New Economics Papers
on Law and Economics
Issue of 2006‒01‒24
thirty papers chosen by
Jeong-Joon Lee, Towson University

  1. Tax Compliance as a Social Norm and the Deterrent Effect of Investigations By Marisa Ratto; Richard Thomas; David Ulph
  2. Gun Prevalence, Homicide Rates and Causality: A GMM Approach to Endogeneity Bias By Kleck, Gary; Kovandzic, Tomislav; Schaffer, Mark E
  3. Shareholder Protection, Stock Market Development and Politics By Pagano, Marco; Volpin, Paolo
  4. Crime, Location and the Housing Market By Zenou, Yves
  5. Crime and Police Resources: The Street Crime Initiative By Machin, Steve; Marie, Olivier
  6. The Pro-collusive Effect of Increasing the Repose Period for Price Fixing Agreements By Jeroen Hinloopen
  7. Severance Pay and the Shadow of the Law : Evidence for West Germany By Laszlo Goerke; Markus Pannenberg
  8. The Becker Paradox and Type I vs. Type II Errors in the Economics of Crime By Persson, Mats; Siven, Claes-Henric
  9. Satisfaction with Democracy and the Environment in Western Europe: A Panel Analysis By Alexander F. Wagner; Friedrich Schneider
  10. The Political Economy of %u201CTruth-in-Advertising%u201D Regulation During the Progressive Era By Zeynep Hansen; Marc T. Law
  11. Regulation of Health, Safety, and Environmental Risks By W. Kip Viscusi
  12. Product Market Reforms and Employment in OECD Countries By Giuseppe Nicoletti; Stefano Scarpetta
  13. Product Market Competition and Economic Performance in France By Jens Høj; Michael Wise
  14. Concurrence sur les marchés de produits et performance économique en France By Jens Høj; Michael Wise
  15. Courts of Law and Unforeseen Contingencies By Luca Anderlini; Leonardo Felli; Andrew Postlewaite
  16. The Effect of Joint and Several Liability under Superfund on Brownfields By Howard F. Chang; Hilary Sigman
  17. Does The Stock Market Punish Corporate Malfeasance? A Case Study of Citigroup By Bruce Mizrach; Susan Zhang Weerts
  18. Beneficial Collusion in Corruption Control: The Case of Nonmonetary Penalties By Mehmet Bac; Parimal Kanti Bag
  19. Liability, insurance and defensive medicine: new evidence By Paul Fenn; Alastair Gray; Neil Rickman
  20. A Note on: Jury Size and the Free Rider Problem By Parimal Kanti Bag; Paul Levine; Christopher Spencer
  21. Rough set methodology in meta-analysis - a comparative and exploratory analysis By Thomas Rupp
  22. Real Options Theory for Law Maker. By Marie Obidzinski; Bruno Deffains
  23. Creditor Protection and the Dynamics of the Distribution in Oligarchic Societies By Manuel Oechslin
  24. The Difficult Reception of Rigorous Descriptive Social Science in the Law By Christoph Engel
  25. Violence-related injury and the Price of Beer in England and Wales By Matthews, Kent; Shepherd, Jonathan; Sivarajasingham, Vaseekaran
  26. Violence, Gender and the Price of Beer in England and Wales By Matthews, Kent; Shepherd, Jonathan; Sivarajasingham, Vaseekaran; Benbow, Sally
  27. EU Merger Remedies: A Preliminary Empirical Assessment By Tomaso Duso; Klaus Gugler; Burcin Yurtoglu
  28. Torts and the Protection of "Legally Recognized" Interests By Hoffmann, Sandra; Hanemann, W. Michael
  29. Environmental Law and Public Policy By Stavins, Robert; Revesz, Richard
  30. Global Compensation for Oil Pollution Damages: The Innovations of the American Oil Pollution Act By Boyd, James

  1. By: Marisa Ratto; Richard Thomas; David Ulph
    Abstract: In this paper we focus on the effects of investigations on tax compliance. In a very general model we explain the direct and indirect effects of investigations and analyse taxpayers’ response to an increase in the probability of audit when tax compliance is a social norm. We define the different elements that determine the impact of audits on compliance and show that if tax compliance is a social norm in the relevant community there is an additional effect arising because of social norm considerations. The behavioural response of taxpayers to an increase in the audit rate is stronger. Our Findings help explain seemingly contradictory results that emerge from the empirical evidence.
    Keywords: tax evasion, social norm, opportunities to evade, optimal audit rule
    JEL: D81 H26 H30 K42
    Date: 2005–07
  2. By: Kleck, Gary; Kovandzic, Tomislav; Schaffer, Mark E
    Abstract: The positive correlation between gun prevalence and homicide rates has been widely documented. But does this correlation reflect a causal relationship? This study seeks to answer the question of whether more guns cause more crime, and unlike nearly all previous such studies, we properly account for the endogeneity of gun ownership levels. We discuss the three main sources of endogeneity bias - reverse causality (higher crime rates lead people to acquire guns for self-protection), mismeasurement of gun levels, and omitted/confounding variables - and show how the Generalized Method of Moments (GMM) can provide an empirical researcher with both a clear modeling framework and a set of estimation and specification testing procedures that can address these problems. A county level cross-sectional analysis was performed using data on every US county with a population of at least 25,000 in 1990; the sample covers over 90% of the US population in that year. Gun ownership levels were measured using the percent of suicides committed with guns, which recent research indicates is the best measure of gun levels for cross-sectional research. We apply our procedures to these data, and find strong evidence of the existence of endogeneity problems. When the problem is ignored, gun levels are associated with higher rates of gun homicide; when the problem is addressed, this association disappears or reverses. Our results indicate that gun prevalence has no significant net positive effect on homicide rates: ceteris paribus, more guns do not mean more crime.
    Keywords: counties; crime; endogeneity; GMM; gun levels; homicide
    JEL: C51 C52 K42
    Date: 2005–11
  3. By: Pagano, Marco; Volpin, Paolo
    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: corporate governance; political economy; shareholder protection; stock market development
    JEL: G34 K22 K42
    Date: 2005–12
  4. By: Zenou, Yves
    Abstract: We highlight the role of commuting cost, location and housing market in crime decision. By assuming that all crimes are committed in the central business district and that criminals create both positive and negative externalities to each other, we find that high wages or large levels of police resources are a natural way to reduce crime. We also find that bigger cities experience higher levels of crime because of the fiercer competition in the housing market. Finally, we show that reducing commuting costs can also reduce crime because the resulting decrease in housing prices is lower for workers than for criminals.
    Keywords: commuting cost; housing market; localized crime
    JEL: J15 K42 R14
    Date: 2005–12
  5. By: Machin, Steve; Marie, Olivier
    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: cost effectiveness; police resources; street crime
    JEL: H00 H5 K42
    Date: 2005–12
  6. By: Jeroen Hinloopen (Faculty of Economics and Econometrics, Universiteit van Amsterdam)
    Abstract: Intuitively, extending the period of repose for price fixing agreements enhances the effectiveness of competition policy enforcement. This paper proofs this intuition wrong. As extending the repose period reduces cartel members' defection payoff while it leaves unaltered expected compliance profits, it induces cartels to be more stable internally.
    Keywords: Cartel stability; detection probabilities; statue of limitation.
    JEL: K21 K42 L12 L41
    Date: 2005–11–14
  7. By: Laszlo Goerke; Markus Pannenberg
  8. By: Persson, Mats (Institute for International Economic Studies); Siven, Claes-Henric (Dept. of Economics, Stockholm University)
    Abstract: Two real-world observations are not easily replicated in models of crime. First, although capital punishment is optimal in Becker’s (1968) model, it is rarely observed in the real world. Second, criminal procedure and the evaluation of evidence vary across societies and historical periods, the standard of proof being sometimes very high and sometimes quite low. In this paper, we develop a general equilibrium model of judicial procedure allowing for innocent persons being convicted. We show that the median voter theorem applies to this model, making judicial procedure endogenous. So formulated, the model can replicate both empirical observations.
    Keywords: Criminal law; Judicial error; Burden of proof
    JEL: K40
    Date: 2006–01–10
  9. By: Alexander F. Wagner (Swiss Banking Institute, University of Zurich and University of Linz); Friedrich Schneider (University of Linz and IZA Bonn)
    Abstract: We construct a panel of satisfaction with democracy (SWD) and economic, institutional, and environmental variables for 1990-2001 for fifteen European countries. In this sample, controlling for a number of factors, we find that average SWD is higher where (1) there exists an energy / CO2 tax, where (2) government expenditures on the environment are higher, where (3) certain environmental regulations like packaging rules are in place, and (4) where the government puts in place environmental offices or other official bodies charged with addressing environmental concerns. We also find that, on the environmental quality side, (5) more cars on the roads, (6) less unleaded fuel, and (7) higher pesticide use intensity all decrease SWD.
    Keywords: satisfaction with democracy, environment
    JEL: K32 P16 Q21 Q28
    Date: 2006–01
  10. By: Zeynep Hansen; Marc T. Law
    Abstract: This paper explores the origins and impact of "truth-in-advertising" regulation during the Progressive era. Was advertising regulation adopted in response to rent-seeking on the part of firms who sought to limit the availability of advertising as a competitive device? Or was advertising regulation desired because it furnished a mechanism through which firms could improve the credibility of advertising? We find the available qualitative and quantitative evidence to be more consistent with the latter hypothesis.
    JEL: M37 K20 N41 N42
    Date: 2006–01
  11. By: W. Kip Viscusi
    Abstract: This paper provides a systematic review of the economic analysis of health, safety, and environmental regulations. Although the market failures that give rise to a rationale for intervention are well known, not all market failures imply that market risk levels are too great. Hazard warnings policies often can address informational failures. Some market failures may be exacerbated by government policies, particularly those embodying conservative risk assessment practices. Labor market estimates of the value of statistical life provide a useful reference point for the efficient risk tradeoffs for government regulation. Guided by restrictive legislative mandates, regulatory policies often strike a quite different balance with an inordinately high cost per life saved. The risk-risk analysis methodology enables analysts to assess the net safety implications of policy efforts. Inadequate regulatory enforcement and behavioral responses to regulation may limit their effectiveness, while rising societal wealth will continue to generate greater levels of health and safety.
    JEL: K32 Q2 J28 J17
    Date: 2006–01
  12. By: Giuseppe Nicoletti; Stefano Scarpetta
    Abstract: We estimate the employment effects of product market reforms aimed at increasing competitive pressures and easing government controls in a sample of OECD countries over the past two decades. We control for several labour market policies and institutions that are thought to influence equilibrium employment rates, and check whether there are interactions between these policies and product market reforms. We find cross-country evidence that some labour and product market policies may be complementary and adjust for this in regressions. Consistent with the implications of the imperfect competition/bargaining model of Blanchard and Giavazzi (2003), our estimates suggest that restrictive regulations have curbed employment rates significantly in countries where no product market reforms were implemented. These effects appear to have been magnified by the interaction of such regulations with labour market settings that provide a strong bargaining power to insiders, suggesting that rent sharing tends to depress employment. The implication is that significant employment gains can be obtained by deregulating product markets in overly regulated countries. Moreover, these employment gains are likely to be higher in countries that have rigid labour markets. <P>Effets sur l'emploi des réformes des marchés des biens et services dans les pays de l'OCDE Nous estimons l'impact sur l'emploi de réformes des marchés des biens et services augmentant la pression concurrentielle et allégeant le poids des règlementations, sur la base d’un échantillon de pays de l’OCDE et au cours des vingt dernières années. Les variables de contrôle incluent différents instruments de politique de l’emploi susceptibles de modifier le niveau des taux de chômage d’équilibre ou d’interagir avec les réformes du marché des biens. En effet, certaines politiques de l’emploi paraissent complémentaires de réformes sur le marché des biens. Les résultats obtenus sont cohérents avec le modèle de négociation et compétition imparfaite de Blanchard et Giavazzi (2003). Ils suggèrent que des règlementations restrictives se seraient traduites par des effets défavorables importants sur l’emploi dans les pays où aucune réforme significative sur le marché des biens n’a été mise en oeuvre. Ces effets défavorables auraient été renforcés par des institutions conférant un fort pouvoir de négociation aux insiders, accréditant l’idée selon laquelle la constitution de rente de situation sur le marché du travail pèse sur l’emploi. En termes de politique économique, cet article suggère que des gains significatifs quant au niveau de l’emploi peuvent être attendus d’une dérèglementation des marchés des biens dans les pays exagérément restrictifs dans ce domaine. Ces gains seraient d’autant plus élevés que les rigidités sur le marché du travail sont importantes.
    Keywords: product market regulation, labour market policies, employment performance, policy complementarity, complémentarité des politiques économiques, réglementation des marchés des biens et services, politique de l'emploi, fonctionnement du marché du travail
    JEL: J38 K20 L43
    Date: 2005–12–16
  13. By: Jens Høj; Michael Wise
    Abstract: Over the past decade, French economic growth has been insufficient to bring down high and persistent unemployment. Available cross-country evidence suggests that enhancing competition is an important means to improve economic performance. France is catching up with best practice in competition policy reform. However, other policy considerations often hamper the emergence of effective competition. Relatively weak competitive pressures remain in a number of sectors, particularly in sheltered service industries. Restrictions on competition reduce productivity growth and hinder job creation in regulated sectors. Policy must focus on giving more weight to overall consumer welfare in the face of opposition from relatively small but vocal special interest groups. This paper discusses reforms that would increase competition by: i) strengthening institutions and better clarifying their responsibilities with respect to competition enforcement; ii) reinforcing the ability of sector regulators to improve non discriminatory third party access and other aspects of competition in the network industries; iii) abolishing overly prescriptive regulation in the retail sector; and iv) removing unnecessary protection in some professional services. This Working Paper relates to the 2005 OECD Economic Survey of France (
    Keywords: network industries, France, regulatory reforms, competition law, productivity and growth, retail sector, product market competition
    JEL: K21 L11 L16 L33 L43 L81 L9
    Date: 2006–01–04
  14. By: Jens Høj; Michael Wise
    Abstract: La croissance économique française sur la dernière décade s'est avérée insuffisante pour résorber un taux de chômage élevé et persistant. Les études et comparaisons internationales disponibles suggèrent qu'un renforcement du degré de concurrence permettrait d'améliorer significativement la performance économique. La France n’est plus loin de la meilleure pratique pour ce qui est de la réforme de la politique de la concurrence. Pourtant, d’autres considérations de politique économique font souvent obstacle à l’émergence d’une véritable concurrence. Des pressions concurrentielles relativement faibles prévalent dans plusieurs secteurs, notamment les secteurs de services abrités. Les restrictions à la concurrence réduisent la croissance de la production et freinent la création d’emplois dans les secteurs réglementés. L’action des pouvoirs publics doit pondérer davantage le bien-être global des consommateurs face à l’opposition des groupes d’intérêt spéciaux de taille relativement restreinte mais très actifs. Le présent chapitre passe en revue les réformes qui renforceraient la concurrence en : i) consolidant les institutions et en clarifiant mieux les responsabilités de la mise en œuvre de la concurrence ; ii) donnant aux autorités sectorielles de réglementation une plus grande compétence pour l’amélioration de l’accès non discriminatoire des tiers et d’autres aspects de la concurrence dans les industries de réseau ; iii) abolissant les réglementations trop contraignantes dans le secteur de la distribution ; et iv) supprimant la protection inutile dans certains services professionnels. Ce Document de travail se rapporte à l'Étude économique de l'OCDE de la France 2005 (
    Keywords: industrie de réseau, réforme structurelle, France, droit de la concurrence, productivité et croissance, concurrence sur les marchés de biens, vente au détail
    JEL: K21 L11 L16 L33 L43 L81 L9
    Date: 2006–01–04
  15. By: Luca Anderlini (Department of Economics, Georgetown University); Leonardo Felli (Department of Economics, London School of Economics); Andrew Postlewaite (Department of Economics, University of Pennsylvania)
    Abstract: We study a contracting model with unforeseen contingencies in which the court is an active player. Ex-ante, the contracting parties cannot include the risky unforeseen contingencies in the contract they draw up. Ex-post the court observes whether an unforeseen contingency occurred, and decides whether to void or uphold the contract. If the contract is voided by the court, the parties can renegotiate a new agreement ex-post. There are two effects of a court that voids more contracts. The parties’ incentives to undertake relationship-specific investment are reduced, while the parties enjoy greater insurance against the unforeseen contingencies which the ex-ante contract cannot take into account. In this context, we are able to characterize fully the optimal decision rule for the court. The behavior of the optimal court is determined by the tradeoff between the need for incentives and the gains from insurance that voiding in some circumstances offers to the agents.
    Keywords: Courts of Law, Unforeseen Contingencies, Precedents, Incentives, Insurance
    JEL: C79 D74 D89 K40 L14
    Date: 2001–03–01
  16. By: Howard F. Chang (University of Pennsylvania Law School); Hilary Sigman (Rutgers University and NBER)
    Abstract: In response to claims that the threat of Superfund liability deters the acquisition of potentially contaminated sites or "brownfields" for redevelopment, the federal government and the states have enacted laws or adopted programs to protect purchasers from liability. This protection may be unwarranted, however, if sellers can simply adjust the price of contaminated property downward to compensate buyers for the liabilities associated with the property. We present a formal model of joint and several liability under Superfund that allows us to distinguish four different reasons that Superfund liability may discourage the purchase of contaminated property despite the tendency for land prices to reflect the expected transfer of liability to the buyer. The previous literature has overlooked the four effects that we identify, which all arise because a sale may increase the number of defendants in a suit to recover cleanup costs. First, a sale may increase the share of liability that a seller and a buyer may expect to pay as a group. Second, a sale may increase the amount of damages that the government can expect to recover from the defendants at trial. Third, a sale may increase the total litigation costs that a buyer and a seller may face as a group. Fourth, game theory suggests that a sale may increase the amount that the government can expect to extract from defendants in a settlement.
    Keywords: Environmental policy; Real estate; Contaminated sites; Hazardous waste;
    JEL: Q5 K32 R3
    Date: 2005–09–20
  17. By: Bruce Mizrach (Rutgers University); Susan Zhang Weerts (Rutgers University)
    Abstract: This paper examines how well the market anticipates regulatory sanction. We look at key dates of SEC, NASD, FTC, Congressional and foreign investigations and their subsequent resolution. Our event study confirms that the settlements provide little new information to the market. In six major case groupings, we find highly accurate predictions from market capitalization changes of settlements and associated private litigation.
    Keywords: SEC; subpoena; probe; settlement; event study;
    JEL: K22
    Date: 2006–01–09
  18. By: Mehmet Bac (Sabanci University); Parimal Kanti Bag (University of Surrey)
    Abstract: We analyze a corruption model where a principal seeks to control an agent’s corruption by supplementing a costless noncollusive outside detector such as the media with a collusive internal supervisor. The principal’s objective is to minimize the overall costs, made up of enforcement costs and social costs of corruption. If the penalties on the corrupt agent and a failing supervisor are nonmonetary in nature and yet the two parties can engage in monetary side-transfers, the principal may stand to benefit by allowing supervisor-agent collusion. This benefit may even prompt the principal to actively encourage collusion by hiring a dishonest supervisor in strict preference over an honest supervisor.
    Keywords: Corruption, monitoring, collusion, bounty hunter mechanism
    JEL: K42 D73 D78
    Date: 2005–04
  19. By: Paul Fenn (Nottingham University Business School); Alastair Gray (Health Economics Research Centre, University of Oxford); Neil Rickman (University of Surrey & CEPR)
    Abstract: For the first time, we test for effects of liability on hospital care using measures of current perceptions of litigation risk at hospital level; in particular, the risk-sharing arrangements agreed between hospitals and their insurers. GMM and ML estimators are used to allow for possible endogeneity of risksharing arrangements. Our findings are consistent with the exercise of liabilityinduced discretion by hospitals, especially regarding use of costly diagnostic imaging. Hospitals facing higher expected litigation costs also use these tests more frequently, after controlling for activity levels, casemix and treatment outcome; the latter indicating that defensive medicine may be present. We also find evidence of fewer new claims against these hospitals, given adverse events, which may indicate the increased use of claims management processes by hospital managers concerned at the expected cost of litigation.
    Keywords: Medical malpractice, defensive care, insurance, litigation
    JEL: I18 K13
    Date: 2004–07
  20. By: Parimal Kanti Bag (University of Surrey); Paul Levine (University of Surrey); Christopher Spencer (University of Surrey)
    Abstract: This note reassesses the basic result in Mukhopadhaya (2003) that, when jurors may acquire costly signals about a defendant’s guilt, with a larger jury size the probability of reaching a correct verdict may in fact fall, contrary to the Condorcet Jury Theorem. We show that if the jurors coordinate on any one of a number of (equally plausible) asymmetric equilibria other than the symmetric equilibrium considered by Mukhopadhaya, the probability of accuracy reaches a maximum for a particular jury size and remains unchanged with larger juries, thus mitigating Mukhopadhaya’s result somewhat. However, the case for limiting the jury size a recommendation by Mukhoapdhaya gains additional grounds if one shifts the focus from maximizing the probability of reaching a correct verdict to the maximization of the overall social surplus, measured by the expected benefits of jury decisions less the expected costs of acquiring signals.
    Keywords: jury size, free rider problem, Condorcet Jury Theorem
    JEL: D7 K4
    Date: 2005–11
  21. By: Thomas Rupp (Institut für Volkswirtschaftslehre (Department of Economics), Technische Universität Darmstadt (Darmstadt University of Technology))
    Abstract: We study the applicability of the pattern recognition methodology "rough set data analysis" (RSDA) in the field of meta analysis. We give a summary of the mathematical and statistical background and then proceed to an application of the theory to a meta analysis of empirical studies dealing with the deterrent effect introduced by Becker and Ehrlich. Results are compared with a previously devised meta regression analysis. We find that the RSDA can be used to discover information overlooked by other methods, to preprocess the data for further studying and to strengthen results previously found by other methods.
    Keywords: Rough Data Set, RSDA, Meta Analysis, Data Mining, Pattern Recognition, Deterrence, Criminometrics
    JEL: K14 K42 C49
    Date: 2005–11
  22. By: Marie Obidzinski; Bruno Deffains
    Abstract: In rapidly changing areas of law, the writing of rules is a challenging issue for lawmakers. Obsolescence impede law to capture the objective of an underlying policy. The legislator, the judge and the regulator are considered as producers of law who have to decide whether or not to invest in a particular type of law. In order to get more information on the context, lawmakers may also choose to wait before investing in law. Using the real options framework, we show that the degree of precision should be considered as a degree of flexibility of legal rules and we describe how it affects the value of the investment. We then analyze the trade-off between waiting and reducing the degree of precision and we show that the degree of precision of legal rules positively affects the value of waiting in lawmaking.
    Keywords: Obsolescence, Rulemaking, Degree of Precision, Real Options.
    JEL: C61 G12 K00 K40
    Date: 2006
  23. By: Manuel Oechslin
    Abstract: This paper introduces credit market imperfections and barriers to entrepreneurship into the Ramsey growth model. It is assumed that only a small elite, the oligarchs, may run firms and that these oligarchs – when borrowing from workers – may renege on the debt contracts at low cost. In such an economy, poor contract enforcement slows down the transition towards the steady state and alters the dynamics of the distribution strongly in favour of the oligarchs. The reason is that the workers are forced to charge “low” borrowing rates in order to decrease the incumbents’ incentives to default. With dynastic preferences, low returns reduce the workers’ propensity to save; they discount future wages less and consume more out of current income. Calibrations of the model suggest that the elite’s welfare gains are large – even if the oligarchic structure were associated with substantially lower productivity growth rates. These findings point to political forces behind low financial development.
    Keywords: creditor rights, asset distribution, economic development
    JEL: O11 O16 K42
    Date: 2006–01
  24. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Mutual disdain is an effective border patrol at the demarcation lines between disciplines. Social scientists tend to react with disdain when they observe how their findings are routinely stripped of all the caveats, assumptions and careful limitations once they travel into law. Likewise, lawyers tend to react with disdain when they read all the laborious proofs and checks for what looks to them like a minuscule detail in a much larger picture. But mutual disdain comes at a high price. All cross-border intellectual trade is stifled. This paper explores the social science/law border from the legal side. The natural barriers turn out to be significant, but not insurmountable. Specifically the paper looks at the challenges of integrating rigorous descriptive social science into the application of the law in force by courts and administrative authorities. This is where the gap is most difficult to bridge. The main impediments are implicit value judgments inherent in models, conceptual languages and strictly controlled ways of generating empirical evidence; the difference between explanation, hypothesis testing and prediction, on the one hand, and decision-making, on the other; the ensuing difference between theoretical and practical reasoning, and the judicial tradition of engaging in holistic thinking; last but not least, the strife of the legal system for autonomy, in order to maintain its viability. If a legal academic assumes the position of an outside observer, she may entirely ignore all these concerns and simply follow the methodological standards of descriptive social science. This is, for instance, what most of law and economics does. The legal academic may, instead, choose to contribute to the making of new law. She will then find it advisable to partly ignore the strictures of rigorous methodology in order to be open to more aspects of the regulatory issue. But it is not difficult, at least, to follow the standards of the social sciences for analysing the core problem. The integration is most difficult if an academic does doctrinal work. But it is precisely here where the division of intellectual labour between legal practice and legal academia is most important. Academics who themselves are versatile in the respective social science translate the decisive insights into suggestions for a better reading of statutory provisions or case law.
    Keywords: law and economics, law and statistics, explanation vs. decision-making, practical reasoning, psychology of judicial decision-making
    JEL: A12 K00
    Date: 2006–01
  25. By: Matthews, Kent (Cardiff Business School); Shepherd, Jonathan; Sivarajasingham, Vaseekaran
    Abstract: This paper examines the influence of the real price of beer on violence-related injuries across the economic regions in England and Wales. The data are monthly frequency of violent-injury collected from a stratified sample of 58 National Health Service Emergency Departments 1995-2000. An econometric model based on economic, socio-demographic and environmental factors was estimated using panel techniques. We show that the rate of violence-related injury is negatively related to the real price beer, as well as economic, sporting and socio-demographic factors. The principal conclusion of the paper is that the regional distribution of the incidence of violent injury is related to the regional distribution of the price of beer. The major policy conclusion is that increased alcohol prices would result in substantially fewer violent injuries and reduced demand on trauma services.
    Keywords: Violence; Alcohol; Price of Beer
    JEL: I18 K42
    Date: 2006–01
  26. By: Matthews, Kent (Cardiff Business School); Shepherd, Jonathan; Sivarajasingham, Vaseekaran; Benbow, Sally
    Abstract: This paper examines the influence of the real price of beer on violence-related injuries split by gender across the economic regions in England and Wales. It was concluded that alcohol prices and injury sustained in violence is causally related in both males and females. Injury of females is causally related to poverty but injury of males. However, nationwide sports events were associated only with male assault injury. Violence-related harm was significantly and independently linked to other socio-economic and demographic factors. Our results suggest that the real price of alcohol (using beer as an example) has a part to play in controlling the consumption of alcohol and the incidence of violent injury.
    Keywords: Alcohol; gender; violence; price of beer
    JEL: K40 I30 C50
    Date: 2006–01
  27. By: Tomaso Duso (Social Science Research Center Berlin (WZB), Reichpietschufer 50, D10785 Berlin, Germany. Tel: +49 30 25491 403, Fax: +49 30 25491 444.; Klaus Gugler (University of Vienna.; Burcin Yurtoglu (University of Vienna.
    Abstract: Mergers that substantially lessen competition are challenged by antitrust authorities. Instead of blocking anticompetitive transitions straight away, authorities might choose to negotiate with the merging parties and allow the transactions to proceed with modifications that restore or preserve the competition in the involved markets. We study a sample of 167 mergers that were under the European Commission’s scrutiny from 1990 to 2002. We use an event study methodology to identify the potential anticompetitive effects of mergers as well as the remedial provisions on these transactions. Stock market reactions around the day of the merger’s announcement provide information on the first question, whereas the stock market reactions around the commission’s final decision day convey information about the outcome of the bargaining process between the authority and the merging parties. We first classify mergers according to their effects on competition and then we develop hypotheses on the effects that remedies are supposed to achieve depending on the merger’s competitive outcome. We isolate several stylized facts. First, we find that remedies were not always appropriately imposed. Second, the market seems to be able to predict remedies’ effectiveness when applied in phase I. Third, the market also seems able to produce a good prior to phase II’s clearances and prohibitions, but not to remedies. This can be due either to a measurement problem or related to the increased merging firms’ bargaining power during the second phase of the merger review.
    Keywords: Merger Control, Remedies, European Commission, Event Studies
    JEL: L4 K21 C12 C13
    Date: 2006–01
  28. By: Hoffmann, Sandra (Resources For the Future); Hanemann, W. Michael
    Abstract: The law of torts plays an important role in completing the legal property rights system by defining the extent to which property is protected from harm. It does this by defining the kinds of interests that will be recognized and protected from harm by the courts, the duty of care owed these recognized interests by others, and the manner in which they will be protected through monetary compensation, restitution, or injunction. Together, these three elements of torts define a right in the “bundle of rights” that constitute property. In this paper, we develop a systematic approach to formalizing the nature of the property rights protected by tort law. We use this approach to reexamine the literature on compensation for nonpecuniary damages. This reexamination demonstrates how recognizing tort’s role in defining property rights and having a way of formalizing these rights can provide deeper insight into old questions torts scholarship.
    Keywords: torts, property rights, liability, compensation, damages, insurance
    JEL: D31 D63 K0 K13
  29. By: Stavins, Robert; Revesz, Richard
    Abstract: This chapter provides an economic perspective of environmental law and policy with regard to both normative and positive dimensions. It begins with an examination of the central problem in environmental regulation: the tendency of pollution generators in an unconstrained market economy to externalize some of the costs of their production, leading to an inefficiently large amount of pollution. We examine the ends of environmental policy, that is, the setting of goals and targets, beginning with normative issues, notably the Kaldor-Hicks criterion and the related method of assessment known as benefit-cost analysis. We examine this analytical method in detail, including its theoretical foundations and empirical methods of estimation of compliance costs and environmental benefits. We include a review of critiques of benefit-cost analysis, briefly examine alternative approaches to analyzing the goals of environmental policies, and survey the efforts of the Federal governmental to employ these analytical methods. The chapter also examines in detail the means of environmental policy, that is, the choice of specific policy instruments, beginning with an examination of potential criteria for assessing alternative instruments, with particular focus on cost-effectiveness. The theoretical foundations and experiential highlights of individual instruments are reviewed, including conventional, commandand- control mechanisms, economic incentive or market-based instruments, and liability rules. In the economic-incentive category, we consider pollution charges, tradeable permit systems, market friction reductions, and government subsidy reductions. Three cross-cutting issues receive attention: implications of uncertainty for instrument choice; effects of instrument choice on technological change; and distributional considerations. We identify a set of normative lessons in regard to design, implementation, and the identification of new applications, and we examine positive issues, including three phenomena: the historical dominance of command-and-control; the prevalence in new proposals of tradeable permits allocated without charge; and the relatively recent increase in attention given to market-based instruments. Finally, the chapter turns to the question of how environmental responsibility is and should be allocated among the various levels of government. We provide a positive review of the responsibilities of Federal, state, and local levels of government in the environmental realm, plus a normative assessment of this allocation of regulatory responsibility. We focus on three arguments that have been made for Federal environmental regulation: competition among political jurisdictions and the race to the bottom; transboundary environmental problems; and public choice and systematic bias.
    Keywords: environmental economics, environmental law, efficiency, cost-effectiveness, benefitcost analysis, environmental federalism
    JEL: K32 Q28 Q38 Q48
  30. By: Boyd, James (Resources For the Future)
    Abstract: Via technology and operations standards, U.S. regulation exerts an important influence over worldwide marine safety standards. But in addition, several other aspects of U.S. law deserve wider international consideration and adoption. First, the Oil Pollution Act’s natural resource damage provisions are an innovative and effective way to deter marine pollution and provide for the restoration of injured ecological resources. Second, the relatively strict financial requirements imposed on marine transporters help ensure that polluters, rather than the public, pay if damage is caused. Liability and financial responsibility rules are not unknown in other countries. But the United States has a longer history with implementation and applies its rules more expansively. As both environmental concerns and global marine trade flows increase, U.S. experience with these rules will be instructive to other nations contemplating oil pollution reforms.
    Keywords: Oil Pollution Act, Natural Resource Damages, Environmental Liability, Financial Assurance, Financial Responsibility, Valuation
    JEL: K13 K32 Q38

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