty, Property Rights, and Human Well-Being: A Cross-National Study. Cato Journal, Vol. 18, No. 2: Fall, 233-245. [62] Posner, R. 1998. Creating a Legal Framework for Economic Development. The World Bank Research Observer, 13: February, 1-11. [63] Prokopijevic, M. 2002. Does Growth Further Improve http://www.freetheworld.com/papers/Miroslav_Prokopijevic.pdf Economic Freedom? Available at:

[64] Qazi, M. U. 2006. Computerization of Land Records in Pakistan. A Comparative Analysis of Two Projects from a Human Security Perspective. Downloaded from: http://www.apdip.net/projects/egovernment/capblg/casestudies/Pakistan-Qazi.pdf [65] Rigobon, R. and Rodrik, D.. 2004. Rule of Law, Democracy, Openness, and Income: Estimating the Interrelationships. NBER Working Paper 10750. National Bureau of Economic Research, Massachusetts. http://www.nber.org/papers/w10750 [66] Rodrik, D., Subramanian, A., and Trebbi, F.. 2004. Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development. Journal of Economic Growth 9 (2): June, 131-165. [67] Ruli, G. 1999. Rule of Law and Economic Growth - How Strong Is Their Interaction? Available at: http://www.nato.int/docu/colloq/1999/pdf/043-047.pdf [68] Siddique, O. (undated). Simplification and Promotion of Laws and Procedures for Corporatization of Small and Medium Enterprises in Pakistan. A Case Study Conducted for the Ministry of Industries and Production, and Securities and Exchange Commission of Pakistan. Islamabad. [69] Smith, A. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations (Vol 1and 2, 1981 Reprint). Indianapolis, Liberty Classics. [70] Stocker, M. L. 2005. Equity Returns and Economic Freedom. Cato Journal, Vol. 25, No. 3: Fall, 583-594. [71] Stolper, A., Walker, M., Sabatini, C., and Marczak, J.. 2006. Rule of Law, Economic Growth and Prosperity. Report of the Rule of Law Working Group. Americas Society and Council of the Americas. New York.

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Journal of Advanced Research in Law and Economics [72] Summers, R. S. 1999. Some Basic Ways Good Law, Good Legal Institutions, Good Legal Traditions and Principles of the Rule of Law can Augment Markets. IRIS Working Paper No. 227. Center for Institutional Reform and the Informal Sector. University of Maryland, Maryland. [73] Tures, J. A. 2003. Economic Freedom and Conflict Reduction: Evidence from the 1970s, 1980s, and 1990s. Cato Journal, Vol. 22, No. 3: Winter, 533-542. [74] Vega-Gordill, M. and lvarez-Arce, J. L. A.. 2003. Economic Growth and Freedom: A Causality Study. Cato Journal, Vol. 23, No. 2: Fall, 199-215. [75] Voigt, S. 1998. Making Constitutions Work: Conditions for Maintaining the Rule of Law. Cato Journal, Vol. 18, No. 2 (Fall) 1998, 191-208. [76] World Bank. 2010a. Doing Business. Country Profile for Pakistan. The World Bank and IFC. Washington. www.doingbusiness.org [77] World Bank. 2010b. Doing Business in Pakistan: Comparing Regulation in 13 Cities and 183 Economies. The World Bank and IFC. Washington. www.doingbusiness.org [78] World Bank. 2009. World Bank Governance Indicators, accessed on November 29, 2009. http://info.worldbank.org/governance/wgi/index.asp [79] World Bank. 2009. World Development Indicators, accessed http://data.worldbank.org/data-catalog/world-development-indicators on December 11, 2009.

[80] World Bank. 2005. Corporate Governance Country Assessment Pakistan: Report on the Observance of Standards and Codes [ROSC]. Downloaded from: http://www.worldbank.org/ifa/rosc_cg_pak.pdf [81] Watson, P. 2003. The Rule of Law http://www.legalnetlink.net/announcements/speech.pdf and Economic Prosperity, at:

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Volume II Issue 1(3) Summer 2011

RETHINKING OF RIGHTS AND PROCEDURAL COMPLEXITY IN TRANSFER OF SHARE: A REVIEW UNDER COMPANY LAW IN BANGLADESH
Zahid RAFIQUE Department of Law, Prime University, Bangladesh zrlegal@yahoo.com Abstract This paper unveils the pen-picture of rights in transfer of share and the pitfalls in that regard. In order to find out the pitfalls, the Companies Act 1994 in Bangladesh has been taken as the bedrock for analysis. Also, the Listing Regulation of Dhaka Stock Exchange Limited 1996 in Bangladesh has been applied to streamline the analytical issues. Various forms in transfer of share create a problem for transferor in Bangladesh. Indeed, the provisions of the Act are manufactured in such way that it throttles the rights of transferor. The confusion over rights in joint shareholding seems to put shareholders at stake owing to the inadequate legal support. Refusal in transfer of share is lamentably more emphasized in the Act than rights and the process of transfer in provision appears favoring the refusal rather than protecting the rights. All these have been critically extrapolated with the study over the relevant English, Indian and Pakistani laws to redress the balance in transfer of share in Bangladesh. Keywords: transfer of share, Companies Act 1994, pre-emption, refusal, director JEL Classification: D23, K11, K22 1. Initial Phase Share is generally one kind of interests and of rights owned by a shareholder holding a share in company. When a person invests his money into company through purchasing share of that company, a bundle of rights and interests in relation to that company is attached with him.In N.W. Transportation v. Beatty 37 it is decided that a share is a kind of property which is to be enjoyed and exercised for the owners personal advantage and use. On the other hand, it is found that shares in a company are taken as personal estate.38 Also share can be said as intangibles like chose in action and those are generally available in the company in which the register of members is kept.39 From the above scholarly passage, it is felt that share is a personal property which is used for the shareholders personal utility. Davies says that though a shareholder holds share in a company through a contract with the company and thus, he may possesses rights in personam, a share is something more than that (Davies 2008). On the other hand, John Birds and others say that the idea of share bears a dual nature as both contract and property (Birds et al. 2007, 259). In legislative assertions, section 2(1)(v) of the Companies Act, 19994 in Bangladesh provides that share means a share in the capital of the company and includes stock when a distinction between stock and shares is expressed or implied. In England, section 540 of the newly passed Companies Act, 2006 provides that share means in the companys share capital and that it may no longer be converted into stock; that section also includes that references to shares include stock except where a distinction between share and stock is express or implied. On the other hand, section 541 of that Act, the shares or other interests of a member in a company are personal property, not in the nature of real estate. From the above, the views on share of the two Acts Bangladeshi Companies Act 1994 and English Companies Act 2006, are firstly the same but the English Company Law goes further that the share is personal property, not in the nature of real estate at all.
37 (1887) 12 App. Cas. 589 (P.C.) cited in Geoffrey Morse, Charlesworth & Morse Company Law, (London: Sweet & Maxwell, 1995) . 391 38 Mores, Company Law, 234 39 International Credit and Investment Co.(overseas) Ltd. v. Adham [1994] 1 BCLC 66 cited in Morse. Company Law, 234

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Journal of Advanced Research in Law and Economics Upon the pattern of negative expressions reflecting mandatory force in section 38(7) of the Companies Act, 1994, if the negative aspects is manufactured into the other pattern of expressions changing negative words or expression, mandatory provisions may be turned into directory provisions or the flexible expressions and the right of parties to transfer of share may prevail over the harsh refusal facts of transfer in all in the negative view. The view about anything contrary to equity, justice and good conscience bonafide works, giving birth to fraud and bad faith in manufacturing articles should be removed. Insertion of the reasonable provisions in articles should be firmed up through the operating of specific directives by insertion of guideline in the provisions of transfer of share of the Act in Bangladesh. So in section 38 of the Act specific guideline to remove the scope of the harmful idea into articles for dealing with transfer of share should exist. In the Act, there should be a specific guideline about the dividend when transfer of share is pending for finalization transfer of share legally. On the view transfer of share reflecting a contract, unless the term of returning consideration in breach of contract is provided expressly beforehand, it may be hard to follow up and this may invade the force of rights of shareholders. Without giving a carte blanche (full freedom) to the transferor, it may be provided that the provision for transfer of share should exist perfectly even also at the point of breach of transfer contract for taking back consideration at refusal of transfer at large in the Companies Act, 1994 in Bangladesh. 3. Concluding Remarks Where a shareholder holds a property like share, transfer of share is one of the great advantageous rights of the shareholder and it is expected to run freely without any reasonable pitfalls. Procedure of transfer, refusal to register the new shareholders name in the register, sending information of refusal within the mandated time, excess of application of power by the company to refuse the transfer-all these matters come under the ambit of legal provisions centrally under section 32, 38, 39 and 43 of Companies Act, 1994. Though sections 32, 38, 39 and 43 of the Act become relevant, section 38 of the Act plays a pivotal role to regulate the transfer process at large. In Bangladeshi Companies Act 1994, instead of different types of form for transfer of share, one form under Companies Act, 1994 should be provided so that confusion could not arise any longer. Fairly enough, the wrong procedure and omission of one element of procedure of transfer can make the scope for the refusal but those provision become clogged up when it is found that only the ground for refusal is provided but after refusal, the restorative measures by the parties to transfer are not clearly found. These matters are succinctly mentioned in Indian and Pakistan law on the issue. In those laws after refusal, the reactivating provisions have been provided with the insertion of the terms re-lodgment of the corrected transfer instrument to the company in full view. This confusion becomes a concern. So in Bangladeshi Companies Act 1994 in transfer provisions e.g. section 38, the restorative provisions in clear expression after refusal of transfer for making the scope of the parties to transfer or the transferee should be incorporated. Pre-emption is a discerning issue in transfer of share. This matter is expressed in articles of company. But as per the pre- emption rules, once the transferor offers the existing member of the company and the latter agrees with the terms and conditions but the latter one, he denies, then the condition of the transferor seem to become fatal. This invokes the provisions for the rule of estoppel and this rule of estoppel has been discussed above with case references. However, in fact of denial, the rule of estoppel can prevent it and thus the transferor can get the proper protection of law. And this type of legal provisions of estoppel in view of the hypothetical facts may be followed up in transfer provisions, e.g. section 38 of the Companies Act, 1994 in Bangladesh. However, in transfer of share, the valuation of share is a vital issue. Regarding it, the proper guideline should exist in transfer of share e.g. section 38 of the Companies Act1994. Even stronger, the valuer and the auditor responsible for valuing the share concerned may be held liable and provisions to that effect needs to be made in the Companies Act, 1994 to get the proper value for the transferor. As far as transfer of share is fairly dependent on articles, the unfettered power for companies to insert provision in articles is not a healthy support of the protection for transfer of share of the parties. So there should obtain a guideline to remove the area of harm in articles in companies The Companies Act 1994 should contain a prudent guideline in that regard. Quite fairly, the regulating provisions for refusal in section 38(7) of the Act are provided in mandatory provisions since those are expressed in negative words. These mandatory provisions have put emphasis on refusal rather on the protection of rights of the parties to transfer. Many case-based discussions have been presented above. Procedural provisions are for proper regulation securing the protection of all the parties concerned. Here, again in section 38(7) of the Act, the language for refusal couched in negative words reflecting as mandatory language has made the protection of rights in transfer of the parties subservient to the
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Volume II Issue 1(3) Summer 2011 commanding refusal by the company. Therefore, it should be that the language in section 38(7) of the Act, should give priority to the right of parties to transfer of share necessarily over the refusal altogether because rights to transfer of share should be more of attention than other factors. References [1] Morse, Geoffrey. 1995. Charlesworth & Morse Company Law, London: Sweet & Maxwell, 1995. [2] [3] [4] [5] [6] [7] [8] [9] Davies, Paul L. 2008. Gower and Davies Principles of Modern Company Law, London: Sweet & Maxwell. Birds, John et al. 2007. Boyle & Birds Company Law, Bristol, Jordan Publishing Limited. Schmitthoff, Clive M. 1987. Palmers Company Law, London: Stevens & Sons. Pennington, Robert R. 1993. Company Law, London, Butterworths. Gower, L.C.B.; Cronin, J.B., and Easson, A.J. 1984. Gowers Principles of Modern Company Law, London, Stevens & Sons. Al-Muktadir, Abul Khair. 2002. Muktadirs All about Shares Management based on laws, rules and practice, Dhaka, Published by the Author. Zahir, M. 2005. Company and Securities Laws, Dhaka, The University Press Limited. Mahmood, SH Shaukat, and Shaukat, SH. Nadeem. 1990. Principles of Interpretation of Statutes with Genaral Clauses Act, 1987, Lahore, Legal Research Centre.

[10] Singh, Avtar. 2005. Introduction of Interpretation of Statutes, New Delhi, Wadhwa and Company, 131. [11] Rajak, Harry. 1995. Sourcebook of Company Law, Bristol, Jordan Publishing Ltd, 598. Cases International Credit and Investment Co.(overseas) Ltd. v. Adham [1994] 1 BCLC 66 cited in Morse. Company Law, 234. Westons Case (1868) L.R. 4 Ch. App. 20, C.A. cited in Gower, Company Law, 445. Borlands Trustee v. Steel Bros &Co.Ltd. [1901] 1 Ch. 279 at 288 cited in Birds, Company Law, 259. Grant v. John Grant & Sons Pty Ltd.[1950] 82 CLR 129 cited in Zahir, Company Laws, 44. Niranjan Dey v. United Chemicals works Ltd.(1995) DlR (HCD) 423. Delavenne v. Broadhurst [1931] Ch. 234 cited in Morse, Company Law 261. Stewart v. James Keiller & Sons Ltd. (1902) 4 F. Cited in Morse, Company Law, 261. The Ocean Coal Co. Ltd. v. The Powell Duffryn Steam Coal Co. Ltd. [1932] 1 Ch. 654 cited in Morse, Company Law 261. Munro v. Bogie [1994] 1 BCLC 415 CS (O.H) cited in Morse, Company Law, 262. Howie v. Crawford [1990] BCC 330 cf. Re Bird Precision Bellows Ltd. [1986] Ch. 658 cited in Morse, Company Law, 283. Re ESC Publishing Ltd. [1990] BCC 325 cited in Morse, Company Law 283. Buckingham v. Francis [1986] BCLC 353 cited in I Morse, Company Law 283. Sutcliffe v. Thackrah [1974] A.C. 727 cited in Morse, Company Law, 283. Rameshar Prasad Lal v. Ghisiwan Prasad 51 A 820: 1929 A531:121 IC 241 cited in M. Monir, A Short Edition of Principle and Digest of the Law of Evidence Being A Commentary on the Law of Evidence Act (I of 1872), ed. H.S Ursekar (Allahabad, India: The University Book Agency, 1984) 473. Ram Dewan Shukul v. Ram Surat Shukul, 1929 A 589(l):117 IC 345, cited in Monir, Law of Evidence, 473. Jagan Nath Pershad v. Chandi Pershad, I Luck 68: 1927 O 86: 93 IC 640, cited in Monir, Law of Evidence, 473. Bhagat Ram v. Raghubar Dial, 1925 L 57:79 IC 132 cited in Monir, Law of Evidence, 473.
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Journal of Advanced Research in Law and Economics Ram Dewan Shukul v. Ram Surat Shukul, 1929 A 589(1):117 AC 345 cited in Monir, Law of Evidence, 473. Bashira Bibi v. Sheikh Ata Ullah, 1929 A 423:118 IC 170 cited in Monir, Law of Evidence, 473. Todar Singh v. Thakur Kehri Singh, 50 IC 126 cited in Monir, Law of Evidence, p. 473 cited in Monir, Law of Evidence, 473. Mohammad Yamin v. Babu Ganesh Prasad Singh, 118 IC 226 cited in Monir, Law of Evidence, 473. Niranjan Dey v. United Chemical Works Ltd. (1995) DLR (HCD) 423. N.W. Transportation v. Beatty (1987) 12 App. Cas. 589 (P.C.) cited in Morse, Company Law, 391. Schmitthoff, Company Law, 522. M. Pentiah v. Muddala Veera Mallappa, AIR 1961 SC 1107, 11113, cited in Mahmudul Islam Interpretation of Statutes and Documents (Dhaka: Mullick Brothers, 2009), 241. Osman Gani v. Moinuddin, 27 DLR (AD) 61. Woodward v. Sarsons (1875) L.R. 10 C.p. 733, per Lord Coleridge C.J. at p. 746 cited in P.St. J. Langan, Maxwell on the Interpretation of Statutes (Bombay,: N.M. Tripathi Private Ltd, 2000) 314. Re Smith & Fawcett Ltd. [1942] Ch. 204, C.A., p. 306, cited in Gower, Company Law, 445. Charles Forte Investments Ltd. v. Amanda [1964] Ch. 240 cited in Gower, Company Law, 447. Giasuddin Ahmed v. Green Delta Insurance Company Ltd. and another 56 DLR (AD) 31. Ahmed Impex (Private) Ltd. & others v. Moqbul Ahmed and others 56 DLR (AD) 92. Matiur Rahman (Md) v. Dhaka Stock Exchange Ltd. and another 51 DLR 530. Black v. Homersham (1878) 4 Ex. D. 24 cited in Morse, Company Law, 252.

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Volume II Issue 1(3) Summer 2011

THE RELATIONSHIP BETWEEN COMMON MANAGEMENT AND ECOTOURISM REGULATION: TRAGEDY OR TRIUMPH OF THE COMMONS? A LAW AND ECONOMICS ANSWER
Danilo SAM Faculty of Economics, LUISS Guido Carli University of Rome, Italy dsama@luiss.it. Abstract Since its origin, ecotourism development has been at the centre of controversial and heated debates within the environmental and scientific society. On one hand, it has been considered as a model of responsible and sustainable tourism with the capacity to guarantee the conservation of the current biodiversity level and cultural identity, to educate the tourists about preservation and to improve the economic activity and the standard of living of the populations affected. On the other hand, it has been criticized for actually being a mere instrument in the hands of capitalist and western firms to commercially exploit the natural resources available in the less developed countries. Thus, are the ecotourism projects more likely to be profitable and successful in territories where the common resources are controlled by the state or managed by private firms? Considered the most frequent and spontaneous solution noticed in the ordinary daily life of the emerging countries, meaning natural resources owned communally by local institutions, does ecotourism impede or reinforce this management function of coordinating and controlling? The empirical researches conducted in literature tried to answer to some of the above-mentioned questions and offered the opportunity for a Law and Economics assessment of the problem related to the common-pool resources. Keywords: Common-Pool Resources, Commons Management, development, ecology, environment, governance, property rights, regulation, sustainability, tragedy of the Commons JEL Classification: K11; K32; Q57 A managed commons, though it may have other defects, is not automatically subject to the tragic fate of the unmanaged commons Garrett Hardin, Who Benefits? Who pays?, from Filters Against Folly (1985) Stronza, A. L. (2010), Commons Management and Ecotourism: Ethnographic Evidence from the Amazon, International Journal of the Commons, Volume 4, No. 1, Igitur, Utrecht Publishing & Archiving Services 1. Introduction: Common Management and Ecotourism Development In the article reviewed, the author attempts to evaluate the impact of the ecotourism development on the collective management of the common-pool resources, type of administration which has historically characterized the local communities increasingly involved in the form of green tourism at issue. Since its origin, as it is well-known, ecotourism itself has been at the center of controversial and heated debates within the environmental and scientific society. On one hand, it has been considered as a model of responsible and sustainable tourism with the capacity to guarantee the conservation of the current biodiversity level and cultural identity; to educate the tourists about preservation; and to improve the economic activity and the standard of living of the populations affected. On the other hand, it has been criticized for actually being a mere instrument in the hands of capitalist and western firms to commercially exploit the natural resources available in the less developed countries. Therefore, even though in the last years exploitive human activities have diminished and attracted with considerable success visitors to eco-friendly destinations, at the same time the unfriendly effect of tourism on nature has been often neglected. Although nowadays the matter still remains particularly complex, it is undeniable that common management and ecotourism business have each been extensively analyzed during the past decades from a cultural, environmental and social standpoint. Nevertheless, it is necessary to give credit the author for having endeavored to fill a gap existing until now in this research field that is to comprehend and recognize what are the main effects of the growth of ecotourism on the management of the resources of the developing countries. Are
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Volume II Issue 1(3) Summer 2011 be judged inefficient per se. In fact, land management has been historically organized as a mix between households and common property: the latter has not degenerated into any tragedy in several cases. Bishop and Ciriacy-Wantrup (1975) first, and Garrett Hardin himself then, acknowledged that the expression commons was often erroneously applied by the economists, even though it must be recognized that the term itself might easily appear inappropriate and misleading. Therefore, the mentioned tragedy only takes place whenever is not present a decision maker entitled to control the level of utilization of the resources available and to impose the level of investments necessary. Thus, a strict distinction must be made between common property (res communes), meaning that a group of persons has exclusive property on certain resources and the power to regulate the relative use, and common resources (res nullius), meaning free access goods and un-owned resources given the absence of a well-defined property regime. 3. Conclusions: Towards a Model of Sustainable Ecotourism As mentioned, common-pool resources can be owned and managed by governmental institutions as public goods, by firms or individuals as private goods or can be left free as open access resources. Nevertheless, the best solution to allow and realize a sustainable ecotourism in the course of time seems to be to support the local institutions towards a collective form of common-pool management, with the main purpose to control and prevent the two problems of exclusion and subtraction above pointed out. To be successful, the monitoring action of the subsistence communities must be associated with conservation and utilization rules established to govern the commons, as well as with sanctions set against the rule-breakers. If not properly managed, an unrestrained ecotourism risks to bring to unequal economic benefits not only to advantage of foreign firms but also of only few members of the community, altering cultural traditions and values and triggering potential conflicts and corruptions. In this context, the Nobel Prize Elinor Ostrom (1990) has called into question the black or white vision according to which common-pool management necessarily requires a centralized administration or a privatization process of the resource concerned. Starting from the study of different and numerous empirical cases around the world, the American Professor shows how local communities are not irreparably condemned to overexploitation problems in case of collective action and utilization of common resources. On the contrary, in several cases the communities seem to have avoided unproductive clashes through an endogenous formation of institutions capable to govern the common resource in a sustainable way. Therefore, a situation characterized by a common property regime in connection with core resources self-managed by a rural community has resulted in various circumstances not only feasible but also desirable. In the same manner, the author of the paper has collected data and realized interviews at Posada Amazonas, an ecotourism lodge born from a joint venture between a local community and a private company and built on a land communally owned by 150 families, over a period of 12 years (1996-2008). According to the partnership, the profits are shared 60-40 respectively for the community and the company, while the lodge management is equally shared. The ecotourism offers rooms for 60 guests at 95 US dollars and hosts yearly around 7000 visitors from Europe and United States. In 2007 it generated a profit of 225,000 US dollars. Given its success in making real the ecotourism philosophy, the lodge has been in the spotlight of the international media and has won numerous awards over time. Nevertheless, the analysis conducted by the author reaches the conclusion that some factors of ecotourism have strengthened the collective management of the common-pool resources, while at the same time others have damaged the social cohesion of the community, hindering the possibility of a cooperative administration in the long-run. Its a matter of fact that whenever natural resources, as forests, landscapes, rivers or wildlife, are opened to ecotourism and commercially commoditized, the co-management of these resources, no longer local but global, becomes more complex and requires the participation of several actors (environmental agencies, environmentalist movements, local, regional and national administrations, nongovernmental organizations, tourism operators). Thus, learning from the experience offered by the author in the paper and from our Law and Economics assessment of the problem related to the common-pool resources, there are three fundamental principles which the policy-makers of the emerging countries should keep in mind for a better and sustainable development of the ecotourism industry. 1. The ecotourism projects should be realized by local communities in cooperation with non-governmental organizations or tourism operators for two main reasons. The first is the possibility for resident populations to be trained as regard to the conservation measures necessary for the environmental protection and the entrepreneurial skills useful for capitalizing the ecotourism revenues in ancillary projects (like, for instance, handicraft production). The second is the possibility to better exploit the ecology and traditional knowledge
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Journal of Advanced Research in Law and Economics thanks to foreign capital and worldwide clients. Statistically, in fact, financial returns from ecotourism, both in form of employment and income, are much lower in lodges totally managed by local communities. 2. The redistribution of financial revenues deriving from ecotourism create economic incentives to strictly control and manage the common-pool resources for the local communities, which are the only entities that can guarantee an environmental protection in the long period. The community members will discuss and regulate which cultural traditions and natural resources should be protected and used, who should be entitled to access the common-pool and under what conditions, what should be the sanctions for the rule-breakers. In this way, it is possible to solve the problem of exclusion related to the commons through the gradual construction of a selfmanagement structure and through the progressive opening of the communitys network to international organizations which can support it with aids and grants. 3. Although financial returns could provide economic incentives for the local communities to protect the common-pool resources, at the same time, the financial returns could drive the members to reinvest the revenues in more profitable private initiatives, which could increase the level of resource consumption and thus could worsen the problem of subtraction. As far as this problem is concerned, it would be necessary to simply set rules about how to share and re-invest the tourism profits (for instance, the national government could also intervene offering tax reliefs). Therefore, even though the community-based ecotourism does not always allow to guarantee both economic growth and environmental protection without incurring in any contraindications, if correctly structured (it is crucial the role of economic and tax incentives) it seems to be the model that the emerging countries should follow in the future. References [12] Bishop, R.C., Ciriacy-Wantrup, S.V. 1975. Common Property as a Concept in Natural Resources Policy, Natural Resources Journal, Volume 15, University of New Mexico, School of Law, Stanford, United States, pp. 713-727. [13] Hardin, G. 1968. The Tragedy of the Commons, Science, Volume 162, No. 3859, American Association for the Advancement of Science, Washington D.C., United States, pp. 1243-1248. [14] Ostrom, E. 1990. Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, Cambridge, United Kingdom.

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Journal of Advanced Research in Law and Economics

Upcoming Events Global Trends in Finance Online Conference, 25th October, 2011
The annual conference of ASERS dedicated to finances intends to become an important forum for the exchange of research findings and ideas. Our international Conference is a platform where Financial Sciences and research can integrate with industry and policy. The conference welcomes papers that discuss the latest developments in global finance research and application. The conference provides a forum for disseminating new research findings, practices and techniques in the field of finances, in general, and in global finance, in special. This conference would encourage the young generation to pursue research interests in the all the areas of finance to be considered for presentation at the Fist On line International Conference on Global Trends in Finance. Academicians and researchers are invited to share their unpublished research findings in all areas mentioned below, but are not limited to: Monetary Economics, Fiscal Policies and Behavior of Economic Agents, Money and Interest Rates, Currency Issues/ Manipulations/ Single World Monetary Policy, Central Banking, and the Supply Currency, of Money and Credit, Entrepreneurship/Venture Capital, Banking and Financial Services /Investment Emerging Markets and Privatization, Banking, Financial Accounting, Regulation and Taxation, Country Risk/Debt Issues, Financial Crises: Causes, Impacts, Solutions, Insurance/Reinsurance, Financial Engineering/ Derivatives/ Structured Macroeconomic Aspects of Public Finance, Finance, International Finance, Financial Information Technology and Systems, Macroeconomic aspects of Finance, Multinational Financial Management, Volatility Determination, Transmission and Risk Working Capital and Treasury Management, Management, Market Integration and Interest Rates, General Financial Markets, Valuation/Pricing, Financial Institutions and Services, Public Finance, Corporate Finance and Governance, Behavioral Finance. Taxation, Subsidies, and Revenue, All the papers will be reviewed and published in the Conference e-Proceeding under an ISBN reference on CD. The Proceeding will be indexed and listed in various reference search engines. The best papers selected by the International Scientific Committee will be published in Journal of Advanced Studies in Finance http://www.asers.eu/journals/jasf.html after a double-blind peer-reviewing and the payment of 150 as submission fee charged by the journal. Journal of Advanced Studies in Finance, currently indexed in CEEOL, RePEc, EBSCO, ProQuest and IndexCopernicus. Important Dates: 25th September, 2011 Abstract submission deadline; 5th October, 2011 Notification of acceptance/rejection; 10th October, 2011 Deadline for payments (100 for attendance at the Conference); 15th October, 2011 Full paper submission in MS Word and PowerPoint format; 25th October, 2011 Online International Conference. General Chair: PhD Rajmund Mirdala,Technical University of Koice, Faculty of Economics
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Sustainable Tourism Development

Online Conference, 25 November, 2011
Association for Sustainable Education, Research and Science has the honour to invite you to invite you to participate at the 2th Online International Conference on The challenges of sustainable tourism development in time of climate change in 25th November, 2011. The conference provides a forum for disseminating new research findings, practices and techniques in sustainable tourism, tourism management, and tourism marketing. This on-line conference brings together people who can propose a vision of a greener tourism, a more sustainable tourism, to help more in keeping a clean and durable planet. Academicians and researchers are invited to share their unpublished research findings in all areas mentioned below, but are not limited to: The sustainable tourism; Pollution Reduction at Source and Waste The tourism management; Minimization; Green tourism; Simulation and Optimization for Environmental Environmental Taxes and Subsidies; Protection; Environmental, Health, and Safety Law; Environment and Development; Natural Resources; Energy and Environment; Environment and Trade; Environment and Economic Growth; Sustainability; Environmental and Ecological Economics; Environmental Accounts and Accounting; Sustainable Development; Environmental Equity; Population Growth; Renewable Resources and Conservation; Ecological Economics: Ecosystem Services; Nonrenewable Resources and Conservation; Biodiversity Conservation; Bio-economics; Valuation of Environmental Effects; Industrial Ecology; Pollution Control Adoption Costs; Distributional Mathematics Models of Environmental Effects; Employment Effects; Processes; Air Pollution; Water Pollution; Noise; Hazardous Risk Management; Waste; Solid Waste; Recycling; Environmental Economics; Climate; Natural Disasters; Global Warming; Environmental Management and Health; Technological Innovation; Environmental Education and Sustainable Environmental Protection Technologies (water, Development; air, and soil); Environmental Strategies and Policies, Government Policy. We invite to submission original research contributions describing new results, original ideas and applications related to the topics of the conference. Papers should be submitted electronically at this e-mail address conferences@asers.eu in MS Word and also in PowerPoint (see Instructions for Authors). All the papers will be reviewed and published in the Conference Proceeding under an ISBN reference on CD. The Proceeding will be indexed and listed in various reference search engines. The best papers selected by the Program Committee will be published in Journal of Environmental Management and Tourism (http://www.asers.eu/journals/jemt.html) after a double-blind peer-reviewing and the payment of 150 as submission fee charged by the journal. Important Dates: 25 October, 2011 - Abstract submission deadline; 5 November, 2011 - Notification of acceptance/rejection; 10 November, 2011 - Deadline for payments (100 for attendance at the Conference);
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Journal of Advanced Research in Law and Economics 15 November, 2011 - Full paper submission in MS Word and PowerPoint format; 25 November, 2011 Online International Conference. General Chair: PhD Cristina BARBU Spiru Haret University, Romania Co-Chair: Marin CRUCERU Spiru Haret University, Romania

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Journals
Journal of Advanced Research in Law and Economics Biannually Editor in Chief: PhD Mdlina Constantinescu Co-Editors: PhD Russell Pittman and PhD Eric Langlais Journal of Advanced Research in Law and Economics provides readers with high quality and empirical research in law and economics. The Journal publishes analytical studies on the impact of legal interventions into economic processes by legislators, courts and regulatory agencies. Finally, important developments and topics in law and economics analysis will be documented and examined in special issues dedicated to that subject. The journal is edited for readability; lawyers and economists, scholars and specialized practitioners count among its readers. Journal of Advanced Research in Law and Economics, starting with its first issue, is indexed in RePEC, IndexCopernicus, CEEOL and EBSCO databases. Web: http://www.asers.eu/journals/jarle.html email: jarle@asers.eu Journal of Advanced Research in Management Biannually Editor in Chief: PhD Andy tefnescu Co-Editor: PhD Rajesh K. Pillania The Journal aims to serve researchers, scholars through prompt publications of significant advances in any branch of management science, and to provide a forum for the reporting and discussion of news and issues concerning management science. Journal of Advanced Research in Management starting with its first issue is indexed in RePEC, IndexCopernicus, and EBSCO databases. Web: http://www.asers.eu/journals/jarm.html email: jarm@asers.eu

Journal of Advanced Studies in Finance Biannually Editor in Chief: PhD. Laura tefnescu Co-Editor: PhD Rajmund Mirdala The Journal aims to publish empirical or theoretical articles which make significant contributions in all areas of finance, such as: asset pricing, corporate finance, banking and market microstructure, but also newly developing fields such as law and finance, behavioural finance, and experimental finance. The Journal will serves as a focal point of communication and debates for its contributors for better dissemination of information and knowledge on a global scale. Journal of Advanced Studies in Finance, starting with its first issue is indexed in IndexCopernicus, RePEC, CEEOL and EBSCO databases. Web: http://www.asers.eu/journals/jasf.html email: jasf@asers.eu
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Journal of Environmental Management and Tourism Biannually Editor in Chief: PhD Cristina Barbu Journal of Environmental Management and Tourism will publish original research and seeks to cover a wide range of topics regarding environmental management and engineering, environmental management and health, environmental chemistry, environmental protection technologies (water, air, soil), pollution reduction at source and waste minimization, energy and environment, modelling, simulation and optimization foenvironmental protection; environmental biotechnology, environmental education and sustainable development, environmental strategies and policies, etc. Journal of Environmental Management and Tourism starting with its first issue is indexed in RePEC, IndexCopernicus and EBSCO databases. Web: http://www.asers.eu/journals/jemt.html email: jemt@asers.eu Journal of Research in Educational Sciences Biannually Editor in Chief: PhD Laura Ungureanu The Journal is design to promote scholary thought in the field of education with the clary mission to provide an interdisciplinary forum for discussion and debate about educations most vital issues. We intend to publish papers that contribute to the expanding boundries of knowledge in education and are focusing on research, theory, current issues and applied practice in this area. Journal of Research in Educational Sciences starting with its first issue is indexed in RePEC, IndexCopernicus and EBSCO databases. Web: http://www.asers.eu/journals/jres.html email: jres@asers.eu Theoretical and Practical Research in Economic Fields Biannually Editor in Chief: PhD Laura Ungureanu Co-Editor: PhD Ivan Kitov Theoretical and Practical Research in Economic Fields publishes original articles in all branches of economics - theoretical and empirical, abstract and applied, providing wide-ranging coverage across the subject area. Journal promotes research that aim at the unification of the theoretical-quantitative and the empirical-quantitative approach to economic problems and that are penetrated by constructive and rigorous thinking. The Journal starting with its first issue will be indexed in RePEC, IndexCopernicus and EBSCO databases. Web: http://www.asers.eu/journals/tpref.html email: tpref@asers.eu
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Conferences Proceedings

Proceedings of the ASERS First on-line Conference on Worlds Economies in and after Crisis: Challenges, Threats and Opportunities Coordinator: Laura TEFNESCU Format: 17cm x 24cm ISBN: 978-606-92386-0-8

Proceedings of the ASERS First on-line Conference on The Real Environmental Crisis Effects in Tourism Development, Conflicts and Sustainability Coordinator: Cristina BARBU Format: 17cm x 24cm ISBN: 978-606-92386-3-9

Proceedings of the ASERS First on-line Conference on Competitiveness and Economic Development: Challenges, Goals and Means in a Knowledge based Society Coordinator: Andy TEFNESCU Format: 17cm x 24cm ISBN: 978-606-92386-4-6

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Journal of Advanced Research in Law and Economics

Books Collections
Management and Environmental Protection
A book edited by PhD Cristina Barbu European Research Centre for Managerial Administration, Spiru Haret University, Romania cristina.barbu@spiruharet.ro http://www.asers.eu/asers-publishing/books To be published by ASERS Publishing in CD-ROM format with ISBN. Submission: Open Download Call for Book Chapters at: http://asers.eu/asers_files/books/Call%20MEP.pdf Studies in Business

Beyond Creativity and Innovation in the Times of Knowledge Economy

A book edited by PhD Madalina Constantinescu European Research Centre for Managerial Studies in Business Administration, Spiru Haret University, Romania constantinescu_madalina2002@yahoo.co.uk http://www.asers.eu/asers-publishing/books To be published by ASERS Publishing in CD-ROM format with ISBN. Submission: Open Download Call for Book Chapters at: http://www.asers.eu/asers_files/books/Call%20BCI_KE.pdf

Mathematical Models in Economics

A book edited by PhD Laura Ungureanu European Research Centre for Managerial Studies in Business Administration, Spiru Haret University, Romania laura.ungureanu@spiruharet.ro http://www.asers.eu/asers-publishing/books To be published by ASERS Publishing in CD-ROM format with ISBN. Submission: Open Download Call for Book Chapters at:

http://www.asers.eu/asers_files/books/Call%20ASERS_Book%20MME_extended.pdf

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ASERS Publishing

ASERS Publishing Web: www.asers.eu URL: http://www.asers.eu/asers-publishing

ISSN 2068-696X

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