New Economics Papers
on Law and Economics
Issue of 2006‒08‒26
four papers chosen by
Jeong-Joon Lee, Towson University

  1. Is Crime Contagious? By Jens Ludwig; Jeffrey R. Kling
  2. Contractual Tradeoffs and SMEs Choice of Organizational Form, A View from U.S. and French History, 1830-2000 By Naomi R. Lamoreaux; Jean-Laurent Rosenthal
  3. Legal Damages at Uncertain Causation By Urs Schweizer
  4. Quantifying the Benefits of Entry into Local Phone Service, By Nicholas Economides; V. Brian Viard; Katja Seim

  1. By: Jens Ludwig; Jeffrey R. Kling
    Abstract: Understanding whether criminal behavior is “contagious” is important for law enforcement and for policies that affect how people are sorted across social settings. We test the hypothesis that criminal behavior is contagious by using data from the Moving to Opportunity (MTO) randomized housing-mobility experiment to examine the extent to which lower local-area crime rates decrease arrest rates among individuals. Our analysis exploits the fact that the effect of treatment group assignment yields different types of neighborhood changes across the five MTO demonstration sites. We use treatment-site interactions to instrument for measures of neighborhood crime rates, poverty and racial segregation in our analysis of individual arrest outcomes. We are unable to detect evidence in support of the contagion hypothesis. Neighborhood racial segregation appears to be the most important explanation for across-neighborhood variation in arrests for violent crimes in our sample, perhaps because drug market activity is more common in high-minority neighborhoods.
    JEL: H43
    Date: 2006–08
  2. By: Naomi R. Lamoreaux; Jean-Laurent Rosenthal
    Abstract: Today the vast majority of multi-owner firms in the United States are corporations, but that was not the case in the past. Before the advent of the income tax, tort litigation, and significant federal regulation, entrepreneurs more often than not chose to organize as partnerships, a form that economists consider seriously flawed. Why would they make such a terrible mistake? We begin by noting that corporations created new types of contracting problems for businesses at the same time as they solved problems afflicting partnerships. We then model the tradeoffs involved in the choice of corporations versus partnerships and confirm that the model’s assumptions are consistent with U.S. legal rules up through the 1940s. The model implies that partnerships and corporations are complementary organizational forms, and we show that data from the U.S. Census of Manufactures strongly supports that implication. We also verify that the model’s assumptions hold for the broader set of organizational choices available under the French Code de Commerce and use data on multi-owner firms registered in Paris in the 1830s and 1840s to demonstrate the complementary character of the basic forms. Despite much literature emphasizing the fundamentally different environments for business associated with the French and U.S. legal regimes, the basic calculus underpinning the choice of organizational form was the same in both countries.
    JEL: D21 D86 K2 K22 L22 N8
    Date: 2006–08
  3. By: Urs Schweizer (Department of Economics, University of Bonn, Adenauerallee 24, 53113 Bonn, Germany.
    Abstract: The legal notion of damages requires to compare the actual value of the creditor’s assets with the hypothetical value that would have prevailed if the debtor had met his obligation. Moreover, values and causation may be uncertain. If nature’s contribution is modelled as a random move then the interaction between debtor and nature can be described in normal form which, in turn, allows to capture causality and legal damages in a consistent way. In practice, such random moves of nature are rarely observable. Yet, statistical inference may reveal sufficient information to test for causation and to estimate legal damages on average over observable events as the present paper will establish.
    Keywords: estimating legal damages, liability for torts, liability for breach of contracts
    JEL: K13 K12 D62
    Date: 2006–08
  4. By: Nicholas Economides (Stern School of Business, NYU); V. Brian Viard (Graduate School of Business, Stanford University); Katja Seim (Stanford University)
    Abstract: See #46
    JEL: D43 K23 L11 L13 L96
    Date: 2005–11

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