New Economics Papers
on Law and Economics
Issue of 2006‒04‒22
eighteen papers chosen by
Jeong-Joon Lee, Towson University

  1. Status-Seeking in Violent Subcultures and the Double Dividend of Zero-Tolerance By Robert Dur
  2. Working through “Bitter Experiences” towards Constitutionalisation ; Are those that forget the past doomed to repeat its mistakes? By Christian Joerges; Dario Castiglione
  3. Majority Rule, Legitimacy and Political Equality By Wojciech Sadurski
  4. The Role of Science in Risk Regulation under the SPS Agreement By Lukasz Gruszczysnki
  5. Privacy, Reputation, and Trust: Some Implications for Data Protection By Giovanni Sartor
  6. Free Trade with Hazardous Products? The Emergence of Transnational Governance with Eroding State Government By Christian Joerges
  7. Judicial Accommodation: NAFTA, the EU and the WTO By N’Gunu N. Tiny
  8. The Notion of Discrimination in Article 1102 of NAFTA By Fernando Gonzalez Rojas
  9. On the Constitutionalization of General International Law By Theodor Schilling
  10. The Legal Regulation of Software Interoperability in the EU By Boris Rotenberg
  11. Economic Constitutionalism(s) in a Time of Uneasiness - Comparative Study on the Economic Constitutional Identities of Italy, the WTO and the EU By Marco Dani
  12. Have Developing Countries Gained From the Marriage Between Trade Agreements and Intellectual Property Rights? By Sumner J La Croix; Denise Eby Konan
  13. Doping and Cheating in Contest-Like Situations By Matthias Kräkel
  14. Does Child Abuse Cause Crime? By Janet Currie; Erdal Tekin
  15. Antitrust in the Not-For-Profit Sector By Tomas J. Philipson; Richard A. Posner
  16. Open Source Software: The New Intellectual Property Paradigm By Stephen M. Maurer; Suzanne Scotchmer
  17. Uncertainty of Law and the Legal Process. By Giuseppe Dari-Mattiacci; Bruno Deffains
  18. Customary versus Technological. Advancement Tests. By Bruno Deffains; Dominique Demougi

  1. By: Robert Dur (Erasmus Universiteit Rotterdam)
    Abstract: This paper develops a model in which individuals gain social status among their peers for being 'tough' by committing violent acts. We show that a high penalty for moderately violent acts (zero-tolerance) may yield a double dividend in that it reduces both moderate and extreme violence. The reason is that a high penalty keeps relatively 'gutless' individuals from committing moderately violent acts, which raises the signaling value of that action, and thus makes it more attractive for otherwise extremely violent individuals. Conversely, a high penalty for extremely violent acts may backfire, as it induces relatively 'tough' individuals to commit moderately violent acts and so makes moderate violence more attractive for otherwise nonviolent individuals.
    Keywords: status concerns; violence; subcultures; penalties; zero-tolerance; broken windows policing
    JEL: K14 K42
    Date: 2006–01–06
  2. By: Christian Joerges; Dario Castiglione
    Abstract: The defeat European constitutionalism has experienced in the French and the Dutch referendum has many reasons. The deficiency this contribution addresses is the lack of sensitivity for the historical dimensions of the integration project in general and the darker legacies of law in particular. Three exploratory steps are undertaken: (1) The first deals with the diversity of European pasts. It is submitted that European constitutionalism must respect this diversity and promote toleration rather than homogeneity. (2) The second discusses the presence of European pasts in two fields. One is the controversy over “social Europe” which is traced back to divergent national histories, memories and anxieties. The other concerns the search for a European identity and citizenship. (3) The reluctance of Europeans to confront the darker side of their pasts, including the failures and fragility of law and legal institutions, has many good and bad reasons. We risk getting involved in a bitter politicisation of our memories. The contest over memories seems, however, not only unavoidable; it might become a constructive exercise. The search for a new future in post war Europe was a response to the atrocities of the Nazi period. That legacy is still alive and can be revitalized. The readiness to face Europe’s past can be understood as a European vocation which may provide the integration project with an unheard of specific legitimacy. In his comment Dario Castiglione discusses Christian Joerges’s ideas of deliberative supranationalism and of the ‘conflict of disciplines’; and suggests that his analysis of the relevance of the past can be extended by distinguishing between three different modes in which the past can be used: as present in the modern predicament; as a form of public discourse; and as a way of shaping and confronting one’s own identity.
    Date: 2005–12–01
  3. By: Wojciech Sadurski
    Abstract: This paper claims that the intuitive and widespread legitimating power of majority rule (MR) arises from the link between majority rule and the principle of equality of political opportunity. The egalitarian character of MR is established by exploring “puzzles” in democratic theory, such as the insensitivity of democratic voting procedures to unequal intensity of citizens’ preferences, the inalienability of voting rights, and the relationship between the principle of unanimity (sometimes thought better to respect citizens’ equality) and MR. Special attention is directed to the relationship between political equality, and equality in the outcomes of political decisions: the claim is made that the language of equal political opportunity captures well the idea of equal political influence, in the circumstance of disagreement about what is required to achieve equal treatment through the outcomes of political decisions.
    Date: 2005–12–01
  4. By: Lukasz Gruszczysnki
    Abstract: This paper attempts to present a comprehensive and coherent picture of the role performed by science under the SPS Agreement and SPS case law. It argues that the approach adopted by the Appellate Body is predominantly based on a technical paradigm, supplemented, however, with some considerations arising from other paradigms. The paper argues that the approach adopted in the case law is generally compatible with the text of the SPS Agreement and provides a coherent SPS system. However, it also identifies certain areas which lack coherence, as certain standards seem to violate the right of the member states to establish an appropriate level of protection. These are: ascertainability of the risk as a precondition for valid risk assessment; strict specifity of the risk assessment in low-risk situations; the proportionality between the risk identified and the SPS measure; the notion of negligible risks; and the concept of likelihood in the quarantine risk assessments. The paper claims that these standards cannot be generally applied in SPS disputes as, in certain situations, they will result in the violation of the right of member states to establish an appropriate level of SPS protection. Finally, a number of specific issues are highlighted which require further clarification in case law, such as the issue of the quality of minority scientific opinions and the relationship between the insufficiency of scientific evidence and scientific uncertainty. The paper suggests that the ultimate role ascribed to science under the SPS Agreement can be assessed only after an interpretation of those issues is provided by future case law.
    Date: 2006–02–01
  5. By: Giovanni Sartor
    Abstract: The present contribution analyses the connection between privacy and trust, with regard to data protection. In particular, it shows how the need to facilitate trust-based relationships may justify some limitations of privacy (in the sense of a right to self-determination over personal data), but may also provide some grounds for the protection of privacy.
    Keywords: fundamental/human rights; law
    Date: 2006–03–01
  6. By: Christian Joerges
    Abstract: The historical evolution of free trade has been accompanied by a plethora of debates, concerning both its positive effects and social costs. During the last decade, the subject of these disputes has markedly changed. The main objective of the General Agreement on Tariffs and Trade (GATT) concluded 1947, was initially the reduction of tariffs introduced by states to protect their national economy. In this respect, the agreement has been markedly successful. Since the early 1970s, however, non-tariff barriers to free trade have moved to the centre of attention. This change of focus was fostered by more intensified domestic regulation especially in the fields of health and safety, consumer and environmental protection. These concerns are of such domestic significance that they cannot simply be abandoned for the sake of free trade; however, it also is common opinion that regulations in these areas cannot be accepted, if they merely mask protectionist interests. In 1994, the international trade system adapted to this situation by transforming the GATT into the World Trade Organization (WTO). The most important reforms included an overhaul of its procedures of dispute settlement and the conclusion of special agreements concerning non-tariff barriers to free trade such as the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) and the Agreement on Technical Barriers to Trade (TBT). These agreements aim at the balancing of their main economic objective, free trade, with domestic regulatory concerns of WTO members. This bundle of regulations has certainly furthered the emergence of transnational ‘governance arrangements’. Such new forms of ‘transnational governance’ have lent renewed importance to ‘old’ legal issues: How can new forms of transnational governance be qualified legally? What can be said about their (social) acceptance and (normative) legitimacy? Can this form of governance be ‘constitutionalized’ in such a way that law can defend or even regain its function as guarantor of and yardstick for legitimate governing?
    Date: 2006–03–01
  7. By: N’Gunu N. Tiny
    Abstract: Abstract: This article explores the normative interplay between systems of regional integration and the WTO. It is intended to provide an analysis of the response of the dispute settlement mechanisms within the NAFTA and the EU to the normative claims and challenges posed by the WTO Appellate Body, such as the claim of normative supremacy. It tries to highlight the way and processes by which such judicial or quasi-judicial institutions mediate claims and conflicts vis-à-vis the WTO. The article starts by focussing on what are considered to be the fundamentals of judicial accommodation. It will be argued that NAFTA arbitrators and EU judges have made a strong case for accommodation or, at least, to the awareness of accommodation, because of their concern with normative coherence and system integrity. Arbitrators and judges alike are driven by the idea of coherence and integrity of law when accommodating competing or conflicting normative claims. This will be followed by a focus on the distinctive character of judicial accommodation. Because of the arbitral nature of NAFTA Panels and the judicial nature of EU courts, the argument continues, arbitrators and judges respectively have a distinct, and perhaps even unique, way of accommodating different claims as compared to other institutions and actors operating within NAFTA and the EU, such as the legislature and trade officials. Two models of judicial accommodation are contrasted. The NAFTA strategy of judicial accommodation as regards WTO law will be described as an attempt to define a common ground between both trading systems. By contrast, the European courts have mainly focused on the determination or assertion of jurisdictional boundaries between the EU and the WTO.
    Keywords: dispute resolution; economic law; GATT; WTO
    Date: 2005–07–22
  8. By: Fernando Gonzalez Rojas
    Abstract: Abstract: It is clear that Article 1102 of NAFTA was not intended to prohibit all kinds of differential treatment between foreign and domestic investors. Therefore, what kind of discrimination does Article 1102 outlaw? Many would confidently answer: discrimination aimed at protectionism. However, if Article 1102 makes no reference to the Parties’ intent, how can the apparently ‘objective’ standards of “like circumstances” and “less favorable treatment” be used to identify the protectionist aim? Is the GATT Article III jurisprudence helpful in this task? How have the Chapter 11 panels sorted out this problem? These are some of the questions this paper will address.
    Keywords: regulatory politics; dispute resolution; economic law; GATT; international agreements; non-discrimination; regulations; reverse discrimination; economic integration; foreign direct investment; international trade; liberalization; protectionism; regional development; WTO; law
    Date: 2005–07–22
  9. By: Theodor Schilling
    Abstract: Abstract: This article discusses a constitutionalization of general international law which aims at transposing the achieve­ments of the constitutional State system to the in­ter­na­tio­nal level. Constitutionalization is discussed in four steps and two excursus: defining the specific interest of the present research, defining the requirements necessary for a meaningful conception of international law constitutionalization, discussing the dynamism of the in­ter­na­tio­nal legal order, describing the relevant legal facts as found on the ground, discussing a possible model rôle of intra-treaty constitutionalization, and discussing structural possibilities of a further international law constitutionalization. The discussion will center on the structural requirements of an international law constitutionalization and compare it with international law's structural givens.
    Keywords: law; judicial review
    Date: 2005–08–12
  10. By: Boris Rotenberg
    Abstract: Abstract: The primary aim of this paper is to point to the need for a European debate on the tension between the fundamental right to freedom of expression and the fundamental right to property in European software regulation. The analysis reveals that the analogous application of existing fundamental rights case law of the European Court of Human Rights as in Chassagnou and Appleby would probably unduly favour private property rights in software over other individual and societal interests in the form of software expression. Courts will need more guidance to find the right balance, in view of the unique nature of software, particularly so with regard to the foundational concept of software interoperability.
    Keywords: European law; media; networks; standardisation; fundamental/human rights
    Date: 2005–11–18
  11. By: Marco Dani
    Abstract: Abstract: Constitutionalism has developed in the last two centuries almost exclusively in context of the state. Particularly, its categories and institutional solutions have been fashioned in respect to the functional concerns progressively assumed by the state form of government. In the current situation, a massive process of re-organization of the public space is taking place. States are outsourcing their functions to commonly established international or supranational agencies which often originate autonomous legal orders and, in some cases, even claim constitutional status. This paper advocates the idea that the monopoly on constitutionalism by the states may be considered an historical contingency and that the ideal inherent in constitutionalism – to achieve fundamental objectives by enabling and limiting political institutions – may be developed also in non-state contexts, originating autonomous constitutional spheres and doctrinal categories in the light of the functional concerns of post-national units. This paper tests this general thesis in respect to economic constitutionalism(s). After questioning the exclusively state-centered approaches to constitutionalism, a core of constitutional elements shared by the Italian (as a sample of the EU member states), the WTO and EU legal orders is singled out. The concept of Economic Constitutional Identity (ECI) is therefore introduced as the most appropriate device to investigate, according to the methodology of comparative law, the attitudes towards the economic issues of the legal orders at hand. Hence, the ECIs of Italy, the WTO and the EU are analyzed in detail by stressing in turn their divergent and convergent elements. On the basis of this more specific understanding of the characters of the ECIs, criteria for interpreting their interactions are provided in the light of the idea of benefiting from (rather than being concerned with) the uneasiness caused by their diversity.
    Keywords: comparative law; economic law; WTO; Italy
    Date: 2005–12–13
  12. By: Sumner J La Croix (Department of Economics, University of Hawaii at Manoa); Denise Eby Konan (Department of Economics, University of Hawaii at Manoa; Chancellor's Office, University of Hawaii at Manoa)
    Abstract: Have developing countries gained from the incorporation of IPR standards into the WTO framework? We use historical, theoretical, and empirical methods to answer this question and reach several conclusions. First, U.S. history provides a clear case of a developing country which used strong patent rights and weak copyrights in the 19th century to enhance its growth prospects. Second, recent theoretical literature presents a strong case for welfare gains to developing countries from patent harmonization if developed countries pay lump-sums to offset higher royalty payments by developing countries. Third, the creation of intellectual property in new types of inventions is necessary, but the scope, depth, and enforcement of IPRs is likely to differ across countries according to their economic and political institutions, their per capita income, and their capability to engage in and disseminate the fruits of R&D.
    JEL: K33 F13 O34
    Date: 2006
  13. By: Matthias Kräkel (University of Bonn and IZA Bonn)
    Abstract: Individuals who compete in a contest-like situation (for example, in sports, in promotion tournaments, or in an appointment contest) may have an incentive to illegally utilize resources in order to improve their relative positions. We analyze such doping or cheating within a tournament game between two heterogeneous players. Three major effects are identified which determine a player’s doping decision - a cost effect, a likelihood effect and a windfall-profit effect. Moreover, we discuss whether the favorite or the underdog is more likely to be doped, the impact of doping on overall performance, the influence of increased heterogeneity on doping, the welfare implications of doping, and possible prevention of doping.
    Keywords: cheating, contest, doping, fraud in research, tournament
    JEL: J3 K42 M5
    Date: 2006–03
  14. By: Janet Currie (Columbia University, UCLA, NBER and IZA Bonn); Erdal Tekin (Georgia State University, NBER and IZA Bonn)
    Abstract: Child maltreatment, which includes both child abuse and child neglect, is a major social problem. This paper focuses on measuring the effects of child maltreatment on crime using data from the National Longitudinal Study of Adolescent Health (Add Health). We focus on crime because it is one of the most socially costly potential outcomes of maltreatment, and because the proposed mechanisms linking maltreatment and crime are relatively well elucidated in the literature. Our work addresses many limitations of the existing literature on child maltreatment. First, we use a large national sample, and investigate different types of abuse in a similar framework. Second, we pay careful attention to identifying the causal impact of abuse, by using a variety of statistical methods that make differing assumptions. These methods include: Ordinary Least Squares (OLS), propensity score matching estimators, and twin fixed effects. Finally, we examine the extent to which the effects of maltreatment vary with socio-economic status (SES), gender, and the severity of the maltreatment. We find that maltreatment approximately doubles the probability of engaging in many types of crime. Low SES children are both more likely to be mistreated and suffer more damaging effects. Boys are at greater risk than girls, at least in terms of increased propensity to commit crime. Sexual abuse appears to have the largest negative effects, perhaps justifying the emphasis on this type of abuse in the literature. Finally, the probability of engaging in crime increases with the experience of multiple forms of maltreatment as well as the experience of Child Protective Services (CPS) investigation.
    Keywords: maltreatment, child abuse, crime
    JEL: I1 K4
    Date: 2006–04
  15. By: Tomas J. Philipson; Richard A. Posner
    Abstract: Despite the conceptual differences between for-profit and non-profit firms stressed in conventional economic analyses of the non-profit sector, U.S. antitrust law generally does not distinguish between these two organizational forms. This paper argues that the same incentives to restrain trade exist in the non-profit sector as in the for-profit sector. Altruistic firms benefit from exploiting market power, just as non-altruistic ones do, even when they would price below cost without regard to competition. Therefore, promoting competition is socially valuable regardless of the particular objectives of producers, and the fact that antitrust law does not distinguish between the two sectors is efficient.
    JEL: K2
    Date: 2006–04
  16. By: Stephen M. Maurer; Suzanne Scotchmer
    Abstract: Open source methods for creating software rely on developers who voluntarily reveal code in the expectation that other developers will reciprocate. Open source incentives are distinct from earlier uses of intellectual property, leading to different types of inefficiencies and different biases in R&D investment. Open source style of software development remedies a defect of intellectual property protection, namely, that it does not generally require or encourage disclosure of source code. We review a considerable body of survey evidence and theory that seeks to explain why developers participate in open source collaborations instead of keeping their code proprietary, and evaluates the extent to which open source may improve welfare compared to proprietary development.
    JEL: K L
    Date: 2006–04
  17. By: Giuseppe Dari-Mattiacci; Bruno Deffains
    Abstract: There is extensive literature on whether courts or legislators produce efficient rules, but which of them produces rules efficiently? Is there an optimal mix of litigation and legislation? The law is inevitably subject to a certain degree of uncertainty ex ante; uncertainty makes the outcomes of trials difficult to predict and, hence, prevents parties from settling disputes out of court. Conversely, the law is necessarily certain ex post: litigation fosters the creation of precedents that reduce uncertainty. We postulate that there is a natural balance between the degree of uncertainty of a legal system (kept under control by litigation) and its litigation rate (sustained by uncertainty). We describe such equilibrium rates of litigation and uncertainty in a formal model, study how they are affected by two different policies -litigation fees/subsidies and legislation - and compare the costs and benefits of the legislative and the judicial process of lawmaking. We then extend the analysis to explore the implications of this approach.
    Keywords: incompleteness of law, complexity of law, litigation, judge-made law, legislation.
    JEL: K10 K40 K41
    Date: 2006
  18. By: Bruno Deffains; Dominique Demougi
    Abstract: In an environment where the optimal level of care is unknown, we ask under a state of the art defense which method is better able to induce parties to undertake optimal care. Assuming courts can see a noisy signal of research activities undertaken by a defendant and some of its competitors, we ask whether courts should use a biased or unbiased average to compare care. We find that the later is better.
    Keywords: Tort law, standard of care, customary test, technological advancement test.
    JEL: K13
    Date: 2006

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