New Economics Papers
on Law and Economics
Issue of 2006‒09‒23
thirteen papers chosen by
Jeong-Joon Lee, Towson University

  1. Let's Talk about Bidding! - Coordination Mechanisms in Procurement Auctions By Werner Güth; Jeannette Brosig; Torsten Weiland
  2. Ex-Ante vs. Ex-Post Efficiency in Personal Bankruptcy Proceedings By Eva-Maria Steiger
  3. Sequential versus simultaneous market By Haldrup, Niels; Møllgaard, Peter; Nielsen, Claus Kastberg
  4. Accident Risk, Gender, Family Status and Occupational Choice in the UK By Suzanne Grazier; Peter J. Sloane
  5. An Experimental Test of Criminal Behavior Among Juveniles and Young Adults By Michael S. Visser; William T. Harbaugh; Naci H. Mocan
  6. Immigration and African-American Employment Opportunities: The Response of Wages, Employment, and Incarceration to Labor Supply Shocks By George J. Borjas; Jeffrey Grogger; Gordon H. Hanson
  7. Evaluating the Effectiveness of Child Safety Seats and Seat Belts in Protecting Children from Injury By Steven D. Levitt; Joseph J. Doyle
  8. Norm Flexibility and Private Initiative By Giovanni Immordino; Marco Pagano; Michele Polo
  9. Estonian Developments of the Legal Instruments Regulating Pathological Gambling By Kristi Joamets; Maria Claudia Solarte Vasquez, LLM
  10. Reliance Investments, Expectation Damages and Hidden Information By Urs Schweizer
  11. Is the Event Study Methodology Useful for Merger Analysis? A Comparison of Stock Market and Accounting Data By Tomaso Duso; Klaus Gugler; Burcin Yurtoglu
  12. Patent Laws and Innovation in China By Linda Y. Yueh
  13. Do changes in regulation affect employment duration in temporary work agencies? By Antoni, Manfred; Jahn, Elke J.

  1. By: Werner Güth; Jeannette Brosig; Torsten Weiland
    Abstract: Collusive agreements are often observed in procurement auctions. They are probably more easily achieved when competitors’ costs are easily estimated. If, however, the individual costs of bidders are private information, effective ring formation is difficult to realize. We compare experimentally different coordination mechanisms in a first-price procurement auction in how they promote the prospects of collusive arrangements. One mechanism allows bidders to coordinate by means of unrestricted pre-play communication. The second one enables bidders to restrict their bidding range and the last one gives them the opportunity to implement mutual shareholding. According to our results firstprice procurement is quite collusion-proof when allowing for the latter two coordination mechanisms whereas, on average, pre-play communication increases bidders’ profits.
    Keywords: competition, collusion, auction, bidding, public procurement
    JEL: C72 H57 K42
    Date: 2006–09
  2. By: Eva-Maria Steiger
    Abstract: Amidst a sharp increase in household debt levels, many countries have substantially reformed their consumer bankruptcy regulations. I first classify the mechanisms triggered by current U.S. and European bankruptcy regulations and then evaluate these mechanisms within a hidden action model. I analyze the consumer’s incentives prior to distress and during a ’period of good conduct’ following bankruptcy, appraising the capacity of existing regulations to implement those conflicting objectives. Though the institution of debt release provides adequate bankruptcy regulation ex-post, the prospect of debt release also distorts the debtor’s choices prior to distress. I propose alternative regulations that provide superior incentives, minimizing the overall distortions at both dates. A numerical example illustrates the findings.
    Keywords: Personal Bankruptcy, Limited Liability, Moral Hazard, Law & Economics
    JEL: D18 D91 G33 K35
    Date: 2006–09
  3. By: Haldrup, Niels (Department of Economics, Copenhagen Business School); Møllgaard, Peter (Department of Economics, Copenhagen Business School); Nielsen, Claus Kastberg (Department of Economics, Copenhagen Business School)
    Abstract: Delineation of the relevant market forms a pivotal part of most antitrust cases. The standard approach is sequential. First the product market is delineated, then the geographical market is defined. Demand and supply substitution in both the product dimension and the geographical dimension will normally be stronger than substitution in either dimension. By ignoring this one might decide first to define products narrowly and then to define the geographical extent narrowly ignoring the possibility of a diagonal substitution. These reflections are important in the empirical delineation of product and geographical markets. Using a unique data set for prices of Norwegian and Scottish salmon, we propose a methodology for simultaneous market delineation and we demonstrate that compared to a sequential approach conclusions will be reversed.
    Keywords: Relevant market; econometric delineation; salmon
    JEL: C30 K21 L41 Q22
    Date: 2005–03–15
  4. By: Suzanne Grazier (WELMERC, University of Wales at Swansea); Peter J. Sloane (WELMERC, University of Wales at Swansea and IZA Bonn)
    Abstract: Many studies show that women are more risk averse than men. In this paper, following DeLeire and Levy (2004) for the US, we use family structure as a proxy for the degree of risk aversion to test the proposition that those with strong aversion to risk will make occupational choices biased towards safer jobs. In line with DeLeire and Levy we find that women are more risk averse than men and those married with children are more risk averse than those without. However, the effect on the degree of gender segregation is much smaller than for the US.
    Keywords: accident risk, gender segregation, family status, occupational choice
    JEL: J0 J2 K2
    Date: 2006–09
  5. By: Michael S. Visser; William T. Harbaugh; Naci H. Mocan
    Abstract: We report results from economic experiments that provide a direct test of the hypothesis that criminal behavior responds rationally to changes in the possible rewards and in the probability and severity of punishment. The experiments involve decisions that are best described as petty larceny, and are done using high school and college students who can anonymously take real money from each other. We find that decisions about whether and how much to steal are, in general, rational and responsive to the variations in tradeoffs, and sometimes, though not always, to the overall availability of criminal opportunities.
    JEL: D64 K42 L11
    Date: 2006–09
  6. By: George J. Borjas; Jeffrey Grogger; Gordon H. Hanson
    Abstract: The employment rate of black men, and particularly of low-skill black men, fell precipitously from 1960 to 2000. At the same time, the incarceration rate of black men rose markedly. This paper examines the relation between immigration and these trends in black employment and incarceration. Using data drawn from the 1960-2000 U.S. Censuses, we find a strong correlation between immigration, black wages, black employment rates, and black incarceration rates. As immigrants disproportionately increased the supply of workers in a particular skill group, the wage of black workers in that group fell, the employment rate declined, and the incarceration rate rose. Our analysis suggests that a 10-percent immigrant-induced increase in the supply of a particular skill group reduced the black wage by 3.6 percent, lowered the employment rate of black men by 2.4 percentage points, and increased the incarceration rate of blacks by almost a full percentage point.
    JEL: J2 J3 J6 K42
    Date: 2006–09
  7. By: Steven D. Levitt; Joseph J. Doyle
    Abstract: Young children are required to use child safety seats, and the age threshold at which children can legally graduate to seat belts has steadily increased. This paper tests the relative effectiveness of child safety seats, lap-and-shoulder seat belts, and lap belts in preventing injuries among motor vehicle passengers aged 2-6. We analyze three large, representative samples of crashes reported to police, as well as linked hospital data. We find no apparent difference in the two most serious injury categories for children in child safety seats versus lap-and-shoulder belts. Child safety seats provide a statistically significant 25% reduction in the least serious injury category. Lap belts are somewhat less effective than the two other types of restraints, but far superior to riding unrestrained.
    JEL: K2 R4
    Date: 2006–09
  8. By: Giovanni Immordino (Università di Salerno and CSEF); Marco Pagano (Università di Napoli Federico II, CSEF, CEPR and ECGI); Michele Polo (Università Bocconi di Milano, CSEF and CEPR)
    Abstract: We model an enforcement problem where firms can take a known and lawful action or seek a profitable innovation that may enhance or reduce welfare. The legislator sets fines calibrated to the harmfulness of unlawful actions. The range of fines defines norm flexibility. Expected sanctions guide firms’ choices among unlawful actions (marginal deterrence) and/or stunt their initiative altogether (average deterrence). With loyal enforcers, maximum norm flexibility is optimal, so as to exploit both marginal and average deterrence. With corrupt enforcers, instead, the legislator should prefer more rigid norms that prevent bribery and misreporting, at the cost of reducing marginal deterrence and stunting private initiative. The greater is potential corruption, the more rigid the optimal norms.
    Keywords: norm design, initiative, enforcement, corruption
    JEL: D73 K21 K42 L51
    Date: 2006–09–01
  9. By: Kristi Joamets (School of Economics and Business Administration, Tallinn University of Technology); Maria Claudia Solarte Vasquez, LLM
    Abstract: Statements such as “gambling can be a powerful economic development tool” are the kind fostering the acceptance of the proliferation of technologies to aid the spread and availability of gambling opportunities in countries with less sophisticated legal systems. These, together with slogans and the absence of reliable research, the indifference of the population and administrative policies that do not take a stand for a responsible regulation of new socio-economic phenomena, are the main negative factors that require reflection and that should be officially assessed. For long time Estonia showed very little interest in gambling related problems. It seems that all the state was interested in was tax collection. Other questions such as state control over this sector of the market, the corresponding organisation of administrative bodies as well as their specific responsibilities and the state policy concerning internet gambling, including the pathological gambling issue, have not been addressed at all. However, in the last two years the gambling addiction has acquired a special meaning in the country. The personal and sociological impact of this disease was denounced, and thus an official recognition of the problem finally took place: fighting against it has become a priority for different groups
    Keywords: I19, K23, K34, K32
    Date: 2006
  10. By: Urs Schweizer (Department of Economics, University of Bonn, Adenauerallee 24, 53113 Bonn, Germany,
    Abstract: A setting of reliance investments is explored where one of the parties to a contract obtains private information concerning his utility or cost function that remains hidden to the other party and to courts. As a consequence, it will be a difficult task to award expectation damages corrrectly to a party with private information who sufffers from breach of contract. While a revelation mechanism would exist that leads to the first best solution, assessing expectation damages correctly turns out to be at odds with ex post efficiency. I conclude that, under asymmetric information, the performance of expectation damages falls short of what more general mechanisms could achieve.
    Keywords: reliance investments, expectation damages, breach of contract, hidden information
    JEL: K12 D82
    Date: 2006–09
  11. By: Tomaso Duso (Humboldt University Berlin and WZB,; Klaus Gugler (University of Vienna,; Burcin Yurtoglu (University of Vienna,
    Abstract: Using a sample of 167 mergers during the period 1990-2002 involving 544 firms either as merging firms or competitors, we contrast a measure of the merger’s profitability based on event studies with one based on accounting data. We find positive and significant correlations between them when using a long window around the announcement date and, for rivals, in case of anticompetitive mergers.
    Keywords: Mergers, Merger Control, Event Studies, Ex-post Evaluation
    JEL: L4 K21 G34
    Date: 2006–09
  12. By: Linda Y. Yueh
    Abstract: This paper explores whether the patent law and intellectual property rights (IPR) system have resulted in innovation in China during the reform period. It appears that the patent laws have produced a stock of patents, where the success rates of patent applications are fairly uniform across the country. As the IPR framework does not vary across provinces, we asked which factors would explain innovation in China. We find the main determinants of patents to be R&D expenditure and foreign direct investment, but not the number of researchers, though the level of human capital matters. We conclude that the patent laws in China have been associated with innovation that has accompanied economic growth despite imperfections in the legal system.
    Keywords: Intellectual Property Rights, Patent Laws, Law and Economics, Innovation, Economic Growth, China
    JEL: O34 K29 O4 O53 K19
    Date: 2006
  13. By: Antoni, Manfred (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Jahn, Elke J. (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany])
    Abstract: "Over the past three decades Germany has repeatedly deregulated the law on temporary agency work by stepwise increasing the maximum period for hiring-out employees and allowing temporary work agencies to conclude fixed-term contracts. These reforms should have had an effect on the employment duration within temporary work agencies. Based on an informative administrative data set we use hazard rate models to examine whether the employment duration has changed in response to these reforms. We find that the repeated prolongation of the maximum period for hiring-out employees significantly increased the average employment duration while the authorization of fixed-term contracts reduced employment tenure." (author's abstract, IAB-Doku) ((en))
    Keywords: Leiharbeit, Diffusion, Leiharbeitnehmer, Persönlichkeitsmerkmale, Beschäftigungsdauer, Arbeitsmarktpolitik, Arbeitsrecht, Deregulierung, Betriebszugehörigkeit
    JEL: C41 J23 J40 J48 K31
    Date: 2006–09–14

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