New Economics Papers
on Law and Economics
Issue of 2005‒07‒11
six papers chosen by
Jeong-Joon Lee, Towson University

  1. Who should make corporate law? EC legislation vs regulatory competition By John Armour
  2. Strictness of leniency programs and cartels of asymmetric firms By Motchenkova,Evgenia; Laan,Rob van der
  3. Inequality and crime: separating the effects of permanent and transitory income By Dahlberg, Matz; Gustavsson, Magnus
  4. Multilateral vertical contracting with an alternative supplier : discrimination and nondiscrimination By Caprice, S.
  5. On the Coexistence of Smuggling and Trafficking in Migrants By Yuji Tamura
  6. Does Rapid Liberalization Increase Corruption? By Samia Tavares

  1. By: John Armour
    Abstract: This paper makes a case for the future development of European corporate law through regulatory competition rather than EC legislation
    Keywords: European law, company law, regulatory competition, corporate insolvency
    JEL: G34 H73 K22
  2. By: Motchenkova,Evgenia; Laan,Rob van der (Tilburg University, Center for Economic Research)
    Abstract: This paper studies the effects of leniency programs on the behavior of firms participating in illegal cartel agreements. The main contribution of the paper is that we consider asymmetric firms. In general, firms differ in size and operate in several different markets. In our model, they form a cartel in one market only. This asymmetry results in additional costs in case of disclosure of the cartel, which are caused by an asymmetric reduction of the sales in other markets due to a negative reputation effect. This modeling framework can also be applied to the case of international cartels, where firms are subject to different punishment procedures according to the laws of their countries, or in situations where following an application for leniency firms are subject to costs other than the fine itself and where these costs depend on individual characteristics of the firm. Moreover, following the rules of existing Leniency Programs, we analyze the effects of the strictness of the Leniency Programs, which reflects the likelihood of getting complete exemption from the fine even in case many firms self-report simultaneously. Our main results are that, first, leniency programs work better for small (less diversified) companies, in the sense that a lower rate of law enforcement is needed in order to induce self-reporting by less diversified firms. At the same time, big (more diversified) firms are less likely to start a cartel in the first place given the possibility of self-reporting in the future. Second, the more cartelized the economy, the less strict the rules of leniency programs should be.
    JEL: K21 L41
    Date: 2005
  3. By: Dahlberg, Matz (IFAU - Institute for Labour Market Policy Evaluation); Gustavsson, Magnus (Department of Economics, Uppsala University)
    Abstract: Earlier studies on income inequality and crime have typically used total income or total earnings. However, it is quite likely that it is changes in permanent rather than in transitory income that affects crime rates. The purpose of this paper is therefore to disentangle the two effects by, first, estimating region-specific inequality in permanent and transitory income and, second, estimating crime equations with the two separate income components as explanatory variables. The results indicate that it is important to separate the two effects; while an increase in the inequality in permanent income yields a positive and significant effect on total crimes and three different property crimes, an increase in the inequality in transitory income has no significant effect on any type of crime. Using a traditional, aggregate, measure of income yields mainly insignificant effects on crime.
    Keywords: Crime; permanent income; transitory income
    JEL: J30 K40
    Date: 2005–06–27
  4. By: Caprice, S.
    Abstract: This paper examines third-degree price discrimination by an intermediate supplier selling to downstream firms that have access to an alternative less efficient supplier. We allow nonlinear pricing. It is shown that banning price discrimination may raise welfare in some cases by increasing total output. The fall in the final price is a result of the dominant supplier trying to offset the reduction in profits caused by the threat of bypass by the downstream firms. ...French Abstract : Ce papier examine la discrimination en prix sur un marché intermédiaire oû un vendeur en concurrence avec un fournisseur alternatif s'adresse à plusieurs distributeurs. L'analyse est conduite en tarifs non-linéaires. Il est montré qu'interdire la discrimination peut augmenter le surplus social par un accroissement de la quantité vendue. La baisse du prix final est le résultat des contrats proposés par le fournisseur dominant qui tente de compenser un partage moins favorable du surplus de l'industrie par une concurrence accrue.
    JEL: K21 L13 L42
    Date: 2005
  5. By: Yuji Tamura (University of Warwick)
    Abstract: Akerlof's (1970) model of asymmetric information is adapted for the migrant smuggling market where smugglers differ in their capacities to exploit their clients in the destination. Migrants may gain a greater surplus when informationally disadvantaged than under symmetric information, which can be a source of the marketfs prosperity. We show a static equilibrium where both exploitative and non-exploitative smugglers are active is subject to adverse selection in the long run in an environment where migrants trust social networks and distrust exploitative smugglers. We predict the market may converge to a stable state where only exploitative smugglers are active due to the very information transmission through social networks that is commonly used to evade hiring exploitative smugglers. Exploitative and non- exploitative smugglers then coexist only temporarily. Policymakers are likely to face a dilemma of whether to reduce the exploitation of smuggled migrants or the availability of smuggling services, for there seems to be a trade-off between these.
    Keywords: irregular migration, migrant smuggling, migrant trafficking, adverse selection
    JEL: F22 J61 D82 L15 K42
    Date: 2005–07–07
  6. By: Samia Tavares (Rochester Institute of Technology)
    Abstract: Corruption scandals seem to abound in countries that have recently undergone reform. Despite the proliferation of stories in the news media, no one has examined whether reform—be it democratization or economic liberalization or both—actually causes an increase in corruption. Theory provides no guidance as to the direction of causality—on the one hand, reforms make politicians accountable to voters, as well as introduce more competition, which should decrease corruption. On the other hand, the need for politicians to now raise campaign funds, as well as the increased availability of rents that results from economic liberalization provides for an incentive for corruption. This paper uses the numerous cases of democratizations and economic liberalizations that occurred in the 80s and 90s to examine this issue. The paper finds that democratizations reduce corruption, while liberalization may actually increase corruption. Furthermore, undertaking both reforms in rapid succession actually leads to a decrease in corruption, while countries that democratized more than 5 years after liberalizing experienced an increase in corruption.
    Keywords: corruption; liberalization; government; democracy
    JEL: D72 D73 H11 H77 K42
    Date: 2005–07–06

This issue is ©2005 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.