New Economics Papers
on Law and Economics
Issue of 2005‒10‒04
nine papers chosen by
Jeong-Joon Lee, Towson University

  1. Law, Economic Incentives and Public Service Culture By Tony Prosser; Pat O'Malley; Colin Scott; Morag McDermont; Peter Vincent-Jones; Mike Feintuck; Dave Cowan
  2. The laws, regulations, and industry practices that protect consumers who use electronic payment systems: credit and debit cards By Mark Furletti; Stephen Smith
  3. Inequality and Crime: Separating the Effects of Permanent and Transitory Income By Dahlberg, Matz; Gustavsson, Magnus
  4. Are International Merchants Stupid? - A Natural Experiment Refutes the Legal Origin Theory. By Stefan Voigt
  5. Political and Judicial Checks on Corruption: Evidence from American State Governments By James E. Alt; David Dreyer Lassen
  6. Merger Control in Differentiated Product By Patrick Paul Walsh; Franco Mariuzzo; Ciara Whelan
  7. Sociopolitical Instability and Long Run Economic Growth: a Cross Country Empirical Investigation." By James L.Butkiewicz ; Halit Yanikkaya
  8. Risk sharing through financial markets with endogenous enforcement of trades By Thorsten V. Köppl
  9. What drives international bank flows? Politics, institutions and other determinants By Elias Papaioannou

  1. By: Tony Prosser; Pat O'Malley; Colin Scott; Morag McDermont; Peter Vincent-Jones; Mike Feintuck; Dave Cowan
    Keywords: public services; private sector; economic incentives; regulation; contractualisation
    JEL: K10
    Date: 2005–09
  2. By: Mark Furletti; Stephen Smith
    Abstract: Summary: This is the first in a series of three papers that examines the protections available to users of various electronic payment vehicles who fall victim to fraud, discover an error on their statement, or have a dispute with a merchant after making a purchase. Specifically, it examines in detail the federal and state laws that protect consumers in the three situations described above as well as the relevant association, network, and bank policies that may apply. The protection information included in this paper is derived from a wide range of public and non-public sources, including federal and state statutes, consumer-issuer contracts, and interviews with scores of payments industry experts. This first paper focuses on the two most widely used electronic payment methods: credit cards and debit cards. The second paper in the series will examine two newer electronic payment vehicles: ACH debits and prepaid cards. The third paper will discuss the broader industry and policy implications of the authors’ findings.
    Keywords: Regulation E: Electronic Fund Transfers ; Regulation Z: Truth in Lending ; Consumer protection ; Fraud
    Date: 2005
  3. By: Dahlberg, Matz (Department of Economics); Gustavsson, Magnus (Department of Economics)
    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; Earnings dynamics; Inequality
    JEL: C33 D31 J39 K40
    Date: 2005–06–27
  4. By: Stefan Voigt
    Abstract: In economics, there is currently an important discussion on the role of "legal origins" or "legal families". Some economists claim that legal origins play a crucial role until today. Usually, they distinguish between Common Law, French, Scandinavian and German legal origin. When these legal origins are compared, countries belonging to the Common Law tradition regularly come out best (with regard to many different dimensions) and countries belonging to the French legal origin worst. International arbitration provides an ideal "natural experiment" to test this view empirically: in international trade, the contracting parties are free to choose the substantive law that suits their interests best. If the literature just cited was correct, we would expect that rational traders would structure their interactions according to some substantive law based on the Common Law tradition such as British or US American law. Although exact statistics are not readily available, the evidence from cases that end up with international arbitration courts (such as the International Court of Arbitration run by the International Chamber of Commerce in Paris) clearly demonstrates that this is not the case.
    Keywords: Legal Origins, International Arbitration, Choice of Substantive Law
    JEL: F23 K12
    Date: 2005–09
  5. By: James E. Alt (Department of Government, Harvard University); David Dreyer Lassen (Department of Economics, University of Denmark)
    Abstract: The paper investigates the effects of checks and balances on corruption. Within a presidential system, effective separation of powers is achieved under divided government, with the executive and legislative branches being controlled by different political parties. When government is unified, no effective separation exists even within a presidential system, but, we argue, can be partially restored by having an accountable judiciary. Our empirical findings show that divided government and elected, rather than appointed, state supreme court judges are associated with lower corruption and, furthermore, that the effect of an accountable judiciary is stronger under unified government, where government cannot control itself. The effect of an accountable judiciary seems to be driven primarily by judges chosen through direct elections, rather than those exposed to a retention vote following appointment.
    Keywords: separation of powers; corruption; rent seeking; checks and balances; political institutions; judicial independence; rule of law
    JEL: D72 D73
    Date: 2005–08
  6. 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
  7. By: James L.Butkiewicz  (Department of Economics,University of Delaware); Halit Yanikkaya (Department of Economics, Celal Bayar University)
    Abstract: This paper investigates the effects of sociopolitical instability on long-run growth. The impacts of socio-political instability are estimated by cross-country growth regressions for a panel of nations over a thirty-year sample period. Overall, our results are consistent with the existing literature implying that, at best, a weak relationship exists between sociopolitical instability and growth. More importantly, this relationship depends crucially on the measure of sociopolitical instability used. Specifically, while government instability and social instability measures typically have weak and, in some instances, a positive, relationship with growth, political violence indicators have a negative and significant impact on growth. Furthermore, our results indicate that sociopolitical instability has larger adverse effects on countries with higher levels of development and democracy. Although the issue of potential reverse causality is widely emphasized in the literature, our IV estimation results imply that simultaneity is not a severe problem for estimates of empirical growth models including sociopolitical instability measures. On the contrary, the effects of outlier countries and, to a lesser degree, parameter heterogeneity are much more serious problems for estimates using these variables. Length pages: 30 pages
    Keywords: Socio-political Instability; Political Violence; Growth
    JEL: O40 K40
    Date: 2004
  8. By: Thorsten V. Köppl (European Central Bank, Kaiserstr. 29, D-60311 Frankfurt am Main, Germany)
    Abstract: When people share risk in financial markets, intermediaries provide costly enforcement for most trades and, hence, are an integral part of financial markets’ organization. We assess the degree of risk sharing that can be achieved through financial markets when enforcement is based on the threat of exclusion from future trading as well as on costly enforcement intermediaries. Starting from constrained efficient allocations and taking into account the public good character of enforcement we study a Lindahl-equilibrium where people invest in asset portfolios and simultaneously choose to relax their borrowing limits by paying fees to an intermediary who finances the costs of enforcement. We show that financial markets always allow for optimal risk sharing as long as markets are complete, default is prevented in equilibrium and intermediaries provide costly enforcement competitively. In equilibrium, costly enforcement translates into both agent-specific borrowing limits and price schedules that include a separate default premium. Enforcement costs - or, equivalently, default premia - increase borrowing costs, while interest rates per se depend on the change in enforcement over time.
    Keywords: Limited Commitment; Enforcement Intermediaries; Lindahl-equilibrium; Endogenous Borrowing Constraints
    JEL: C73 D60 G10 H41 K42
    Date: 2004–03
  9. By: Elias Papaioannou (London Business School)
    Abstract: This paper uses a large panel of bilateral bank flow data to assess how institutions and politics affect international capital -bank in particular- flows. The following key findings emerge: 1) The empirical "gravity" model is the benchmark in explaining the volume of international banking activities. 2) Conditioned on standard gravity factors (distance, GDP, population), well-functioning institutions are a key driving force for international bank flows. Specifically, foreign banks invest substantially more in countries with i) uncorrupt bureaucracies, ii) high-quality legal system, and iii) a non-government controlled banking system. 3) Beyond institutions, politics exert also a firstorder impact. 4) The European Integration process has spurred cross-border banking activities between member states. These results are robust to various econometric methodologies, samples and the potential endogeneity of institutional characteristics. The strong institutions/politics-bank flows nexus has strong implications for asset trade and international macro theories, which have not modelled these relationships explicitly.
    Keywords: banks, capital flows, institutions, law and finance, politics
    JEL: F34 F21 G21 K00
    Date: 2005–02

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.
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