New Economics Papers
on Law and Economics
Issue of 2007‒01‒14
nine papers chosen by
Jeong-Joon Lee, Towson University

  1. Mergers, Litigation and Efficiency By Oliver Gürtler; Matthias Kräkel
  3. Detection avoidance and deterrence: some paradoxical arithmetics By Langlais, Eric
  4. Criminals and risk attitude By Langlais, Eric
  5. Crowding-out in productive and redistributive rent seeking By Giuseppe, Dari-Mattiacci; Bruno, Lovat; Eric, Langlais; Francesco, Parisi
  6. When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws By Bergen, Mark; Levy, Daniel; Ray, Sourav; Rubin, Paul; Zeliger, Ben
  7. Does Competition for the Field Improve Cost Efficiency? Evidence from the London Bus Tendering Model By Miguel Amaral; Stéphane Saussier; Anne Yvrande-Billon
  8. Education and crime: evidence from Italian regions By Paolo Buonanno; Leone Leonida
  9. Crime and labour market opportunities in Italy (1993-2002) By Paolo Buonanno

  1. By: Oliver Gürtler (Department of Economics, BWL II, University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany. tel: +49-228-739214, fax: +49-228-739210.; Matthias Kräkel (Department of Economics, BWL II, University of Bonn, Adenauerallee 24-42, D-53113 Bonn, Germany. tel: +49-228-739211, fax: +49-228-739210.
    Abstract: We consider antitrust enforcement within the adversarial model used by the United States. We show that, under the adversarial system, the Antitrust Authority may try to prohibit mergers also in those cases in which litigation is inefficient. Even if market concentration and technological disadvantages lead to a significant welfare reduction after merger, from society’s perspective the agency’s lawsuit may be inefficient. We can show that these inefficiencies may be aggravated if the takeover is hostile.
    Keywords: hostile takeover; litigation contest, merger
    JEL: D43 K21 L40
    Date: 2006–12
  2. By: John Connor; C. Gustav Helmers (Department of Agricultural Economics, College of Agriculture, Purdue University)
    Abstract: This report explains the principal economic and legal features of a unique set of data on 283 modern private international cartels discovered anywhere in the world from January 1990 to the end of 2005. Measured in real 2005 money, aggregate cartel sales and overcharges totaled about $1.2 trillion and $500 billion, respectively. In the early 2000s, about 35 such cartels were discovered each year. We find that global cartels comprise more than half of the sample’s affected sales and are larger, longer lasting, and more injurious than other types. In the early 2000s world-wide corporate penalties stabilized at or above $2 billion per year, one-thousand times penalties in the early 1990s. More than 40% of those penalties were from settlements in private suits, and most of the rest are fines imposed by U.S. and EU antitrust authorities. Median penalties are low: from 1.4% to 4.9% of affected sales, depending on the type of prosecution. As a proportion of damages, median fines ranged from less than 1% for EU-wide cartels to 17.6% for Canada. Private plaintiffs obtained 38% of damages from international cartelists. World wide, median real cartel penalties of all types amounted to less than 5% of overcharges. [See Summary next page for more details]
    Keywords: cartel, price fixing, overcharge, antitrust enforcement, optimal deterrence
    JEL: L12 L42 K22 B14 F29
    Date: 2006
  3. By: Langlais, Eric
    Abstract: This paper extends Malik's (1990) analysis to the case where criminals' avoidance efforts and public expenditures in the detection of criminals are strategic complements in the aggregate technology of control of illegal behaviours. In this set up, we show that whenever criminals' avoidance efforts are more sensitive to the frequency than to the severity of sanctions, it is always socially efficient to set the fine at the maximal possible level. However, several paradoxical consequences occur: there may exist overdeterrence at optimum; more repressive policies lead to less arrestations of offenders while more crimes may be committed; at the same time, the society may be closer to the first best number of crimes.
    Keywords: deterrence; avoidance activities; optimal enforcement of law.
    JEL: K42 K40
    Date: 2006–03
  4. By: Langlais, Eric
    Abstract: We show that whatever the representation of criminals' preferences under risk, the assumption according to which they are strongly risk averse individuals is not consistent with the available observations establishing that criminals are more sensitive to shifts in the probability of sanction than to changes in the level of the sanction. We suggest that: 1/ while a weakening of the risk aversion assumption may be useful, the risk seeking assumption may be better suited for criminals; 2/ the relevant assumption regarding criminals' risk attitude may depend on the policy instruments that models of crime deterrence take into account; 3/ additional experiments, including both monetary penalties and non monetary sanctions would be useful in order to learn more about their sensibility to probability, monetary and non monetary sanctions.
    Keywords: Risk aversion; monetary and non monetary sanctions; State Dependent preferences and RDEU models
    JEL: K42 K40 D81 K41
    Date: 2006–06
  5. By: Giuseppe, Dari-Mattiacci; Bruno, Lovat; Eric, Langlais; Francesco, Parisi
    Abstract: This paper presents a general rent-seeking model in which participants decide on entry before choosing their levels of efforts. The conventional wisdom in the rent-seeking literature suggests that the rent dissipation increases with the number of potential participants and with their productivity of effort. In this paper, we show that this result of the rent-seeking literature is far from general and applies only when participants are relatively weak and enter the game with certainty. In the presence of strong competitors, the expected total dissipation actually decreases, since participation in the game is less frequent. We further consider the impact of competitors' exit option, distinguishing between \textquotedblright redistributive rent-seeking\textquotedblright\ and \textquotedblright productive rent-seeking\textquotedblright\ situations. In redistributive rent-seeking, no social loss results from the fact that all competitors exit the race. In productive rent-seeking, instead, lack of participation creates a social loss (the \textquotedblright lost treasure\textquotedblright\ effect), since valuable rents are left unexploited. We show that the lost-treasure effect perfectly counterbalances the reduction in rent dissipation due to competitors' exit. Hence, unlike redistributive rent-seeking, in productive rent-seeking the total social loss remains equal to the entire rent even when parties grow stronger or the number of players increases.
    Keywords: Rent-seeking; rent dissipation; Tullock's paradox.
    JEL: K00 D72 C72
    Date: 2004–10–20
  6. By: Bergen, Mark; Levy, Daniel; Ray, Sourav; Rubin, Paul; Zeliger, Ben
    Abstract: Item pricing laws (IPLs) require a price tag on every item sold by a retailer. We study IPLs and assess their efficiency by quantifying their costs and comparing them to previously documented benefits. On the cost side, we posit that IPLs should lead to higher prices because they increase the cost of pricing as well as the cost of price adjustment. We test this prediction using data collected from large supermarket chains in the Tri-State area of New York, New Jersey and Connecticut, which offer a unique setting because these states vary in their use of IPLs, but otherwise offer geographical proximity with each other and similar markets, supermarket chains, and socioeconomic environments. We find that IPL store prices are higher by about 20¢–25¢ or 8.0%–9.6% per item on average, in comparison to non-IPL stores. As a control, we use data from stores that are exempt from IPL requirements (because they use electronic shelf labels), and find that their prices fall between IPL and non-IPL store prices. To assess the efficiency of IPLs, we compare these costs to existing measures of the benefits of IPLs which are based on measurements of the frequency and the magnitude of pricing errors the IPLs are supposed to prevent. We find that the costs of IPLs are an order of magnitude higher than the upper bound of these estimate benefits.
    Keywords: Item Pricing Law; Cost of Item Pricing Law; Cost of Price Adjustment; Menu Cost; Retail Pricing;
    JEL: L11 K20 L81 E31
    Date: 2006–10–08
  7. By: Miguel Amaral (ATOM – U. of Paris I Sorbonne); Stéphane Saussier (ADIS – U. of Paris 11 & ATOM – U. of Paris I Sorbonne); Anne Yvrande-Billon (ATOM – U. of Paris I Sorbonne)
    Abstract: In this paper we investigate the relationship between auctions’ results and the number of bidders for local transportation contracts in London. Using an original database concerning 294 local transportation routes we find that a higher number of bidders is associated with a lower cost of service. This finding, in addition of being one of the first empirical test of a crucial and understudied theoretical issue has important policy implications, especially for countries in which bids are organized such that only few bidders are allowed to answer (e.g. France).
    Keywords: public services, transportation, franchise bidding, public-private partnerships, winner’s curse, auctions
    JEL: H0 H7 K00 L33
    Date: 2006–09–13
  8. By: Paolo Buonanno (Department of Economics, University of Bergamo); Leone Leonida (Department of Economics, Queen Mary University of London)
    Abstract: This paper studies the impact of education on criminal activity in Italy. We propose a theoretical framework to determine the effects of education and past incidence of crime on criminal activity, and we test its predictions using annual data for the twenty Italian regions over the period 1980-1995. The results show that education is negatively correlated with delinquency and that crime rates display persistence over time. Our results are robust to model specifications and endogeneity.
    Keywords: Crime; Education; Panel Data
    JEL: I2 J24 K42
    Date: 2005–06
  9. By: Paolo Buonanno (Department of Economics, University of Bergamo)
    Abstract: This paper investigates the relationship between labour market conditions and crime in Italy accounting for both age and gender in unemployment measure and considering regional disparities between North-Centre and South of Italy. Using regional data over the period 1993-2002, we study the impact of wages and unemployment on different types of crime. To mitigate omitted-variables bias we control extensively for demographic and socioeconomic variables. Empirical results suggest that unemployment has a large and positive effect on crime rate in southern regions. Our results are robust to model specification, endogeneity, changes in the classification of crimes and finally, to alternative definitions of unemployment.
    Keywords: Crime; Unemployment; Panel Data
    JEL: J00 K40
    Date: 2005–06

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