New Economics Papers
on Law and Economics
Issue of 2006‒05‒20
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Construction Contracts (or: "How to Get the Right Building at the Right Price?") By Surajeet Chakravarty; W. Bentley MacLeod
  2. On the effective design of the efficiency defence. By Andreea Cosnita; Jean-Philippe Tropeano
  3. Crime and Young Men: The Role of Arrest, Criminal Experience, and Heterogeneity By Susumu Imai; Hajime Katayama; Kala Krishna
  4. Discounting Dollars, Discounting Lives: Intergenerational Distributive Justice and Efficiency By Louis Kaplow
  5. Dry law and homicides: evidence from the São Paulo metropolitan area By Ciro Biderman; João Manoel Pinho de Mello; Alexandre A Schneider

  1. By: Surajeet Chakravarty (University of Exeter); W. Bentley MacLeod (Columbia University and IZA Bonn)
    Abstract: Most contracts that individuals enter into are not written from scratch; rather, they depend upon forms and terms that have been successful in the past. In this paper, we study the structure of form construction contracts published by the American Institute of Architects (AIA). We show that these contracts are an efficient solution to the problem of procuring large, complex projects when unforeseen contingencies are inevitable. This is achieved by carefully structuring the ex post bargaining game between the Principal and the Agent. The optimal mechanism corresponding to the AIA construction form is consistent with decisions of the courts in several prominent but controversial cases, and hence it provides an economic foundation for a number of the common-law excuses from performance. Finally, the case of form contracts for construction is an example of how markets, as opposed to private negotiations, can be used to determine efficient contract terms.
    Keywords: law and economics, incomplete contracts, construction, agency theory, industry studies, outsourcing, procurement
    JEL: D8 K2 L7
    Date: 2006–05
  2. By: Andreea Cosnita (Centre d'Economie de la Sorbonne); Jean-Philippe Tropeano (Centre d'Economie de la Sorbonne)
    Abstract: The efficiency defence was long delayed in the European merger control due to costly implementation issues. In this paper we argue that the upstream consequences of the efficiency defence should equally be considered, namely the improvement of the distribution of notified mergers through the incentives it provides towards more efficient mergers. First of all, we show that even if the Competition Authority may not tell apart the mergers that rightfully invoke the efficiency defence from those that do not, allowing such a procedure can lead to a lower post-merger price. Secondly, we study the impact of merger remedies on the incentives conveyed by the efficiency defence, and conclude on the optimal design of the efficiency defence procedure.
    Keywords: Merger control, efficiency defence, merger remedies.
    JEL: L41 K21 D82
    Date: 2006–04
  3. By: Susumu Imai; Hajime Katayama; Kala Krishna
    Abstract: Using National Youth Survey (NYS) data, we examine the relationship of current criminal activity and past arrests using an ordered probit model with unobserved heterogeneity. Past arrests raise current criminal activity only for the non-criminal type, while past criminal experience raises current criminal activity for both types. Also, the age crime profile peaks at age 18 for non-criminal type individuals, but for criminal type individuals, it continues to rise with age. Past research indicates that age arrest profiles rise till age 18 and then fall for both types, suggesting lower apprehension rates for criminal type individuals.
    JEL: K42 J24
    Date: 2006–05
  4. By: Louis Kaplow
    Abstract: The view that intergenerational distributive justice and efficiency should be treated separately is familiar, yet controversial. This article elaborates the often-implicit justifications for separate treatment and provides a more express statement of how and when such treatment is appropriate. Substantial attention is devoted to an approach that holds constant the intra- and intergenerational distribution of well-being, which proves to be a valuable analytical device even for intergenerational policies that are not distribution neutral. Also explored are possible interrelationships between intergenerational distributive justice and efficiency, the choice of interest rate for discounting dollars, and how the present approach relates to those that would employ direct social weights to dollars at different points in time.
    JEL: D31 D61 D63 D81 D99 H23 H43 K32 Q38 Q58
    Date: 2006–05
  5. By: Ciro Biderman (Escola de Economia de São Paulo, Fundação Getúlio Vargas.); João Manoel Pinho de Mello (Department of Economics PUC-Rio); Alexandre A Schneider (Secretary of Education,Mayorship of São Paulo.)
    Abstract: Over the last 15 years, several Latin American cities have adopted dry laws, which restrain the sale of alcohol in bars and restaurants during specific hours of the week. Bogotá, in 1991, was the first. Several more have followed suit, or are likely to do so in the near future. Policy makers and the general press have argued that these measures reduce crime. In this paper, we use a particular feature of the adoption of laws in the São Paulo Metropolitan Area (SPMA) to estimate the effect of dry laws on the ultimate form of violent crime: murder. Between March 2001 and August 2004, 16 out of the 39 municipalities of the SPMA have adopted, at different dates, dry laws. By comparing the dynamics of homicide between adopting and non-adopting cities, we estimate that dry laws reduce homicides by at least 10%, with an even higher effect in high crime cities. Results are robust to inclusion of a large set of controls, to propensity score matching, to outliers, and to correction possible spillover effects from adopting to non-adopting cities.
    Keywords: Dry Law, Alcohol, Crime, Difference-in-Difference
    Date: 2006–05

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