New Economics Papers
on Law and Economics
Issue of 2005‒02‒13
ten papers chosen by
Jeong-Joon Lee, Towson University

  1. Trust and Bribery: The Role of the Quid Pro Quo and the Link With Crime By Hunt, Jennifer
  2. Designing Antitrust Rules for Assessing Unilateral Practices: A Neo-Chicago Approach By Evans, David S; Padilla, Atilano Jorge
  3. Excessive Prices: Using Economics to Define Administrable Legal Rules By Evans, David S; Padilla, Atilano Jorge
  4. Anatomy of the Rise and Fall of a Price-Fixing Conspiracy: Auctions at Sotheby's and Christie's By Ashenfelter, Orley C; Graddy, Kathryn
  5. Citizenship Laws and International Migration in Historical Perspective By Bertocchi, Graziella; Strozzi, Chiara
  6. Economic Theories of Bundling and their Policy Implications in Abuse Cases: An Assessment in Light of the Microsoft Case By Caffarra, Cristina; Kühn, Kai-Uwe; Stillman, Robert
  7. Property Tax Limitations and Mobility: The Lock-in Effect of California's Proposition 13 By Nada Wasi; Michelle J. White
  8. Testing out Contractual Incompleteness: Evidence from Soccer By Oriol Carbonell-Nicolau; Diego Comin
  9. "It pays to be green" - a premature conclusion? By Kjetil Telle, Iulie Aslaksen and Terje Synnestvedt
  10. Improving Credibility by Delegating Judicial Competence - the Case of the Judicial Committee of the Privy Council By Stefan Voigt; Michael Ebeling; Lorenz Blume

  1. By: Hunt, Jennifer
    Abstract: I study data on bribes actually paid by individuals to public officials, viewing the results through a theoretical lens that considers the implications of trust networks. A bond of trust may permit an implicit quid pro quo to substitute for a bribe, which reduces corruption. Appropriate networks are more easily established in small towns, by long-term residents of areas with many other long-term residents, and by individuals in regions with many residents their own age. I confirm that the prevalence of bribery is lower under these circumstances, using the International Crime Victim Surveys. I also find that older people, who have had time to develop a network, bribe less. These results highlight the uphill nature of the battle against corruption faced by policy-makers in rapidly urbanizing countries with high fertility. I show that victims of (other) crimes bribe all types of public officials more than non-victims, and argue that both their victimization and bribery stem from a distrustful environment.
    Keywords: corruption; crime; networks
    JEL: D60 K40 O10
    Date: 2004–08
  2. By: Evans, David S; Padilla, Atilano Jorge
    Abstract: This essay describes an approach for designing antitrust rules for assessing whether firms have engaged in anticompetitive unilateral practices that is based in part on the error-cost framework pioneered by Judge Easterbrook. We focus particularly on the role of economic theory and evidence in forming presumptions about the likelihood that unilateral business practices reduce welfare and on the implications of this role for the kinds of research that economists need to conduct concerning unilateral business practices. We then apply this approach to tying. Our approach towards designing legal rules proceeds in two steps. First, economic theory and empirical evidence are used to formulate explicitly a set of presumptions regarding the cost and likelihood of errors resulting from condemning welfare-increasing business practices or condoning welfare-reducing ones. Second, based on those presumptions, a legal rule that minimizes the cost of errors is selected. We will refer to this as a neo-Chicago approach, since it accepts the fundamental tenet of Chicago thinking that legal rules and legal outcomes can and should be assessed based on their efficiency properties, while also incorporating the learning of the Chicago and post-Chicago literatures in designing these rules.
    JEL: K21 L40
    Date: 2004–09
  3. By: Evans, David S; Padilla, Atilano Jorge
    Abstract: European competition laws condemn as ‘exploitative abuses’ the pricing policies of dominant firms that may result in a direct loss of consumer welfare. Article 82(a) of the EC Treaty, for example, expressly states that imposing ‘unfair’ prices on consumers by dominant suppliers constitutes an abuse. Several firms have been found to abuse their dominant positions by charging excessive prices in cases brought by the European Commission and the competition authorities of several Member States. Those cases show that the assessment of excessive pricing is subject to substantial conceptual and practical difficulties, and that any policy that seeks to detect and prohibit excessive prices is likely to yield incorrect predictions in numerous instances. In this Paper we evaluate the pros and cons of alternative legal standards towards excessive pricing by explicitly considering the likelihood of false convictions/acquittals and the costs associated with those errors. We find that the legal standard that maximizes long-term consumer welfare given the information typically available to regulators would involve no ex post intervention on the pricing decisions of dominant firms. A possible exception to this general rule is discussed.
    JEL: K21 L40
    Date: 2004–09
  4. By: Ashenfelter, Orley C; Graddy, Kathryn
    Abstract: The Sotheby’s/Christie’s price-fixing scandal that ended in the public trial of Alfred Taubman provides a unique window on a number of key economic and antitrust policy issues related to the use of the auction system. The trial provided detailed evidence as to how the price fixing worked, and the economic conditions under which it was started and began to fall apart. The outcome of the case also provides evidence on the novel auction process used to choose the lead counsel for the civil settlement. Finally, though buyers received the bulk of the damages, a straightforward application of the economic theory of auctions shows that it is unlikely that successful buyers as a group were injured.
    Keywords: auctions; cartels; commissions; price-fixing
    JEL: D44 K21 L41
    Date: 2004–10
  5. By: Bertocchi, Graziella; Strozzi, Chiara
    Abstract: We investigate the origin, impact and evolution of citizenship laws. Citizenship laws originate from the common and civil law traditions, which apply jus soli and jus sanguinis, respectively. We compile a dataset across countries of the world starting from the 19th century. The impact of the original, exogenously-given laws on international migration proves insignificant for the early, mass migration waves, which confirm to be driven primarily by economic incentives. Postwar convergence of citizenship laws is determined by legal tradition and international migration, but also by border stability, the establishment of democracy, the welfare burden, cultural factors and colonial history.
    Keywords: borders; citizenship laws; democracy; international migration; legal origins
    JEL: F22 K40 N30 O15
    Date: 2004–11
  6. By: Caffarra, Cristina; Kühn, Kai-Uwe; Stillman, Robert
    Abstract: Theories of bundling have had great importance in European competition policy in recent merger control and abuse of dominance cases. Prominent examples include GE/Honeywell, Tetra Laval/Sidel and the recent Microsoft decision. The European Commission has been heavily criticized in all of those cases. In this Paper we attempt to sketch how a systematic approach to bundling cases can be structured. We first provide an overview of existing bundling theories, concentrating on robust economic mechanisms and their empirical implications. This allows us to develop a number of clear criteria to identify potentially anticompetitive bundling. We show that a careful reading undermines recently proposed arguments for a (modified) per se legality rule for bundling.
    Keywords: bundling; efficiency defenses; foreclosure; policy rules
    JEL: K21 L41
    Date: 2004–11
  7. By: Nada Wasi; Michelle J. White
    Abstract: Proposition 13, adopted by California voters in 1978, mandates a property tax rate of one percent, requires that properties be assessed at market value at the time of sale, and allows assessments to rise by no more than 2% per year until the next sale. In this paper, we examine how Prop 13 has affected the average tenure length of owners and renters in California versus in other states. We find that from 1970 to 2000, the average tenure length of owners and renters in California increased by 1.04 years and .79 years, respectively, relative to the comparison states. We also find substantial variation in the response to Prop 13, with African-American households responding more than households of other races and migrants responding more than native-born households. Among owner-occupiers, the response to Prop 13 increases sharply as the size of the subsidy rises. Homeowners living in inland California cities such as Bakersfield receive Prop 13 subsidies averaging only $110/year and their average tenure length increased by only .11 years in 2000, but owners living in coastal California cities receive Prop 13 subsidies averaging in the thousands of dollars and their average tenure length increased by 2 to 3 years.
    JEL: H2 R2 H7 K2
    Date: 2005–02
  8. By: Oriol Carbonell-Nicolau; Diego Comin
    Abstract: The theory of incomplete contracting is rival to that of complete contracting as a frame of reference to understand contractual relationships. Both approaches rest upon diametrically opposed postulates and lead to very different policy conclusions. From a theoretical viewpoint, scrutiny of the postulates has revealed that both frameworks are reasonable. This paper designs and implements an empirical test to discern whether contracts are complete or incomplete. We analyze a problem where the parties' inability to commit not to renegotiate inefficiencies is sufficient for contractual incompleteness. We study optimal contracts with and without commitment and derive an exclusion restriction that is useful to identify the relevant commitment scenario. The empirical analysis takes advantage of a data set from Spanish soccer player contracts. Our test rejects the commitment hypothesis, which entails the acceptance of the existence of contractual incompleteness in the data. We argue that our conclusions should hold a fortiori in many other economic environments.
    JEL: L10 L20 L60 K0
    Date: 2005–02
  9. By: Kjetil Telle, Iulie Aslaksen and Terje Synnestvedt (Statistics Norway)
    Abstract: It has been claimed that good environmental performance can improve firms’ economic performance. However, because of e.g. data limitations, the methods applied in most previous quantitative empirical studies of the relationship between environmental and economic performance of firms suffer from several shortcomings. We discuss these shortcomings and conclude that previously applied methods are unsatisfactory as support for a conclusion that it pays for firms to be green. Then we illustrate the effects of these shortcomings by performing several regression analyses of the relationship between environmental and economic performance using a panel data set of Norwegian plants. A simple correlation analysis confirms the positive association between our measures of environmental and economic performance. The result prevails when we control for firm characteristics like e.g. size or sub-industry in a pooled regression. However, the result could still be biased by omitted unobserved variables like management or technology. When we control for unobserved plant specific characteristics in a panel regression, the effect is no longer statistically significant. Hence, greener plants perform economically better, but the analysis provides no support for the claim that it is because they are greener. These empirical findings further indicate that a conclusion that it pays to be green is premature.
    Keywords: Economic performance; environmental performance; environmental regulations; pays to be green
    JEL: Q25 Q28 K23
    Date: 2004–11
  10. By: Stefan Voigt (Department of Economics, University of Kassel and ICER, Torino); Michael Ebeling (Department of Economics, University of Kassel); Lorenz Blume (Department of Economics, University of Kassel)
    Abstract: It is argued that government credibility is an important resource and that it can be improved by delegating decision-making competence beyond the nation-state. It is hypothesized that such delegation should result in higher income and growth. Some former British colonies retained the Judicial Committee of the Privy Council as their final court of appeals even after independence. This court is thus taken as a natural experiment to test our hypothesis. It turns out that retaining the jurisdiction is indeed significant for explaining economic growth.
    Keywords: Credibility, Delegation of Competence, Judicial Independence, Economic History, Judicial Committee of the Privy Council
    JEL: H11 K11 K41 N40 O57 P51
    Date: 2004–12

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