New Economics Papers
on Law and Economics
Issue of 2005‒11‒09
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Health-Risking Informal Service: Price, Prevalence and Law Enforcement By Levy, Amnon
  2. The Impact of Direct Democracy on Crime: Is the Median Voter Boundedly Rational? By Justina A.V. Fischer
  3. The Avian Flu Disease: A Case of Precautionary Failure By Marcello Basili; Mauriziop Franzini
  4. Deterrence and Compliance in a Demerit Point System By Marcello Basili; Antonio Nicita
  5. Sons of Something: Taxes, Lawsuits and Local Political Control in Sixteenth Century Castile By Mauricio Drelichman

  1. By: Levy, Amnon (University of Wollongong)
    Abstract: The health-risking informal service is transacted when the expected extra satisfaction rate exceeds the ratio of the expected extra cost to the formal service price. Its prevalence decreases with the costs of risk bearing for the providers and clients. Law-enforcement effort lowers (raises) the informal service equilibrium price when the ratio of the providers' and the clients' degrees of absolute risk aversion is greater (smaller) than the ratio of the law-enforcement elasticities of their cost bearing. Spending on law enforcement is efficient when the public cost of the expected chain-infection stemming from the informal service exceeds a threshold level.
    Keywords: Unsafe sex service, risk bearing, sexually transmitted diseases, public costs, law enforcement
    JEL: I19 K32
    Date: 2005
  2. By: Justina A.V. Fischer
    Abstract: Direct democracy is believed to lead to an allocation of resources that is closer to the median voter's preferences. If, however, the median voter suffers from bounded rationality, the allocation of public goods actually achieved should be affected. Based on recent empirical findings by economic psychologists, optimism bias and availability heuristic are assumed to influence the median voter's preferences for public safety; particularly, (1) a preference for lower spending on crime prevention and (2) a preference for fighting property crime to fighting violent crime is hypothesized. In consequence, in more direct democratic systems, a re-allocation of scarce means in favor of property crimes should be observed. Estimation of a structural economic model of crime using Swiss cantonal crime rates from 1986 to 2001 corroborates these hypotheses.
    JEL: K42 D80 D70
    Date: 2005–07
  3. By: Marcello Basili; Mauriziop Franzini
    Abstract: The Precautionary Principle has been proposed as the proper behaviour to adopt in the face of the new catastrophic risks that have made their appearance in the last decades. We advance a workable definition of the Precautionary Principle and apply it to the possible outbreak among humans of the avian flu disease. We make use of a Principle-Agent model and show in which sense such outbreak can be considered a “Precautionary failure”.
    Keywords: ambiguity, avian flu, precautionary principle, multiple priors
    JEL: D81 I18 K32
    Date: 2005–07
  4. By: Marcello Basili; Antonio Nicita
    Abstract: This paper attempts to outline the virtues and the perverse effects of a Demerit Point System (DPS). Under a DPS, once overcome a given threshold of demerit points, infringers are punished by severe non-monetary sanctions (such as the temporarily suspension of driving license in traffic enforcement). Surprisingly, no comprehensive economic theory has been provided to support the widespread implementation of DPS. This paper tries to fill this gap. We show that the impact of a DPS depends on the distribution of preferences of the population of potential infringers. For some agents a DPS far from increasing deterrence may actually reinforce deviant behavior. Only for some group of agents, once a given threshold of accumulated penalties has been reached compliance may occur. Thus compliance is obtained only after some level of under-deterrence is tolerated. We then provide some policy suggestions in order to improve general deterrence under a DPS for any given level of detection policy. Our results seem to be consistent with available evidence.
    Keywords: Demerit Point System, Deterrence, Compliance, Recidivism, Public Law Enforcement, Traffic Law Enforcement
    JEL: K42
    Date: 2005–07
  5. By: Mauricio Drelichman (University of British Columbia)
    Abstract: The widespread ennoblement of the Spanish bourgeoisie in the sixteenth century has been traditionally considered one of the main causes of Iberian decline. I document and quantify the surge in ennoblement through a new time series of nobility cases preserved in the Archive of the Royal Chancery Court of Valladolid and use the insights provided by lawsuits from several localities to model the rent seeking mechanisms at work in a game theoretical framework. I then validate the game against the data and use it to draw inferences about the unobserved redistributive activity in local politics. Contrary to established scholarship, I find that: 1) the tax exemptions granted to nobles cannot alone explain the flight to privilege, since ennoblement was more costly than the present value of the future tax benefits; 2) the central motivation behind ennoblement was to gain control of local governments and acquire decision-making power over common resources; 3) while ennoblement reflected a high level of redistributive activity, there is no evidence in the archival record linking it to the stagnation and decline of Spain.
    Keywords: rent seeking, nobility, local government, litigation, redistribution, institutions, institutional analysis, empirical method, game theory, Castile, Spain
    JEL: N43 H71 K4
    Date: 2005–08–30

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