New Economics Papers
on Law and Economics
Issue of 2006‒02‒05
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Diagnosing Discrimination: Stock Returns and CEO Gender By Justin Wolfers
  2. Uses and Abuses of Empirical Evidence in the Death Penalty Debate By John J. Donohue III; Justin Wolfers
  3. Endogenous Corruption and Tax Evasion in a Dynamic Model By Antonio Acconcia
  4. Using Subsidies to Promote the Adoption of Children from Foster Care By Mary Eschelbach Hansen
  5. Trade and Foreign Exchange Liberalization, Investment Climate and FDI in the MENA Countries. By Khalid Sekkat; Marie-Ange Veganzones-Varoudakis

  1. By: Justin Wolfers (Wharton School, University of Pennsylvania, CEPR, NBER and IZA Bonn)
    Abstract: A vast labor literature has found evidence of a "glass ceiling", whereby women are underrepresented among senior management. A key question remains the extent to which this reflects unobserved differences in productivity, preferences, prejudice, or systematically biased beliefs about the ability of female managers. Disentangling these theories would require data on productivity, on the preferences of those who interact with managers, and on perceptions of productivity. Financial markets provide continuous measures of the market’s perception of the value of firms, taking account of the beliefs of market participants about the ability of the men and women in senior management. As such, financial data hold the promise of potentially providing insight into the presence of mistake-based discrimination. Specifically if female-headed firms were systematically under-estimated, this would suggest that female-headed firms would outperform expectations, yielding excess returns. Examining data on S&P 1500 firms over the period 1992-2004 I find no systematic differences in returns to holding stock in female-headed firms, although this result reflects the weak statistical power of our test, rather than a strong inference that financial markets either do or do not under-estimate female CEOs.
    Keywords: discrimination, CEOs, chief executive officer, event study, statistical discrimination, excess returns, female CEOs
    JEL: G14 G3 J16 J4 J7 K31 M5
    Date: 2006–01
  2. By: John J. Donohue III (Yale Law School and NBER); Justin Wolfers (Wharton School, University of Pennsylvania, NBER and IZA Bonn)
    Abstract: Does the death penalty save lives? A surge of recent interest in this question has yielded a series of papers purporting to show robust and precise estimates of a substantial deterrent effect of capital punishment. We assess the various approaches that have been used in this literature, testing the robustness of these inferences. Specifically, we start by assessing the time series evidence, comparing the history of executions and homicides in the United States and Canada, and within the United States, between executing and non-executing states. We analyze the effects of the judicial experiments provided by the Furman and Gregg decisions and assess the relationship between execution and homicide rates in state panel data since 1934. We then revisit the existing instrumental variables approaches and assess two recent state-specific execution moratoria. In each case we find that previous inferences of large deterrent effects based upon specific samples, functional forms, control variables, comparison groups, or IV strategies are extremely fragile and even small changes in specifications yield dramatically different results. The fundamental difficulty is that the death penalty - at least as it has been implemented in the United States - is applied so rarely that the number of homicides that it can plausibly have caused or deterred cannot be reliably disentangled from the large year-to-year changes in the homicide rate caused by other factors. As such, short samples and particular specifications may yield large but spurious correlations. We conclude that existing estimates appear to reflect a small and unrepresentative sample of the estimates that arise from alternative approaches. Sampling from the broader universe of plausible approaches suggests not just "reasonable doubt" about whether there is any deterrent effect of the death penalty, but profound uncertainty - even about its sign.
    Keywords: execution, capital punishment, homicide, crime, death penalty, differences-in-differences, murder, deterrence
    JEL: K14 K42
    Date: 2006–01
  3. By: Antonio Acconcia (Università di Napoli Federico II and CSEF)
    Abstract: I analyze a model where the size of tax evasion, the di¤usion of bureaucratic corruption, and the strength of deterrence are jointly determined with capital accumulation, in a framework with private and public inputs of production. I show that, at any time t, the government’s ob jective of reducing the di¤usion of corruption, through more tough punishment, is found to be potentially responsible for greater evasion; an increase in …scal pressure causes more tax evasion and may also induce more corruption. The long-run performance of the economy is signi…cantly a¤ected by corruption, its impact depending upon the size of the public sector and the cost of deterrence. When the government heavily distorts the composition between public and private inputs of production, by implementing an high tax rate, corruption could mitigate the ensuing ine¢ciency. In this case, an higher cost of deterrence determines a higher level of income. Otherwise, corruption is negatively correlated with the level of development. Finally, under nonconvexities in the activity of deterrence poverty traps emerge, and the steady state level of income depends upon the initial condition. Some implications of the model are in line with recent empirical evidence.
    Keywords: Tax evasion, corruption, public spending, poverty traps
    JEL: D73 H26 H41 K42 O41
    Date: 2006–01–01
  4. By: Mary Eschelbach Hansen (Department of Economics, American University)
    Abstract: Since 1980 the federal government has implemented a variety of programs to promote the adoption of children from foster care. A key part of these programs has been the use of subsidies to lower the cost of adopting and parenting children from foster care. Although subsidies are a key part of federal policy there has been relatively little empirical research on the effect of subsidies on adoption rates. This paper uses data from the Adoption and Foster Care Analysis System to estimate the impact of subsidy rates on adoption rates. Subsidies to families that adopt children from foster care have a positive and statistically significant effect on adoption rates. A one percent increase in average subsidies increases adoption rates by as much as 0.20 percent.
    Keywords: Adoption, foster care, subsidies, child welfare policy
    JEL: J18 J12 K3
    Date: 2005–12
  5. By: Khalid Sekkat (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels); Marie-Ange Veganzones-Varoudakis (CERDI, Centre National de la Recherche Scientifique, Clermont Ferrand)
    Abstract: The paper assess the relative importance of trade and foreign exchange liberalization, infrastructure availability and economic and political stability in increasing Middle East and North African (MENA) countries attractiveness with respect to FDI. The analysis is conducted for total FDI and for FDI in manufacturing. The results show that trade and foreign exchange liberalization, infrastructure availability and sound economic and political conditions increase FDI inflows. Their effects are much higher for FDI in the manufacturing sector than for total FDI. This result is robust to alternative indicators of trade and foreign exchange liberalization, and to change in the specification. The message to MENA’s policy makers is twofold. First, efforts toward trade and foreign exchange liberalization should be initiated or further increased in order to make the region attractive to foreign investors. Second improvements in other aspects of the investment climate are important complements to liberalization and result in additional and sensitive increase of FDI inflows.
    Keywords: Reforms, MENA, FDI.
    JEL: F21 F15 K42
    Date: 2004–05

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