New Economics Papers
on Law and Economics
Issue of 2005‒04‒03
six papers chosen by
Jeong-Joon Lee, Towson University

  1. Unemployment and Right-Wing Extremist Crime By Armin Falk; Josef Zweimüller
  2. Bijural services as factors of production. By SALMON, Pierre; BRETON, Albert
  3. Did Iraq Cheat the United Nations? Underpricing, Bribes, and the Oil for Food Program By Chang-Tai Hsieh; Enrico Moretti
  4. Asymmetric Crime Cycles By H. Naci Mocan; Turan G. Bali
  5. A Damage-Revelation Rationale for Coupon Remedies By A. Mitchell Polinsky; Daniel L. Rubinfeld
  6. Regulation or Markets? The Case of Employment Contract By W. Bentley MacLeod

  1. By: Armin Falk (IZA Bonn and University of Bonn); Josef Zweimüller (University of Zurich and IZA Bonn)
    Abstract: Right-wing extremism is a serious problem in many societies. A prominent hypothesis states that unemployment plays a crucial role for the occurrence of right-wing extremist crime. In this paper we empirically test this hypothesis. We use a previously not used data set which includes all officially recorded right-wing criminal acts in Germany. These data are recorded by the German Federal Criminal Police Office on a monthly and state level basis. Our main finding is that there is in fact a significant positive relation between unemployment and rightwing criminal activities. We show further that the big difference in right-wing crime between East and West German states can mostly be attributed to differences in unemployment. This finding reinforces the importance of unemployment as an explanatory factor for right-wing crime and questions explanations based solely on the different socialization in former communist East Germany and the liberal West German states. Our data further allow us to separate violent from non-violent right-wing crimes. We show that unemployment is closely related to both types of crimes, but that the association with non-violent crimes is much stronger. Since right-wing crime is committed particularly by relatively young males, we also explore whether the youth unemployment rate is a better predictor for right-wing crime than total unemployment. This hypothesis can be rejected: given total unemployment, a higher share of youth unemployment does not affect right-wing extremist crime rates.
    Keywords: hate crime, right-wing extremism, unemployment, cost of unemployment
    JEL: K14 J60 J15
    Date: 2005–03
  2. By: SALMON, Pierre (LEG - CNRS UMR 5118 - Université de Bourgogne); BRETON, Albert (Department of economics. University of Toronto)
    Abstract: This study is primarily concerned with the security of transactions and contracts in contexts in which there is more than one legal system - in bijural (or multijural) societies - and with the contribution that bijural lawyers can make to the security of transactions and contracts, that is with the productivity of bijural lawyers. It is, as a consequence, focused on the demand for bijural lawyers as factor inputs in the production of contractual security and, at one remove, transaction security. We test the usefulness of the approach by analyzing several cases of change that have or are taking place in the world today. Though the analysis is qualitative, it appears to confirm the usefulness of treating bijural services as factors of production.
    Keywords: legal systems; lawyers; legal education; contractual security
    JEL: K20 I20
    Date: 2005–01
  3. By: Chang-Tai Hsieh; Enrico Moretti
    Abstract: From 1997 through early 2003, the United Nations Oil for Food Program allowed Iraq to export oil in exchange for humanitarian supplies. We measure the extent to which this program was corrupted by Iraq's attempts to deliberately set the price of its oil below market prices in an effort to solicit bribes, both in the form of direct cash bribes and in the form of political favors, from the buyers of the underpriced oil. We infer the magnitude of the potential bribe by comparing the gap between the official selling price of Iraq's two crude oils (Basrah Light and Kirkuk) and the market price of several comparison crude oils during the Program to the gap observed prior to the Program. We find consistent evidence that underpricing of Basrah Light averaged $1 per barrel from 1997 through 1999 and reaches a peak (almost $3 per barrel) from May 2000 through September 2001. The estimated underpricing quickly declines after the UN introduced a retroactive pricing scheme that reduced Iraq's ability to set the price of its oil. The evidence on whether Kirkuk was underpriced is less clear. Notably, we find that episodes of underpricing of Basrah Light are associated with a decline in the share of major oil multinationals among the oil buyers, and an increase in the share of obscure individual traders. The observed underpricing of Iraqi oil suggests that Iraq generated $5 billion in rents through its strategic underpricing. Of this amount, we estimate that Iraq collected $0.7 to $2 billion in bribes (depending on Iraq's share of the rents implied by the price gap), which is roughly 1 to 3 percent of the total value of oil sales under the Program. Finally, we find little evidence that underpricing was associated with increases in the relative supply or declines in the relative demand of Iraqi oil.
    JEL: J0 K4
    Date: 2005–03
  4. By: H. Naci Mocan; Turan G. Bali
    Abstract: Recent theoretical models based on dynamic human capital formation, or social influence, suggest an inverse relationship between criminal activity and economic opportunity and between criminal activity and deterrence, but predict an asymmetric response of crime. In this paper we use three different data sets and three different empirical methodologies to document this previously-unnoticed regularity. Using nonparametric methods we show that the behavior of property crime is asymmetric over time, where increases are sharper but decreases are gradual. Using aggregate time-series U.S. data as well as data from New York City we demonstrate that property crime reacts more (less) strongly to increases (decreases) in the unemployment rate, to decreases (increases) in per capita real GDP and to decreases (increases) in the police force. The same result is obtained between unemployment and property crime in annual state-level panel data. These results suggest that it may be cost effective to implement mechanisms to prevent crime commission rates from rising in the first place.
    JEL: K4
    Date: 2005–03
  5. By: A. Mitchell Polinsky; Daniel L. Rubinfeld
    Abstract: This article studies optimal remedies in a setting in which damages vary among plaintiffs and are difficult to determine. We show that giving plaintiffs a choice between cash and coupons to purchase units of the defendant%u2019s product at a discount -- a "coupon-cash remedy" -- is superior to cash alone. The optimal coupon-cash remedy offers a cash amount that is less than the value of the coupons to plaintiffs who suffer relatively high harm. Such a remedy induces these plaintiffs to choose coupons, and plaintiffs who suffer relatively low harm to choose cash. Sorting plaintiffs in this way leads to better deterrence because the costs borne by defendants (the cash payments and the cost of providing coupons) more closely approximate the harms that they have caused.
    JEL: D18 D82 D83 H23 K19
    Date: 2005–03
  6. By: W. Bentley MacLeod
    Abstract: Regulation of the employment contract is both wide spread and diverse. The diversity of regulation is surprising because it suggests that there is little consensus regarding optimal intervention into the labor market. This paper discusses several economic reasons why it may be efficient for employers and employees to enter into long term contracts that make employee dismissal expensive. This analysis suggests that employment contracts can be expected to be complex in practice, and hence can be viewed as part of the technology of exchange. Given that knowledge of a technology requires skill and know-how, one cannot expect all employee-employer matches to discover and use the most efficient contract terms possible. It is suggested that the regulation of the employment relationship might be improved with the creation of a market for contracts, similar to the one that currently exists in the United States for construction projects.
    JEL: J30 J41 K31
    Date: 2005–01

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