New Economics Papers
on Law and Economics
Issue of 2005‒12‒01
thirteen papers chosen by
Jeong-Joon Lee, Towson University

  1. CRIME AND PUNISHMENT WITH HABIT FORMATION By Vladimir Kühl Teles; Joaquim P. Andrade
  2. Antidumping: Prospects for Discipline from the Doha Negotiations By J. Michael Finger; Andrei Zlate
  3. Crime and Police Resources: The Street Crime Initiative By Stephen Machin; Olivier Marie
  4. New Survey Evidence on Recent Changes in UK Union Recognition By Jo Blanden; Stephen Machin; John Van Reenen
  5. Courts and contractual innovation: a preliminary analysis By Mitchell Berlin; Yaron Leitner
  6. Social status and crime By Emrah Arbak
  7. The Theory of Public Enforcement of Law By A. Mitchell Polinsky; Steven Shavell
  8. Liability for Accidents By Steven Shavell
  9. The U.S. Constitution and Monetary Powers: An Analysis of the 1787 Constitutional Convention and Constitutional Transformation of the Nation's Monetary System Emerged By Farley Grubb
  10. Individual Perceptions of the Criminal Justice System By Lance Lochner
  11. Sons of Something: Taxes, Lawsuits and Local Political Control in Sixteenth Century Castile By Mauricio Drelichman
  12. Shareholder Protection, Stock Market Development, and Politics By Marco Pagano; Paolo Volpin
  13. Shared Legacies, Disparate Outcomes: Why American South Border Cities Turned the Tables on Crime and Their Mexican Sisters Did Not By Pedro H. Albuquerque

  1. By: Vladimir Kühl Teles; Joaquim P. Andrade
    Abstract: Moral concepts affect crime supply. This idea is modelled assuming that illegal activities is habit forming. We introduce habits in a intertemporal general equilibrium framework to illegal activities and compare its outcomes with a model without habit formation. The findings are that habit (i) reduces the crime level; (ii) reduces the marginal effect of illegal activities return on crime; (iii) reduces the efficacy of punishment.
    JEL: K42 K14
    Date: 2005
  2. By: J. Michael Finger (World Bank); Andrei Zlate (Boston College)
    Abstract: Maintaining an economically sensible trade policy is often a matter of managing pressures for exceptions – for protection for a particular industry. Good policy becomes a matter of managing interventions so as to strengthen the politics of openness and liberalization---of avoiding rather than of imposing such restrictions in the future. In the 1990s, antidumping measures emerged as the instrument of choice to accomplish this, despite the fact that they satisfy neither of these criteria. Its economics is ordinary protection; it considers the impact on the domestic interests that will benefit while excluding the domestic interests that will bear the costs. Its unfair trade rhetoric undercuts rather than supports a policy of openness. As to what would be better, the key issue in a domestic policy decision should be the impact on the domestic economy. Antidumping reform depends less on the good will of WTO delegates toward the "public interest" than on those business interests that are currently treated by trade law as bastards insisting that they be given the same standing as the law now recognizes for protection seekers.
    Keywords: Doha round; antidumping; countervailing measures; safeguards; non-tariff barriers to trade; WTO/GATT
    JEL: F13 K33 N70 O24
    Date: 2005–11–17
  3. By: Stephen Machin; Olivier Marie
    Abstract: In this paper we look at links between police resources and crime in a different way to theexisting economics of crime work. To do so we focus on a policy intervention - the StreetCrime Initiative - that was introduced in England and Wales in 2002. This allocatedadditional resources to some police force areas to combat street crime, whereas other forcesdid not receive any additional funding. Estimates derived from several empirical strategiesshow that robberies did fall significantly in SCI police forces relative to non-SCI forces afterthe initiative was introduced. Moreover, the policy seems to have been a cost effective one.There is some heterogeneity in this positive net social benefit across different SCI policeforces, suggesting that some police forces may have made better use of the extra resourcesthan others. Overall, we reach the conclusion that increased police resources do in fact leadto lower crime, at least in the context of the SCI programme we study.
    Keywords: Street crime, Police resources, Cost effectiveness
    JEL: H00 H5 K42
    Date: 2005–03
  4. By: Jo Blanden; Stephen Machin; John Van Reenen
    Abstract: This paper reports results from a recent survey we conducted on the union status of over 650firms in the private sector of the UK. Compared to earlier periods, the survey shows that since 1997 there hasbeen a slight fall in derecognition, but a relatively large increase in union recognition. Almost 11% of firmsreport experiencing some new recognition, whilst 7% reported some derecognition. In the late 1980s newrecognitions among similar firms were much lower (3% between 1985 to 1990 according to Gregg and Yates,1991). In our survey, new recognitions were more prevalent in larger firms and in regions and industries whereunion membership was already high. New recognitions were less likely to have occurred in companies withhigher wages, higher productivity and higher capital intensity. The 'blip up' in new recognitions is consistentwith the idea that the incoming Labour government had a positive effect on the ability of unions to gainrecognition, either through the 1999 legislation or more indirectly through changing the political climate.
    Keywords: unions, productivity, employment legislation
    JEL: J51 K31 L25
    Date: 2005–05
  5. By: Mitchell Berlin; Yaron Leitner
    Abstract: The authors explore a model in which agents enter into a contract but are uncertain about how a judge will enforce it. The judge can consider a wide range of evidence, or instead, use a rule-based method of judgment that relies on limited information. The authors focus on the following tradeoff: Considering a wide range of evidence increases the likelihood of a correct ruling in the case at hand but undermines the formation of precedents that resolve legal uncertainty for subsequent agents. ; In a model of contractual innovation, they show that the use of evidence increases the likelihood of innovation in any period, while rule-driven judgments increase the rate of diffusion of the innovation. When courts can use a mixture of evidence and rules, the minimum amount of evidence that induces adoption is (weakly) decreasing over time. They also examine the breadth of precedents. Overlapping jurisdictions reduce the optimal breadth of precedents because broad precedents are more likely to introduce conflict. Accordingly, overlapping jurisdictions increase the value of using evidence. The authors use their model to interpret differences between the legal systems in the U.S. and England.
    Keywords: Contracts
    Date: 2005
  6. By: Emrah Arbak (GATE CNRS)
    Abstract: We consider a large population of agents choosing either to engage in a criminal activity or working. Individuals feel varying degrees of selfreproach if they commit criminal acts. In addition, they are concerned with their social status in society, based on others’ perceptions of their values. In making their decisions, individuals weigh both the material and social risks of being a criminal and a worker. We find that introducing social status concerns may induce multiple equilibria. We also consider the implications of intragroup and intergroup interactions in an economy with two classes of earning abilities. Typically, there is more crime in the low ability group and increasing punishment reduces crime, but the opposite may also be true.
    Keywords: Crime, Social identity, Asymmetric information, Behavioral game theory
    JEL: C72 D82 K42 Z13
    Date: 2005–11
  7. By: A. Mitchell Polinsky; Steven Shavell
    Abstract: This chapter of the forthcoming Handbook of Law and Economics surveys the theory of the public enforcement of law – the use of governmental agents (regulators, inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. The theoretical core of our analysis addresses the following basic questions: Should the form of the sanction imposed on a liable party be a fine, an imprisonment term, or a combination of the two? Should the rule of liability be strict or fault-based? If violators are caught only with a probability, how should the level of the sanction be adjusted? How much of society’s resources should be devoted to apprehending violators? We then examine a variety of extensions of the central theory, including: activity level; errors; the costs of imposing fines; general enforcement; marginal deterrence; the principal-agent relationship; settlements; self-reporting; repeat offenders; imperfect knowledge about the probability and magnitude of sanctions; corruption; incapacitation; costly observation of wealth; social norms; and the fairness of sanctions.
    JEL: D23 D62 D63 H23 H26 K14 K42
    Date: 2005–11
  8. By: Steven Shavell
    Abstract: This is a survey of legal liability for accidents. Three general aspects of accident liability are addressed. The first is the effect of liability on incentives, both whether to engage in activities (for instance, whether to drive) and how much care to exercise (at what speed to travel) to reduce risk when so doing. The second general aspect concerns risk-bearing and insurance, for the liability system acts as an implicit insurer for accident victims and it imposes risk on potential injurers (because they may have to pay judgments to victims). In this regard, victims' accident insurance and injurers' liability insurance are taken into account. The third general aspect of accident liability is its administrative expense, comprising the cost of legal services, the value of litigants' time, and the operating cost of the courts. A range of subtopics are considered, including product liability, causation, punitive damages, the judgment-proof problem, vicarious liability, and nonpecuniary harm. Liability is also compared to other methods of controlling harmful activities, notably, to corrective taxation and to regulation.
    JEL: D00 D6 D8 K00
    Date: 2005–11
  9. By: Farley Grubb
    Abstract: The monetary powers embedded in the U.S. Constitution were revolutionary and led to a watershed transformation in the nation's monetary structure. They included determining what monies could be legal tender, who could emit fiat paper money, and who could incorporate banks. How the debate at the 1787 Constitutional Convention over these powers evolved and led the Founding Fathers to the specific powers adopted is presented and deconstructed. Why they took this path rather than replicate the successful colonial system and why they codified such powers into supreme law rather than leaving them to legislative debate and enactment are addressed.
    JEL: K10 G20 E50 N21 H10
    Date: 2005–11
  10. By: Lance Lochner
    Keywords: crime, beliefs, deterrence, perceptions
    JEL: K4
    Date: 2005
  11. By: Mauricio Drelichman
    Keywords: sixteenth century, Castile, Spain, nobility, rent seeking, local government, litigation
    JEL: N0 N4
    Date: 2005
  12. By: Marco Pagano (Università di Napoli Federico II, CSEF, CEPR and ECGI); Paolo Volpin (London Business School)
    Abstract: This paper presents a political economy model where there is mutual feedback between investor protection and stock market development. Better investor protection induces companies to issue more equity and thereby leads to a broader stock market. In turn, equity issuance expands the shareholder base and increases support for shareholder protection. This feedback loop can generate multiple equilibria, with investor protection and stock market size being positively correlated across equilibria. The model’s predictions are tested on panel data for 47 countries over 1993-2002, controlling for country and year effects and endogeneity issues. We also document international convergence in shareholder protection to best-practice standards, and show that it is correlated with cross-border M&A activity, consistent with the model.
    Keywords: political economy, shareholder protection, corporate governance, stock market deve
    JEL: G34 K22 K42
    Date: 2005–11–01
  13. By: Pedro H. Albuquerque (Texas A&M International University)
    Abstract: The article evaluates crime trends in south border sister cities. The region offers a unique assessment opportunity since cities are characterized by shared cultural and historical legacies, institutional heterogeneity, and disparate crime outcomes. Higher homicide rates on the Mexican side seem to result from institutional weaknesses aggravated by apathy towards crime and law enforcement (High Noon attitude). Cultural differences, on the other hand, have been decreasing, and appear to not play a substantial role. Higher population density in Mexican cities may also be a factor. The crime dynamics show opportunistic clustering of criminal activity in Mexican cities, while no clustering is found on the American side. Crime also appears to spill from Mexican cities into American cities. Homicide rates on both sides of the border have been falling faster than countrywide rates, leading, in the case of American cities, and against stereotypes, to rates below the countrywide rate in 2001.
    Keywords: Crime, Border, Law Enforcement, Justice, Immigration, Mexico
    JEL: K42 O18
    Date: 2005–11–22

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