New Economics Papers
on Law and Economics
Issue of 2005‒12‒09
fifteen papers chosen by
Jeong-Joon Lee, Towson University

  1. Cartel Prosecution and Leniency Programs: Corporate versus Individual Leniency By Philipp Festerling
  2. Should Contractual Clauses that Forbid Renegotiation Always be Enforced? By Schmitz, Patrick W.
  3. Individual Protection Against Property Crime: Decomposing the Effects of Protection Observability By Hotte, Louis; van Ypersele, Tanguy
  4. Crime and Conformism By Patacchini, Eleonora; Zenou, Yves
  5. Was It Something I Ate? Implementation of the FDA Seafood HACCP Program By Anna Alberini; Erik Lichtenberg; Dominic Mancini; Gregmar I. Galinato
  6. Crime and Police Resources: The Street Crime Initiative By Stephen Machin; Olivier Marie
  7. The Determinants of Asset Stripping: Theory and Evidence from the Transition Economies By Nauro F. Campos; Francesco Giovannoni
  8. Salary or Benefits? By Paul Oyer
  9. The Benefits of Liberalising Product Markets and Reducing Barriers to International Trade and investment in the OECD By OECD
  10. The Effects of Campaign Finance Laws on Turnout, 1950-2000 By Jeffrey Milyo; David M. Primo
  11. Property Crime and Law Enforcement in Italy. A Regional Panel Analysis 1980-95 By Guido Travaglini
  12. Governance of securities clearing and settlement systems By Daniela Russo; Terry L. Hart; M. C. Malaguti; Chryssa Papathanassiou
  13. Leniency Policies and Illegal Transactions By Paolo Buccirossi; Giancarlo Spagnolo
  14. Evolutionary Approaches to Legal Change By Dr. Martina Eckardt
  15. Crime and European Labour Market Policy By Prof. Dr. Carsten Ochsen

  1. By: Philipp Festerling (Department of Economics, University of Aarhus, Denmark)
    Abstract: The paper explores the interdependencies between corporate and individual leniency programs. In a duopoly model where corporations are separated into representing owners and operating managers, conflicts between the two types of agents arise if the relative benefits of participating in the corresponding leniency programs differ. As an example of what might cause differing relative benefits, the paper considers the inclusion of damage payments for owners which are not covered by the corporate leniency program. The main findings are: (1) Individual leniency applications are never observed. (2) Threats by managers to apply for individual leniency may, however, increase the owners’ incentive to carry out corporate self-reports. (3) In other cases, the individual leniency program increases the owners’ tolerance for cartel activity for two reasons: Either the corporate leniency program is sufficiently unattractive to the owners, or the owners rely on the option to apply for corporate leniency after the Antitrust Authority has opened a case. (4) Finally, the more distortion decreases, the more ineffective the individual leniency program becomes.
    Keywords: Leniency, corporate leniency, individual leniency, cartel, law enforce- ment, antitrust
    JEL: K21 K42 L13 L44
    Date: 2005–11–28
  2. By: Schmitz, Patrick W.
    Abstract: Recent work in the field of mechanism design has led some researchers to propose institutional changes that would permit parties to enter into non-modifiable contracts, which is not possible under current contract law. This paper demonstrates that it may well be socially desirable not to enforce contractual terms that explicitly prevent renegotiation, even if rational and symmetrically informed parties have deliberately signed such a contract. The impossibility to prevent renegotiation can constrain the principal's abilities to introduce distortions in order to reduce the agent's rent, so that the first-best benchmark solution will more often be attained.
    Keywords: contract modification; moral hazard; renegotiation
    JEL: K12
    Date: 2005–10
  3. By: Hotte, Louis; van Ypersele, Tanguy
    Abstract: We revisit the question of the efficiency of individual decisions to be protected against crime for the cases of both observable and unobservable protection. We obtain that observable protection is unambiguously associated with a negative externality and that at the individual level, it has a deterrence effect but no payoff reduction effect. Unobservable protection has a global deterrence effect and is associated with a private payoff reduction effect but no private deterrence effect. A decrease in the global crime payoff is detrimental to a victim if protection is observable, while it is beneficial with unobservable protection. While protection has a positive diversion effect when observable, it has the equivalent of a negative diversion effect when unobservable.
    Keywords: crime; efficiency; private protection
    JEL: D62 D82 K42
    Date: 2005–10
  4. By: Patacchini, Eleonora; Zenou, Yves
    Abstract: We propose a simple conformism model that explains how parental education and peer pressure impact on criminal activities. We then test the model using the U.S. National Longitudinal Survey of Adolescent Health (AddHealth), which contains unique information on friendship relationships among delinquent teenagers. We find that conformity is very strong within groups of delinquents and that the higher the taste for conformity of an individual, the lower the deviation from the norm's group. These results suggest that, for teenagers, the decision to commit crimes is not a simple choice based primarily on individual considerations but is strongly affected by their environment and peers.
    Keywords: conformism; juvenile crime; norms; parents' education
    JEL: A14 I21 K42
    Date: 2005–11
  5. By: Anna Alberini (University of Maryland); Erik Lichtenberg (University of Maryland); Dominic Mancini (The U.S. Office of Management and Budget); Gregmar I. Galinato (University of Maryland)
    Abstract: We use FDA’s seafood inspection records to examine: (i) how FDA has targeted its inspections under HACCP regulation; (ii) the effects of FDA inspections on compliance with both HACCP and plant sanitation standards; and (iii) the relationship between HACCP regulations and pre-existing sanitation standards. We use a theoretical model of enforcement to derive hypotheses about FDA’s targeting of inspections and firms’ patterns of compliance. We test those hypotheses using econometric models of inspection and compliance. Contrary to the predictions of the theoretical model and to FDA’s own stated policies, FDA does not seem to have targeted inspections based on product risk or past compliance performance. Firms’ compliance strategies seemed to be broadly in accord with the predictions of the theoretical model. The threat of inspection increased the likelihood of compliance, although the deterrent effect was statistically significant for sanitation standards but not for HACCP. Firms tend to persist in compliance status, especially with respect to sanitation standards. Contrary to FDA’s presupposition, however, HACCP compliance does not improve compliance with sanitation standards, suggesting that the two are not complementary.
    Keywords: HACCP, Food safety, Seafood, Enforcement, Regulatory compliance, Regulation
    JEL: I18 K32
    Date: 2005–09
  6. By: Stephen Machin (University College London, CEP, London School of Economics and IZA Bonn); Olivier Marie (CEP, London School of Economics)
    Abstract: In this paper we look at links between police resources and crime in a different way to the existing economics of crime work. To do so we focus on a large-scale policy intervention - the Street Crime Initiative - that was introduced in England and Wales in 2002. This allocated additional resources to some police force areas to combat street crime, whereas other forces did not receive any additional funding. Estimates derived from several empirical strategies show that robberies fell significantly in SCI police forces relative to non-SCI forces after the initiative was introduced. Moreover, the policy seems to have been a cost effective one, even after allowing for possible displacement or diffusion effects onto other crimes and adjacent areas. There is some heterogeneity in this positive net social benefit across different SCI police forces, suggesting that some police forces may have made better use of the extra resources than others. Overall, we reach the conclusion that increased police resources do in fact lead to 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: 2005–11
  7. By: Nauro F. Campos (Brunel University, CEPR, WDI and IZA Bonn); Francesco Giovannoni (CMPO, University of Bristol)
    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, law enforcement, corruption, transition
    JEL: H82 K42 O17 P26 P31
    Date: 2005–11
  8. By: Paul Oyer
    Abstract: Employer-provided benefits are a large and growing share of compensation costs. In this paper, I consider three factors that can affect the value created by employer-sponsored benefits. First, firms have a comparative advantage (for example, due to scale economies or tax treatment) in purchasing relative to employees. This advantage can vary across firms based on size and other differences in cost structure. Second, employees differ in their valuations of benefits and it is costly for workers to match with firms that offer the benefits they value. Finally, some benefits can reduce the marginal cost to an employee of extra working time. I develop a simple model that integrates these factors. I then generate empirical implications of the model and use data from the National Longitudinal Survey of Youth to test these implications. I examine access to employer-provided meals, child-care, dental insurance, and health insurance. I also study how benefits are grouped together and differences between benefits packages at for-profit, not-for-profit, and government employers. The empirical analysis provides evidence consistent with all three factors in the model contributing to firms' decisions about which benefits to offer.
    JEL: J32 J33 M52 K31
    Date: 2005–12
  9. By: OECD
    Abstract: This paper provides an assessment of the impact of a package of structural reforms in all OECD countries on their long-run trade and output gains. The package includes reforms that reduce competition-restraining regulations, cut tariff barriers and ease restrictions on foreign direct investment to “best practice” levels in the OECD area. The analysis, which is based on earlier OECD studies, indicates that such reforms could lead to gains in GDP per capita in OECD countries of up to 4 to 5 per cent. As the analysis is confined to a relatively narrow set of policies and abstracts from potential dynamic effects from reform-induced increases in innovation, the overall gains from broad reforms could be significantly higher than reported in the paper. <P>Les bénéfices de la libéralisation des marchés de produits et de la réduction des barrières aux échanges et aux investissements internationaux dans les pays de l'OCDE Ce document offre une évaluation des réformes globales structurelles dans tous les pays de l'OCDE sur les échanges et la croissance de long terme. Ces réformes incluent l’ensemble des mesures politiques visant la réduction de la réglementation anti-compétitive, la baisse des barrières tarifaires et des restrictions sur les investissements directs étrangers vers les «meilleures pratiques» observées au sein des pays de l’OCDE. L’analyse, qui s’appuie sur de précédents travaux de l’OCDE, montre que de telles réformes peuvent conduire à une augmentation du PIB par habitant entre 4 et 5 pour cent dans les pays de l'OCDE. Étant donné que l’analyse ne couvre qu’un nombre de mesures spécifiques et exclut les effets dynamiques potentiels de l’innovation, les bénéfices tirés d’un ensemble de réformes beaucoup plus large pourraient bien être plus élevés que ceux reportés dans ce document.
    Keywords: international trade, réglementation, regulations, foreign direct investment, investissement direct étranger, commerce international, growth and productivity, croissance et productivité
    JEL: F13 F21 K2 O4
    Date: 2005–12–02
  10. By: Jeffrey Milyo (Department of Economics, University of Missouri-Columbia); David M. Primo
    Abstract: Scholars have proposed many routes by which campaign finance laws may impact turnout. For instance, laws restricting campaign spending may decrease mobilization, resulting in lower turnout. Alternatively, such laws might increase the competitiveness of elections, resulting in higher turnout. Existing studies tend to focus on only one causal pathway, ignoring the net effects of campaign finance reforms on voter turnout. We exploit the variation in state campaign finance laws from 1950 to 2000 in order to estimate the reduced-form relationships between reform and turnout. Using both aggregate and individual-level data, we find that campaign finance laws on net have little impact on turnout in gubernatorial elections. There are two exceptions to this finding: Limits on organizational contributions are shown in an individual level analysis to increase turnout prior to a sea change in campaign finance ushered in by the Buckley v. Valeo decision in 1976, while public financing laws are shown to have an equally large negative impact on turnout in the post-Buckley era. These results strengthens the existing literature, which finds similarly perverse effects of public financing on the “quality of democracy,” and demonstrates the advantages of reduced-form analysis for understanding the influence of laws on behavior.
    Keywords: voting, campaign finance
    JEL: D72 H79 K39
    Date: 2005–11–28
  11. By: Guido Travaglini (Università 'La Sapienza' Roma)
    Abstract: In this paper a Cobb-Douglas utility function is introduced and solved for a dynamic equation of property crime supply and its determinants, namely deterrents and income. Thereafter, all variables are empirically tested, by means of a simultaneous equations model, for the sign and magnitude of their mutual relationships in a panel of Italy and its two economically and culturally different areas, the North and the South. The period scrutinized is 1980-95 and the results obtained widely differ among the two. When appropriately modeled and instrumented, in fact, property crime is found to react to police and criminal justice deterrence, and also to incomes, with different parameter magnitudes and significance. The same diversity applies to the parameters related to deterrence, flawed in quite a few cases by scarce law enforcement and productivity, and to those related to local incomes, which still reflect for the South a tendency of crime to substitute for legal activities.
    Keywords: Models with Panel Data, Illegal Behavior and the Enforcement of Law
    JEL: C33 K42
    Date: 2005–12–01
  12. By: Daniela Russo (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Terry L. Hart; M. C. Malaguti; Chryssa Papathanassiou (European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.)
    Abstract: In the context of securities clearing and settlement systems, the nature of governance arrangements acquires a dimension that goes beyond their traditional function in corporate law. They constitute a tool for regulators and central banks to achieve their respective policy goals relating to market operation, market integrity, and systemic stability. In the light of the analysis of this paper, and pending a further evolution in the regulation of securities clearing and settlement in the Community, the following conclusions can be drawn. Whatever the model of corporate governance used in a jurisdiction, securities clearing and settlement systems should adopt and ensure effective implementation of the highest corporate governance standards or best practices adopted or recommended for companies in the jurisdiction in which it operates as such standards or practices evolve over time. Generally, this would imply that securities clearing and settlement systems at minimum should adopt and implement the best practices recommended for listed companies. Additionally, a securities clearing or settlement system should adopt corporate governance mechanisms adequate to address the interests of users and the public in the operation of the system. Such mechanisms should be organized so that the criteria followed to select participants on the board or on specialized committees are established ex ante. Board members should also take into account the interests of users and the public in board decisions, in particular, those relating to qualifications for system access, fair pricing, the integrity of the risk management system, innovation and efficiency, and the achievement of the policy objectives of competent authorities. Securities clearing and settlement systems should make adequate disclosures regarding their corporate governance arrangements so that users and the public can ascertain the manner in which conflicts of interest among owners, the board, users and the public interest are prevented, resolved or mitigated. Corporate governance arrangements of securities clearing and settlement systems should be the subject of adequate regulation and oversight to ensure that services are provided at fair prices to users under fair and equitable conditions of access; that the risk management programs of system operators are effective; that risk management decisions are not affected by considerations extraneous to the risk management function; and that, to the maximum extent possible, functional service providers compete in equivalent conditions of competition. Looking forward, the adoption of a harmonized regulatory regime for securities clearing and settlement systems should be considered to complete the internal market within the Community and to better achieve the policy goals identified in this paper relating to the governance of those systems.
    Keywords: clearing, settlement, governance, risk management, oversight.
    JEL: G29 G34 L49 K2
    Date: 2004–10
  13. By: Paolo Buccirossi (Lear - Laboratorio di economia, antitrust, regolamentazione, E-mail:; Giancarlo Spagnolo (Stockholm School of Economics, Consip Research Unit, and C.E.P.R. E-mail: or
    Abstract: We study the consequences of leniency – reduced legal sanctions for wrongdoers who spontaneously self-report to law enforcers – on sequential, bilateral, illegal transactions, such as corruption, manager-auditor collusion, or drug deals. It is known that leniency helps deterring illegal relationships sustained by repeated interaction. Here we find that - when not properly designed - leniency may simultaneously provide an effective governance mechanism for occasional sequential illegal transactions that would not be feasible in its absence.
    Keywords: amnesty, corruption, collusion, financial fraud, governance, hold up, hostages, illegal trade, immunity, law enforcement, leniency, organized crime, self-reporting, whistleblowers
    JEL: K42 K21
    Date: 2005–09
  14. By: Dr. Martina Eckardt (University of Rostock)
    Abstract: Institutions matter both for long-term economic evolution as well as for more short-termed economic performance. The law is particularly important in shaping the institutional framework for economic activities. This paper gives an overview of typical evolutionary explanations of legal change, i.e. the generation and dissemination of legal innovations over time. The main actors, the key determinants, and the central mechanisms are identified. In addition to approaches which deal primarily with statutory respectively judge-made legal change, the concept of legal paradigms and path dependence, the co-evolution of law and technology and the impact of institutional competition on legal change are discussed.
    Keywords: Evolutionary Economics, Law and Economics, Judge-made Legal Change, Legis- lation, Technological Change, Path Dependence
    JEL: B52 B53 K40 P16
    Date: 2004
  15. By: Prof. Dr. Carsten Ochsen (University of Rostock)
    Abstract: In this paper we investigate the effects of labour market policy on several types of criminal offences for fifteen European countries. The main results are the following: Firstly, the results change markedly if we control for unobserved heterogeneity. In the context of criminal offences the estimates seem to be reliable only if we apply fixed effects instead of simple pool specifications. Secondly, the effects of labour market policy vary considerably with respect to the different types of criminal offences and cannot be subdivided into unambiguous effects on property crimes and violent crimes, respectively. Thirdly, the proxy variables for labour market policy we consider have different importance with respect to their effect on criminal offences. Benefit replacement rate, benefit duration, and average years of schooling seem to be important, whereas active labour market policy appears not to be linked to crime. The combination of a shorter benefit duration and higher replacement rate, like in the Nordic countries, seems to be a “crime reducing” combination.
    Keywords: Unemployment, labour market policy, illegal behaviour, time allocation
    JEL: J64 H31 K42 J22
    Date: 2005

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