New Economics Papers
on Law and Economics
Issue of 2006‒03‒25
nine papers chosen by
Jeong-Joon Lee, Towson University

  1. Piracy and competition By Paul, BELLEFLAMME; Pierre, PICARD
  2. Perception of the Risks Associated with Impaired Driving and Effects on Driving Behavior By Georges Dionne; Claude Fluet; Denise Desjardins
  3. Illegal Market of Cigarettes in Estonia By Evelin Ahermaa
  4. The Constitution of the Republic of Estonia about Separation of Powers and Courts By Poigo Nuuma
  5. Theory and Empirical Evidence of Business Support Networks By Kaie Kerem; Vello Vensel
  6. Patent Protection of Pharmaceutical Products in the Globalising World Economy By Ants Kukrus; Raul Kartus
  7. Risk Sharing through Financial Markets with Endogenous Enforcement of Trades By Thorsten Koeppl
  8. Optimal Dynamic Risk Sharing when Enforcement is a Decision Variable By Thorsten Koeppl
  9. Do Attitudes Towards Corruption Differ Across Cultures? Experimental Evidence from Australia, India, Indonesia andSingapore By L. Cameron; A. Chaudhuri; N. Erkal; L. Gangadharan

  1. By: Paul, BELLEFLAMME (UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)); Pierre, PICARD
    Abstract: The effects of (private, small-scale) piracy on the pricing behavior of producers of information goods are studied within a unified model of vertical differentiation. Although information goods are assumed to be perfectly differentiated, demands are interdependent because the copying technology exhibits increasing returns to scale. We characterize the Bertrand-Nash equiliria in a duopoly. Comparing equilibrium prices to the prices set by a multiproduct monopolist, we show that competition drives prices up and may lead to price dispersion. Competition reduces total surplus in the short run but provides higher incentives to create in the long run.
    Keywords: Information goods; piracy; copyright; pricing
    JEL: L13 L82 L86 K11 O34
    Date: 2005–09–30
  2. By: Georges Dionne; Claude Fluet; Denise Desjardins
    Abstract: This research studies the perception of the risks associated with impaired driving-probability of being apprehended or of having an accident-and the relation between the perception of risks and driving behavior. The most important determinants of perceptual biases are age, an accumulation of violations in the year preceding the survey, being a non-drinker, knowledge of the legal alcohol limit for driving, opinion about zero tolerance for impaired driving, and family income. Perceptual biases are shown to influence driving behavior, as captured by drivers' accumulated violations, demerit points and bodily injury accidents, in the years preceding and in the year following the survey. In conclusion, we analyze the results in terms of public policy for road safety.
    Keywords: Risk perception, impaired driving, driving behavior, traffic violation, road accident, regulation, public policy
    JEL: D81 C11 C13 K42
    Date: 2006
  3. By: Evelin Ahermaa (Estonian Institute of Economic Research)
    Abstract: Tobacco products belong to a group of excise goods and an excise duty is levied on them. The latter increases the price, but there are no changes in the quality of the goods and it leads to tax frauds. There has been regular increase in the excise duties on tobacco products in Estonia; changes in tax rates have influenced legal sales, mostly of cigarettes. Consumption of cigarettes is the largest in the group of tobacco products in Estonia; therefore, the paper is especially focused on cigarettes. The purpose of the paper is to evaluate illegal market of cigarettes in Estonia, using comparison of the net of estimations. The paper introduces the method of analysis where the essential role is given to inhabitants (concerning their expert and individual opinions). Empirical evidence concerning illegal market of cigarettes in Estonia is presented by size on the example of fieldwork carried out in 2003.
    Keywords: cigarettes, excise duty, illegal market, taxation
    JEL: E62 K42
    Date: 2005
  4. By: Poigo Nuuma (Department of Public Economy at Tallinn University of Technology)
    Abstract: Separation, balance and equality of powers as it is stipulated in § 4 of the Constitution of the Republic of Estonia can not be taken lightly when applying it; instead, it should be based on the concept and provisions of the Constitution. Therefore, changing the concept of the Constitution is not in accordance with § 4 and separating the court system into partly belonging under the administration of the executive power, taking the court system as a part of the law-enforcement body, considering the court of first instance and the appeal court to be independent solely on the fact that judges are sovereign in their rulings, excluding other activities of the court under the administration of governmental institutions, ignoring the restriction of fusion and allowing the right of the courts to self-regulate to be given to the Ministry of Justice and to its directors of administration to regulate. By that the concept of separation of powers that was adopted during the referendum has been altered and people’s faith in the separation, balance and equality of legislative, executive and the court power (court system) has been lost. According to § 4 of the Constitution of the Republic of Estonia, the court system should be separated from other powers and it should balance them and appear this way to the citizens in order for them to have trust in the courts as independent and objective institutions.
    Keywords: Separation of powers, the Constitution of the Republic of Estonia, court system, legislative power, executive power, judicial power, Supreme Court of Estonia, Courts Acts, law-enforcement bodies, fusion, court of first instance, appeal court.
    JEL: K10 K41
    Date: 2005
  5. By: Kaie Kerem (School of Economics and Business Administration, Tallinn University of Technology); Vello Vensel (School of Economics and Business Administration, Tallinn University of Technology)
    Abstract: Business firms operate in a certain environment in which they interact with one another, with individuals, governmental organisations, financial institutions and various other interest groups. Operation of respective economic and social networks (both voluntary and private market determined) may have an important effect on the overall business environment. This paper presents and analyses some results of the special sample survey of Estonian firms undertaken in 1994-2003. Our main attention in this paper is focused on business supporting services provided by various institutions and on the operation of disputes’ resolution mechanism, using the concept of social networks. It is argued that the state enforcement mechanism is working weakly in the still unstable legal environment and firms have to use different self-enforcement mechanisms (through social networks) to resolve disputes. Social networks are also used for obtaining additional financing for investment. The success of the operation of social networks depends on the government economic policy.
    Keywords: economic and social networks, social capital, business supporting services, enforcement mechanism, value creation.
    JEL: Z13 P30 K42
    Date: 2005
  6. By: Ants Kukrus (School of Economics and Business Administration, Tallinn University of Technology); Raul Kartus (School of Economics and Business Administration, Tallinn University of Technology)
    Abstract: Patenting new products in pharmaceuticals industry is of greater importance than in the other high technology branches of industry nowadays. Concentration of manufacturing takes place in pharmaceuticals industry as well as in the other branches of industry and it is characterised by the joining of firms. However, there are several specific features in patenting pharmaceutical products. Enforcement of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement) made it compulsory to establish in all World Trade Organization (WTO) Members patent protection on pharmaceutical products and their manufacturing methods as well as patent protection of drugs. WTO Doha Declaration is an essential stage in patent protection of pharmaceutical products establishing the legal basis and compulsory licensing system. In 2005, the European Commission completed the Regulation of the European Parliament and the Council on compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems.
    Keywords: patent protection of pharmaceutical products, the TRIPS Agreement, the Doha Declaration, compulsory license, exclusive right, global economy
    JEL: K10 K41
    Date: 2005
  7. By: Thorsten Koeppl (Department of Economics, Queen's University)
    Abstract: When people share risk in financial markets, intermediaries provide costly enforcement for most trades and, hence, are an integral part of financial markets' organization. We assess the degree of risk sharing that can be achieved through financial markets when enforcement is based on the threat of exclusion from future trading as well as on costly enforcement intermediaries. Starting from constrained efficient allocations and taking into account the public good character of enforcement we study a Lindahl-equilibrium where people invest in asset portfolios and simultaneously choose to relax their borrowing limits by paying fees to an intermediary who finances the costs of enforcement. We show that financial markets always allow for optimal risk sharing as long as markets are complete, default is prevented in equilibrium and intermediaries provide costly enforcement competitively. In equilibrium, costly enforcement translates into both agent-specific borrowing limits and price schedules that include a separate default premium. Enforcement costs - or, equivalently, default premia - increase borrowing costs, while interest rates per se depend on the change in enforcement over time.
    Keywords: Limited Commitment, Enforcement Intermediaries, Lindahl-equilibrium, Endogenous Borrowing Constraints
    JEL: C73 D60 G10 H41 K42
    Date: 2004–12
  8. By: Thorsten Koeppl (Department of Economics, Queen's University)
    Abstract: Societies provide institutions that are costly to set up, but able to enforce long-run relationships. We study the optimal decision problem of using self-governance for risk sharing or governance through enforcement provided by these institutions. Third-party enforcement is modelled as a costly technology that consumes resources, but permits the punishment of agents who deviate from ex-ante specified allocations. We show that it is optimal to employ the technology whenever commitment problems prevent first-best risk sharing, but never optimal to provide incentives exclusively via this technology. Commitment problems then persist and the optimal incentive structure changes dynamically over time with third-party enforcement monotonically increasing in the relative inequality between agents.
    Keywords: Limited Commitment, Risk Sharing, Third-party Enforcement
    JEL: C73 D60 D91 K49
    Date: 2005–01
  9. By: L. Cameron; A. Chaudhuri; N. Erkal; L. Gangadharan
    Abstract: This paper examines cultural differences in attitudes towards corruption by analysing individual-decision making in a corrupt experimental environment. Attitudes towards corruption play a critical role in the persistence of corruption. Our experiments differentiate between the incentives to engage in corrupt behaviour and the incentives to punish corrupt behaviour and allow us to explore whether, in environments characterized by lower levels of corruption, there is both a lower propensity to engage in corrupt behaviour and a higher propensity to punish corrupt behaviour. Based on experiments run in Australia (Melbourne), India (Delhi), Indonesia (Jakarta) and Singapore, we find that there is more variation in the propensities to punish corrupt behaviour than in the propensities to engage in corrupt behaviour across cultures. The results reveal that the subjects in India exhibit a higher tolerance towards corruption than the subjects in Australia while the subjects in Indonesia behave similarly to those in Australia. The subjects in Singapore have a higher propensity to engage in corruption than the subjects in Australia. We also vary our experimental design to examine the impact of a more effective punishment system and the effect of the perceived cost of bribery.
    Keywords: Corruption, Experiments, Punishment, Cultural Analysis
    JEL: C91 D73 O17 K42
    Date: 2005

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