New Economics Papers
on Law and Economics
Issue of 2006‒11‒25
eleven papers chosen by
Jeong-Joon Lee, Towson University

  1. Optimal monitoring to implement clean technologies when pollution is random By Inés Macho-Stadler; David Pérez-Castrillo
  2. Environmental Regulation: Choice of Instruments under Imperfect Compliance By Inés Macho-Stadler
  3. The impact of divorce laws on marriage-specific capital By Betsey Stevenson
  4. Politico-Economic Causes of Labor Regulation in the United States: Rent Seeking, Alliances, Raising Rivals’ Costs (Even Lowering One’s Own?), and Interjurisdictional Competition By John T. Addison
  5. What Drives Media Slant? Evidence from U.S. Daily Newspapers By Matthew Gentzkow; Jesse M. Shapiro
  6. Price Discrimination in Input Markets By Roman Inderst; Tommaso Valletti
  7. Rewarding the consumer for curbing the evasion of commodity taxes?. By Marchese, Carla
  8. The Analysis of Coordinated Effects in EU Merger Control: Where do we stand after Sony/BMG and Impala? By Oliver Budzinski; Gisela Aigner; Arndt Christiansen
  9. Horizontal Mergers with Free Entry in Differentiated Oligopolies By Nisvan Erkal; Daniel Piccinin
  10. Minorities and Storable Votes By Alessandra Casella; Thomas Palfrey; Raymond Riezman
  11. A Simple Scheme to Improve the Efficiency of Referenda By Alessandra Casella; Andrew Gelman

  1. By: Inés Macho-Stadler; David Pérez-Castrillo
    Abstract: We analyze a model where firms chose a production technology which, together with some random event, determines the final emission level. We consider the coexistence of two alternative technologies: a "clean" technology, and a "dirty" technology. The environmental regulation is based on taxes over reported emissions, and on penalties over unreported emissions. We show that the optimal inspection policy is a cut-off strategy, for several scenarios concerning the observability of the adoption of the clean technology and the cost of adopting it. We also show that the optimal inspection policy induces the firm to adopt the clean technology if the adoption cost is not too high, but the cost levels for which the firm adopts it depend on the scenario.
    Keywords: Production technology, random emissions, environmental taxes, optimal monitoring policy.
    JEL: K32 K42 D82
    Date: 2006–11–20
  2. By: Inés Macho-Stadler
    Abstract: Compliance is an important issue in environmental regulation. In this paper, we discuss some of the key elements of the problem and analyze a situation where emissions are not random and firms are risk-neutral. We study the firm's decision on emissions and compliance when the environmental regulation is based on standards and the enforcement agency audits the firm with a certain probability. We then compare total emissions when environmental regulation is based on different instruments: standards, taxes, and tradable permits. We show that when compliance is an issue, environmental taxes are superior to the other instruments. We also analyze the (static) efficiency of the solution.
    Keywords: environmental regulation, audits and compliance, environmental standards, other instruments.
    JEL: K32 K42 D82
    Date: 2006–11–20
  3. By: Betsey Stevenson
    Abstract: This paper considers how divorce law alters the incentives for couples to invest in their marriage, focusing on the impact of unilateral divorce laws on investments in new marriages. Differences across states between 1970 and 1980 provide useful quasi-experimental variation with which to consider incentives to invest in several types of marriage-specific capital: spouse's education, children, household specialization, and home ownership. I find that adoption of unilateral divorce--regardless of the prevailing property-division laws--reduces investment in all types of marriage-specific capital considered except home ownership. In contrast, results for home ownership depend on the underlying property division laws.
    Date: 2006
  4. By: John T. Addison (University of South Carolina, Queen’s University Belfast, Universidade de Coimbra/GEMF and IZA Bonn)
    Abstract: This paper offers an eclectic survey of the political economy of labor regulation in the United States at federal and state levels along the dimensions of occupational health and safety, unjust dismissal, right-to-work, workplace safety and workers’ compensation, living wages, and prevailing wages. We discuss rent seeking/predation, coalition formation, judicial review, and interjurisdictional competition as well as the implications of union decline. Our analysis should help dispel any notion that the U.S. labor market is unregulated while also indicating that the political process shows some sensitivity to benefits and costs.
    Keywords: labor regulation, regulatory capture, interjurisdictional competition, judicial review, OSHA, unjust dismissals, workplace safety, right-to-work, living wage ordinances, prevailing wages, unionism.
    JEL: H70 J28 J38 J41 J48 J58 J65 J80 K31
    Date: 2006–10
  5. By: Matthew Gentzkow; Jesse M. Shapiro
    Abstract: We construct a new index of media slant that measures whether a news outlet's language is more similar to a congressional Republican or Democrat. We apply the measure to study the market forces that determine political content in the news. We estimate a model of newspaper demand that incorporates slant explicitly, estimate the slant that would be chosen if newspapers independently maximized their own profits, and compare these ideal points with firms' actual choices. Our analysis confirms an economically significant demand for news slanted toward one's own political ideology. Firms respond strongly to consumer preferences, which account for roughly 20 percent of the variation in measured slant in our sample. By contrast, the identity of a newspaper's owner explains far less of the variation in slant, and we find little evidence that media conglomerates homogenize news to minimize fixed costs in the production of content.
    JEL: D78 K23 L82
    Date: 2006–11
  6. By: Roman Inderst (London School of Economics & Political Science); Tommaso Valletti (Imperial College London, University of Rome "Tor Vergata" and CEPR)
    Abstract: We analyze the short- and long-run implications of third-degree price discrimination in input markets where downstream firms differ in their efficiency. In contrast to the extant literature, where the supplier is typically an unconstrained monopolist, in our model input prices are constrained by the potential for demand-side substitution. This modification has far-reaching consequences. We show that more efficient firms receive lower input prices under price discrimination, and that the imposition of uniform pricing could stifle incentives to reduce own marginal costs. If downstream firms compete in the same market, we also find a waterbed effect, in that a reduction in a firm's own marginal costs not only reduces its own input price, but increases the input price of its competitors.
    Keywords: Price Discrimination, Uniform Pricing, Input Market
    JEL: K21 L13 L42
    Date: 2006–07–01
  7. By: Marchese, Carla
    Abstract: Monetary or in-kind transfers can be used as an incentive for consumers to request o.cial receipts for goods they purchase. A novel system of in-kind transfers in the form of lottery tickets has recently been introduced in China. Price subsidies (often granted through tax deductions or refunds) are also widely used. This paper extends the standard model of commodity tax evasion for firms (in a competitive market and under the conjectural variation approach) in order to describe the e.ects of subsidies on tax evasion and in terms of incidence and of government revenue. The role of search costs and of enforcement costs is also taken into account.
    JEL: H31 H32 K42
    Date: 2006–11
  8. By: Oliver Budzinski (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Gisela Aigner; Arndt Christiansen (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: The recent Impala Judgment by the CFI on the Sony/BMG Decision by the Commission represents the most important ruling on collective dominance since Airtours. We review both the Decision and the Judgment and derive implications for the institutional and substantive development of EU Merger Control. Firstly, Impala introduces an ambitious symmetric standard of proof for prohibition and clearance decisions by the Commission. While alleviating fears of an increasing number of false positives in the aftermath of Airtours, this entails the problem of how to deal with cases in which neither the existence, nor the absence of anticompetitive effects can be proven to the required standard. Secondly, the ongoing process of increasing the role of third parties in European Merger Control is fuelled. Thirdly, Impala has the potential to herald a comeback of coordinated effects analysis, further precising the conditions for establishing this kind of anticompetitive effect. Additionally, given the characteristics of the music industry, we criticise a lack of in-depth economic analysis of non-price competition issues, such as innovations and product diversity.
    Keywords: merger control, coordinated effects, standard of proof, music industry, collusion, Impala, Sony/BMG
    JEL: K21 L41 L13 L82
    Date: 2006
  9. By: Nisvan Erkal; Daniel Piccinin
    Abstract: Antitrust authorities view the possibility of entry as a key determinant of whether a proposed merger will be harmful to society. This paper examines the effects of horizontal mergers in models of non-localized, differentiated Bertrand oligopoly that allow for free entry. The analysis of the long run effects of mergers in differentiated products markets raises issues that are significantly different from those in the short run or in homogeneous products markets due to the introduction of new varieties. Our analysis reveals that determining the properties of consumer preferences is crucial to the antitrust analysis of mergers in differentiated products markets. Specifically, we show that if the demand system satisfies the Independence from Irrelevant Alternatives (IIA) property and if the number of firms is treated as a continuous variable, mergers in differentiated products markets have no long run effect on consumer welfare. Moreover, in this case, marginal cost savings are to a large extent irrelevant to the consumer welfare effects of mergers. If the number of firms is treated as a discrete variable, fixed or marginal cost savings are a necessary condition for mergers to have zero or positive effect on consumer welfare. Using the example of linear demand, we show that if the demand system does not satisfy the IIA property, mergers in differentiated products markets can harm consumer welfare in long run equilibrium. Moreover, the amount of harm increases with consumers’ taste for variety.
    Keywords: Horizontal mergers; free entry; product differentiation; independence from irrelevant alternatives; antitrust policy
    JEL: L13 L22 L41 K21
    Date: 2006
  10. By: Alessandra Casella (Department of Economics, Columbia University); Thomas Palfrey (Division of Humanities, Cal Tech); Raymond Riezman (Department of Economics, University of Iowa)
    Abstract: The paper studies a simple voting system that has the potential to increase the power of minorities without sacrificing aggregate efficiency. Storable votes grant each voter a stock of votes to spend as desired over a series of binary decisions. By accumulating votes on issues that it deems most important, the minority can win occasionally. But because the majority typically can outvote it, the minority wins only if its strength of preference is high and the majority's strength of preference is low. The result is that with storable votes, aggregate efficiency either falls little or in fact rises. The theoretical predictions of our model are confirmed by a series of experiments: the frequency of minority victories, the relative payoff of the minority versus the majority, and the aggregate payoffs all match the theory.
    Date: 2005–11
  11. By: Alessandra Casella (Department of Economics, Columbia University); Andrew Gelman (Department of Statistics, Columbia University)
    Abstract: This paper proposes a simple scheme designed to elicit and reward intensity of preferences in referenda: voters faced with a number of binary proposals are given one regular vote for each proposal plus an additional number of bonus votes to cast as desired. Decisions are taken according to the majority of votes cast. In our base case, where there is no systematic difference between proposals’ supporters and opponents, there is always a positive number of bonus votes such that ex ante utility is increased by the scheme, relative to simple majority voting. When the distributions of valuations of supporters and opponents differ, the improvement in efficiency is guaranteed if the distributions can be ranked according to first order stochastic dominance. If they are, however, the existence of welfare gains is independent of the exact number of bonus votes.
    Date: 2005–11

This issue is ©2006 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.