New Economics Papers
on Law and Economics
Issue of 2005‒09‒29
eighteen papers chosen by
Jeong-Joon Lee, Towson University

  1. Identifying the Socioeconomic Determinants of Crime in Spanish Provinces By Paolo Buonanno and Daniel Montolio
  2. Intelligence Failures: An Organizational Economics Perspective By Garicano, Luis; Posner, Richard A.
  3. Implementation of Anti-Discrimination Policy: Does Judicial Selection Matter? By Besley, Timothy; Payne, A. Abigail
  4. The Determinants of Asset Stripping: Theory and Evidence from the Transition Economies By Campos, Nauro F; Giovannoni, Francesco
  5. Peer Effects and Social Networks in Education and Crime By Calvó-Armengol, Antoni; Patacchini, Eleonora; Zenou, Yves
  6. Peer Effects and Social Networks in Education and Crime By Calvó-Armengol, Antoni; Patacchini, Eleonora; Zenou, Yves
  7. The Effect of Child Access Prevention Laws on Non-Fatal Gun Injuries By Jeff DeSimone; Sara Markowitz
  8. The Law and Economics of Antidiscrimination Law By John J. Donohue III
  9. Merger Control in Differentiated Product By Patrick Paul Walsh; Franco Mariuzzo; Ciara Whelan
  10. Specificity Revisited: The Role of Cross-Investments By Matthew Ellman
  11. Market Institutions and Judicial Rulemaking By Benito Arruñada; Veneta Andonova
  12. A Simple Access Pricing Rule to Achieve the Ramsey Outcome in Two-Way Access By Doh-Shin Jeon
  13. Managing Competition in Professional Services and the Burden of Inertia By Benito Arruñada
  14. Is Software Piracy a Middle Class Crime? Investigating the inequality-piracy channel By Justina A.V. Fischer; Antonio Rodríguez Andrés
  15. Termination Clauses in Partnerships By Stefano Comino; Antonio Nicolò; Piero Tedeschi
  16. Report of the Georgia Governor’s Wokers’ Compensation Review Commission By Thomas A. Eaton; David B. Mustard
  17. Social Preferences and Relational Contracting Performance: An Experimental Investigation By Brian Roe; Steven Y. Wu
  18. How Do Criminals Locate? Crime and Spatial Dependence in Minas Gerais By Frédéric Puech

  1. By: Paolo Buonanno and Daniel Montolio (Universitat de Barcelona)
    Abstract: In this paper we study, having as theoretical reference the economic model of crime (Becker, 1968; Ehrlich, 1973), which are the socioeconomic and demographic determinants of crime in Spain paying attention on the role of provincial peculiarities. We estimate a crime equation using a panel dataset of Spanish provinces (NUTS3) for the period 1993 to 1999 employing the GMM-system estimator. Empirical results suggest that lagged crime rate and clear-up rate are positively correlated to all typologies of crime rate considered. Property crimes are better explained by socioeconomic variables (GDP per capita, GDP growth rate and percentage of population with high school and university degree), while demographic factors reveal important and significant influences, in particular for crimes against the person. These results are obtained using an instrumental variable approach that takes advantage of the dynamic properties of our dataset to control for both measurement errors in crime data and joint endogeneity of the explanatory variables.
    Keywords: Crime, Socioeconomic factors, Panel Data.
    JEL: I2 J24 K42
    Date: 2005
  2. By: Garicano, Luis; Posner, Richard A.
    Abstract: Two recent failures of the United States intelligence system have led to the creation of high-level investigative commissions. The failure to prevent the terrorist attacks of 9/11 prompted the creation of the 9/11 Commission, and the mistaken belief that Saddam Hussein had retained weapons of mass destruction prompted the creation of the Weapons of Mass Destruction Commission. We use insights from organizational economics to analyse the principal organizational issues raised by these commissions.
    Keywords: intelligence reform; organizational economics; war on terrorism
    JEL: D2 D8 H1 K0 L22 L32
    Date: 2005–08
  3. By: Besley, Timothy; Payne, A. Abigail
    Abstract: One of the most striking changes in labour market policy of the past 50 years has come in the form of legislation to limit discrimination in the workplace based on race, gender, disability and age. If such measures are to be effective in ending discrimination, they need to be enforced. The latter is dependent on state and federal agencies such as the Equal Employment Opportunities Commission and ultimately the willingness of courts to find in favour of plaintiffs. Courts also play an important role in the evolution of anti-discrimination policy since past decisions create future precedent. This paper asks whether the number of charges filed with government agencies depends on the method by which judges are selected. Popularly elected judges should be expected to have more pro-employee preferences (selection) and should move closer to employee preferences (incentives). This should result in fewer anti-discrimination charges being filed in states that appoint their judges. In line with this prediction, this paper uses data on the number of employment discrimination charges filed for the period 1973-2000 and finds that states that appoint their judges have fewer anti-discrimination charges being filed.
    Keywords: discrimination; judicial system
    JEL: J7 K4
    Date: 2005–09
  4. By: Campos, Nauro F; Giovannoni, Francesco
    Abstract: During the transition from plan to market, managers and politicians succeeded in maintaining control of large parts of the stock of socialist physical capital. Despite the obvious importance of this phenomenon, there have been no efforts to model, measure and investigate this process empirically. This paper tries to fill this gap by putting forward theory and econometric evidence. We argue that asset stripping is driven by the interplay between the firm's potential profitability and its ability to influence law enforcement. Our econometric results, for about 950 firms in five transition economies, provide support for this argument.
    Keywords: asset stripping; corruption; law enforcement; transition
    JEL: H82 K42 O17 P26 P31
    Date: 2005–09
  5. By: Calvó-Armengol, Antoni; Patacchini, Eleonora; Zenou, Yves
    Abstract: This paper studies whether structural properties of friendship networks affect individual outcomes in education and crime. We first develop a model that shows that, at the Nash equilibrium, the outcome of each individual embedded in a network is proportional to her Bonacich centrality measure. This measure takes into account both direct and indirect friends of each individual but puts less weight on her distant friends. Using a very detailed dataset of adolescent friendship networks, we show that, after controlling for observable individual characteristics and unobservable network specific factors, the individual's position in a network (as measured by her Bonacich centrality) is a key determinant of her level of activity. A standard deviation increase in the Bonacich centrality increases the level of individual delinquency by 45% of one standard deviation and the pupil school performance by 34% of one standard deviation.
    Keywords: centrality measure; delinquency; network structure; peer influence; school performance
    JEL: A14 I21 K42
    Date: 2005–09
  6. By: Calvó-Armengol, Antoni (ICREA and Universitat Autònoma de Barcelona); Patacchini, Eleonora (Università di Roma "La Sapienza"); Zenou, Yves (The Research Institute of Industrial Economics)
    Abstract: This paper studies whether structural properties of friendship networks affect individual outcomes in education and crime. We first develop a model that shows that, at the Nash equilibrium, the outcome of each individual embedded in a network is proportional to her Bonacich centrality measure. This measure takes into account both direct and indirect friends of each individual but puts less weight to her distant friends. Using a very detailed dataset of adolescent friendship networks, we show that, after controlling for observable individual characteristics and unobservable network specific factors, the individual's position in a network (as measured by her Bonacich centrality) is a key determinant of her level of activity. A standard deviation increase in the Bonocich centrality increases the level of individual delinquency by 45% of one standard deviation and the pupil school performance by 34% of one standard deviation.
    Keywords: Centrality Measure; Peer Influence; Network Structure; Delinquency; School Performance
    JEL: A14 I21 K42
    Date: 2005–07–05
  7. By: Jeff DeSimone; Sara Markowitz
    Abstract: Many states have passed child access prevention (CAP) laws, which hold the gun owner responsible if a child gains access to a gun that is not securely stored. Previous CAP law research has focused exclusively on gun-related deaths even though most gun injuries are not fatal. We use annual hospital discharge data from 1988-2001 to investigate whether CAP laws decrease non-fatal gun injuries. Results from Poisson regressions that control for various hospital, county and state characteristics, including state-specific fixed effects and time trends, indicate that CAP laws substantially reduce non-fatal gun injuries among both children and adults. Our interpretation of the estimates as causal impacts is supported by the absence of effects on self-inflicted gun injuries among adults, non-gun self-inflicted injuries, and knife assaults, the failure of violent crime levels and law leads to attain significance or alter estimated law coefficients, and larger coefficient magnitudes in states where the law covers older children.
    JEL: I1 K3
    Date: 2005–09
  8. By: John J. Donohue III
    Abstract: This essay provides an overview of the central theoretical law and economics insights concerning antidiscrimination law across a variety of contexts including discrimination in labor markets, housing markets, consumer purchases, and policing. The different models of discrimination based on animus, statistical discrimination, and cartel exploitation are analyzed for both race and sex discrimination. I explore the theoretical arguments for prohibiting private discriminatory conduct and illustrates the tensions that exist between concerns for liberty and equality. I also discuss the critical point that one cannot automatically attribute observed disparities in various economic or social outcomes to discrimination, and illustrate the complexities in establishing the existence of discrimination. The major empirical findings showing the effectiveness of federal law in the first decade after passage of the 1964 Civil Rights Act are contrasted with the generally less optimistic findings from subsequent antidiscrimination interventions.
    JEL: H J K
    Date: 2005–09
  9. By: Patrick Paul Walsh; Franco Mariuzzo; Ciara Whelan (Department of Economics, Trinity College)
    Abstract: Thresholds defined on the level and change in the HHI (Herfindahl- Hirschmann Index) applied to market shares seem to be the main instrument to select notified mergers for investigation in both the EU and US. We question the use of such a selection rule in di?erentiated products industries. We propose the use of a structural approach to apply HHI thresholds based on profit shares rather than market shares. We illustrate our point using product data for Retail Carbonated Soft Drinks (Price, Market Share and Characteristics). We estimate company (product) mark-ups consistent with a structural model of equilibrium, using demand primitives from a Nested Logit model and a Random Coe?cient model. We provide an example where the HHI thresholds based on profit shares identify potentially damaging mergers not captured by applying thresholds to output shares, or conversely, identify mergers of no concern that would be selected on the basis of output shares.
    JEL: K2 L11 L25 L40 L81
    Date: 2005–08
  10. By: Matthew Ellman
    Abstract: Previous analysis has shown that traders may opt for specific technologies with no joint productivity advantage as a way to commit themselves to trading jointly, but only when long-term contracting is infeasible. This paper proves that speciÞcity can also be optimal (by relaxing the budget-balance constraint) in settings with long-term contracting. Traders will opt for specificity when one trader makes a cross-investment and either (1) this cross-investment has a direct externality on the other trader, (2) both parties invest, or (3) private information is present. The specificity (e.g. from non- salvageable investments, specific assets and technologies, narrow business strategies, and exclusivity restrictions) is equally effective regardless of which trader's alternative trade payoff is reduced. Specificity supports long-term contracts in a broad range of settings - both with and without renegotiation. The theory also offers a novel perspective on franchising and vertical integration.
    Keywords: Specificity, hostages long-term contracting, cross-investments, budget-balance, renegotiation
    JEL: D23 K40
    Date: 2004–11
  11. By: Benito Arruñada; Veneta Andonova
    Abstract: Assuming that the degree of discretion granted to judges was the main distinguishing feature between common and civil law until the 19th century, we argue that constraining judicial discretion was instrumental in protecting freedom of contract and developing the market order in civil law. We test this hypothesis by analyzing the history of Western law. In England, a unique institutional balance between the Crown and the Parliament guaranteed private property and prompted the gradual evolution towards a legal framework that facilitated market relationships, a process that was supported by the English judiciary. On the Continent, however, legal constraints on the market were suppressed in a top-down fashion by the founders of the liberal state, often against the will of the incumbent judiciary. Constraining judicial discretion there was essential for enforcing freedom of contract and establishing the legal order of the market economy. In line with this evidence, our selection hypothesis casts doubts on the normative interpretation of empirical results that proclaim the superiority of one legal system over another, disregarding the local conditions and institutional interdependencies on which each legal system was grounded.
    Keywords: Legal Systems, Institutional Development, Law Enforcement
    JEL: K40 N40 O10
    Date: 2004–12
  12. By: Doh-Shin Jeon
    Abstract: In this paper, I consider a general and informationally effcient approach to determine the optimal access rule and show that there exists a simple rule that achieves the Ramsey outcome as the unique equilibrium when networks compete in linear prices without network-based price discrimination. My approach is informationally effcient in the sense that the regulator is required to know only the marginal cost structure, i.e. the marginal cost of making and terminating a call. The approach is general in that access prices can depend not only on the marginal costs but also on the retail prices, which can be observed by consumers and therefore by the regulator as well. In particular, I consider the set of linear access pricing rules which includes any fixed access price, the Efficient Component Pricing Rule (ECPR) and the Modified ECPR as special cases. I show that in this set, there is a unique access rule that achieves the Ramsey outcome as the unique equilibrium as long as there exists at least a mild degree of substitutability among networks' services.
    Keywords: Networks, Access Pricing, Interconnection, Competition Policy
    JEL: D4 K21 L41 L51 L96
    Date: 2005–02
  13. By: Benito Arruñada
    Abstract: Professional services are characterized by information asymmetries, economies of scope and externalities. To resolve conflicts of interest, they require special organizational formulas, based on deferred and variable compensation, self-selection and, when positive externalities are necessary, competitive restraints. In principle, a set of criteria and organizational design patterns could be used for assessing, managing and regulating all types of professional organization, whether public or private, competitive or monopolistic. Competitive restraints, however, entail substantial risks, one of the main ones being that they tend to outlast their useful life. This risk is illustrated here by examining pharmacists and notaries, two professions for which the existing restraints are today dysfunctional because most of the services that might have made such restraints necessary are now in fact provided by other public and private agents. Liberalization is therefore advisable, especially for standard services.
    Keywords: professions, competition, lawyers, notaries, pharmacists
    JEL: K21 K23 J44 L44
    Date: 2005–05
  14. By: Justina A.V. Fischer; Antonio Rodríguez Andrés
    Abstract: This paper uses a sample of 71 countries in a cross-country context to empirically analyze the relationship between income distribution and software piracy rates. It measures income inequality by the Gini coefficient and alternatively by quintile shares. This analysis remedies previous econometric studies by controlling for a wide range of factors that potentially influence national piracy rates and employing an instrumental variables approach. Results indicate that income inequality is negatively associated with piracy rates but also that the impact of various income classes on piracy rates may depend on the geographic region where a country is located. Moreover, the model predicts an inverted U-shaped relationship between piracy and per capita income and reveals an apparent inverse relationship between individualism and software piracy. In addition, the results seem robust to the inclusion of additional covariants often employed in predicting piracy rates and the occurrence of property crime.
    JEL: K42 K11 D3
    Date: 2005–08
  15. By: Stefano Comino (Dipartimento di Economia, Università di Trento); Antonio Nicolò (Dipartimento di Scienze Economiche ''M. Fanno'', Università di Padova); Piero Tedeschi (Dipartimento di Statistica, Università degli Studi di Milano - Bicocca)
    Abstract: In this paper, we prove that two firms can choose not to include a termination clause in their partnership contract, thus inducing a costly termination in case of failure of the joint project. This ex-post inefficiency induces partners to exert large non-contractible efforts (investments) to decrease the probability of failure. Therefore, the absence of a termination clause works as a ``discipline device''\ that mitigates the moral hazard problem within the partnership. We show that writing a contract without a termination clause is a credible commitment even when partners can add such a clause in the contract in any moment of their relationship.
    Keywords: moral hazard, termination clauses, partnerships, joint ventures
    JEL: D82 K12
    Date: 2005–09–14
  16. By: Thomas A. Eaton (Universtiy of Georgia); David B. Mustard (University of Georgia)
    Abstract: The Commission appointed by Governor Barnes consists of fourteen members, three ex officio members, and seven advisory members. This group includes academics, members of the legislature, claimants attorneys, defense attorneys, representatives from the insurance industry, organized labor, the textile industry, and government agencies. It was charged by the Governor to review and evaluate Georgia’s laws and procedures affecting workers’ compensation. The Commission’s primary goal was to prepare an accurate description of the current workers’ compensation system in Georgia. More specifically, this Report provides detailed information regarding the number of claims, benefits paid to employees, employer costs, and insurance profitability. It also compares workers’ compensation costs and benefits in Georgia with those in other states, particularly our Southeastern neighbors. Our purpose is to determine whether workers’ compensation costs place Georgia employers at a competitive disadvantage in regional and national markets. In preparing this Report, the Commission relied on the most recent available reports and data collected by organizations such as the National Academy of Social Insurance, the National Council on Compensation Insurance, the Workers Compensation Research Institute, the United States Department of Labor, and the Georgia State Board of Workers’ Compensation.
    Keywords: Workers' Compemsation, wages, unemployment, disability, indemnity
    JEL: K
    Date: 2005–09–14
  17. By: Brian Roe (Ohio State University); Steven Y. Wu (Ohio State University)
    Abstract: We examine how social preferences affect behavior and surplus in relational contracts. Experimental subjects participate in a contracting environment similar to Brown, Falk, and Fehr [Brown, M., Falk, A. & Fehr, E., “Relational Contracts and the Nature of Market Interactions, Econometrica, 72 (2004):747-780] and in social preference experiments adapted from Charness and Rabin [Charness, G. & Rabin, M. “Understanding Social Preferences with Simple Tests.” The Quarterly Journal of Economics 117(2002): 817-869]. Subjects’ behavior during the Charness and Rabin experiment is a significant predictor of behavior and outcomes observed during the subsequent multi-period, finite-horizon, relational- contracting environment, which features market power, unenforceable performance, reputation formation and endogenous matching of trading partners. Compared to subjects who respond to the Charness-Rabin games in a fashion consistent with purely self-interested, competitive or reciprocal social preferences, buyers and sellers with alternative social preference structures engage in contracts with substantially higher quality and price, which leads to greater surplus for both parties. A key difference is that self-interested, competitive and reciprocal buyers respond to early-period shirking by extending subsequent offers that are less generous to the seller, while buyers with other social preferences extend subsequent offers that are more generous. Reciprocal and competitive sellers and, to a lesser extent, self-interested sellers, deliver sub-contractual levels of quality more often, which substantially lowers buyer and total welfare. We conclude that intentional or ‘cold’ measures of social preferences have considerable predictive power in dynamic, interactive (or ‘hot’) economic settings.
    Keywords: Contracts; relational contracts; implicit contracts; market interaction; experimental economics; repeated transaction; social preferences.
    JEL: C91 D31 K12
    Date: 2005–09–21
  18. By: Frédéric Puech (CERDI)
    Abstract: The aim of this paper is to investigate the existence of a spatial dependence of crime rates at a local level in the case of municipalities of Minas Gerais, one of the 26 Brazilian states. Results suggest the existence of a positive spatial autocorrelation of municipal violent crime rates. However, it also appears that violent crime against property and against persons do not follow the same spatial behavior. While violent economic crime seems to spread a lot, interpersonal violence is a much more localized phenomenon.
    Keywords: violent crime, spatial autocorrelation, Brazil
    JEL: C31 K42 I20 R12
    Date: 2005–09–17

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