Corporate Governance, Strategy and Regulation


We introduce the first micro-founded model describing the evolution of compliance with corporate governance practices regulated by comply or explain ('CorE') standards. We show that a practice's compliance level evolves as a diffusion process determined by a mimicking effect and a pressure to comply effect. The diffusion process converges to the practice's efficacy at preventing losses associated with value-destroying events. Estimations using Chilean data reveal that efficacy and expected losses differ by practices' categories. We emphasize the explanatory, predictive and normative reach of our theory. For instance, the model explains why the most managerially beneficial practices are not necessarily the most complied with (for Chile, average risk management compliance levels are below 54%). The model predicts the compliance level's required time to converge to its steady state (for Chile, more than 30 years). It also estimates the benefits of a 'CorE' compliance system when compared to a mandatory compliance system (for Chile, utility would increase up to 30%). We conclude discussing how stakeholders and regulators can shape compliance levels. 


We document the effects that three different types of events: i) corporate scandals ii) hard legal reforms, and iii) soft legal reforms, have had on the Chilean market for corporate directors between 2008 and 2019. Like the effects generated by the sequence Enron-Worldcom-SOX, we find that the supply of corporate directors contracted due to increasing risks and workload faced by the profession. However, unlike the case of Enron-Worldcom-SOX the demand for corporate directors only changed marginally and the use of external directors remained almost constant. This is consistent with an overall result in which directors’ compensations significantly increased and the average size of the board marginally decreased. In addition, we found that hard legal reforms had several unexpected and probably unwanted effects, including a reduction in the use of committees and in the presence of independent directors. Finally, and perhaps surprisingly for a civil-law country, we show that a corporate scandal followed by a soft legal reform has the capacity to significantly increase directors’ efforts and accelerate changes in average board compositions.

Law and Economics


An important question in political economy is how an elected constitutional convention fails to understand the inclinations of the voters and approves a new constitution that is later rejected in referendum. In this article, we explore possible information asymmetry between elected legislators and voters to explain why a gap between the preferences of the median elected legislator at a constitutional convention and the median voter can lead to the prevalence of status quo in constitutional making, even when both elected legislators and voters want change. Our findings indicate that a rejection is possible when an election process does not allow legislators to fully learn the ideological preferences of the voters, and legislators’ initial beliefs about the voters’ preferences are sufficiently erred. Furthermore, we show that voters might end worse off when elected legislators are able to learn about voters’ preferences compared to a situation in which elected legislators are unable to engage in learning.


It is commonly argued that the case overload faced by higher courts (especially in civil law) can be reduced by restricting access to them. In this paper we prove that such restriction can also significantly reduce judicial uniformity among lower courts and alter litigation decisions as well as outcomes. To test our predictions we build a database of wrongful termination lawsuits that took place before and after the implementation of a reform to the Chilean labor justice system. This reform exogenously and drastically reduced access to higher courts. As we predict, this reduction increased the probability of a first-instance pro-plaintiff decision (by 36%); increased the percentage recovered by a plaintiff in court (by 27%) and reduced the probability of a settlement (by 16%). The Priest & Klein 50% hypothesis suggests that prior to the reform plaintiffs recovered too little. Policy implications follow.