New Economics Papers
on Law and Economics
Issue of 2007‒06‒18
seven papers chosen by
Jeong-Joon Lee, Towson University

  1. Share repurchase regulations: do firms play by the rules? By Edith Ginglinger; Jacques Hamon
  2. Choosing Agents and Monitoring Consumption: A Note on Wealth as a Corruption-Controlling Device By Rafael Di Tella; Federico Weinschelbaum
  3. Why Doesn't Capitalism Flow to Poor Countries? By Rafael Di Tella; Robert MacCulloch
  4. Does the Certainty of Arrest Reduce Domestic Violence? Evidence from Mandatory and Recommended Arrest laws By Radha Iyengar
  5. An Analysis of the Performance of Federal Indigent Defense Counsel By Radha Iyengar
  6. The Automatic Nature of Dismissals in Spain: Dismissal-at-Will under Civil Law By Miguel A. Malo; Luis Toharia
  7. Excess Demand and Rationing: Selling to an Input By Lutz-Alexander Busch; Phil Curry

  1. By: Edith Ginglinger (DRM - Dauphine Recherches en Management - [CNRS : UMR7088] - [Université Paris Dauphine - Paris IX]); Jacques Hamon (DRM - Dauphine Recherches en Management - [CNRS : UMR7088] - [Université Paris Dauphine - Paris IX])
    Abstract: Open market share repurchases are strictly regulated to prevent companies from profiting from insider information. We examine compliance with these rules in France, where the mandatory disclosure of share repurchases provides detailed information on repurchases actually undertaken. Using a database containing 36,848 repurchases made by 352 French firms over the period 2000-2002, we show that very few firms fully comply with the regulations for all their buybacks. Non-compliance has an adverse effect on liquidity only for the smallest and least liquid firms.
    Keywords: open market share repurchases, insider trading, regulations, liquidity
    Date: 2007–06–06
  2. By: Rafael Di Tella; Federico Weinschelbaum
    Abstract: There are a large number of cases where corruption has been discovered investigating levels of consumption that appear to be hard to justify. Yet, in the standard moral hazard model withholding of effort by the agent is not observable to the principal. We argue that this assumption has to be revised in applications that study corruption. The informativeness of an agent's level of consumption depends on his legal income and initial level of wealth, as conspicuous consumption by wealthy agents leads to little updating of the principal's belief about their honesty. This introduces a tendency to prefer poor agents as they are easier to monitor. More generally, we describe the basic problem of choosing agents and monitoring consumption with the aim of reducing corruption, and discuss features of the practical applications. We show that when there is consumption monitoring and wealth is observed, the effect of higher wealth on equilibrium bribes is ambiguous (and that the political class will exhibit lower variance in consumption than the general population). In settings where formal contracts matter, we show that monitoring consumption introduces a tendency towards low powered incentives (and more generally low wages). We also discuss the role of ability, the tax system, and the way to derive a measure of the value of illegal funds for the agent.
    JEL: D82 K42
    Date: 2007–06
  3. By: Rafael Di Tella; Robert MacCulloch
    Abstract: We find anecdotal evidence suggesting that governments in poor countries have a more left wing rhetoric than those in OECD countries. Thus, it appears that capitalist rhetoric doesn't flow to poor countries. A possible explanation is that corruption, which is more widespread in poor countries, reduces more the electoral appeal of capitalism than that of socialism. The empirical pattern of beliefs within countries is consistent with this explanation: people who perceive corruption to be high in their country are also more likely to lean left ideologically (and to declare support for a more intrusive government in economic matters). Finally, we present a model explaining the corruption-left connection. It exploits the fact that an act of corruption is more revealing about the fairness type of a rich capitalist than of a poor bureaucrat. After observing corruption, voters who care about fairness react by increasing taxes and moving left. There is a negative ideological externality since the existence of corrupt entrepreneurs hurts good entrepreneurs by reducing the electoral appeal of capitalism.
    JEL: E62 K42 P16
    Date: 2007–06
  4. By: Radha Iyengar
    Abstract: Domestic violence remains a major public policy concern despite two decades of policy intervention. To eliminate police inaction in response to domestic violence, many states have passed mandatory arrest laws, which require the police to arrest abusers when a domestic violence incident is reported. These laws were justified by a randomized experiment in Minnesota which found that arrests reduced future violence. This experiment was conducted during a time period when arrest was optional. Using the FBI Supplementary Homicide Reports, I find mandatory arrest laws actually increased intimate partner homicides. I hypothesize that this increase in homicides is due to decreased reporting. I investigate validity of this reporting hypothesis by examining the effect of mandatory arrest laws on family homicides where the victim is less often responsible for reporting. For family homicides, mandatory arrest laws appear to reduce the number of homicides. This study therefore provides evidence that these laws may have perverse effects on intimate partner violence, harming the very people they seek to help.
    JEL: D01 I1 J12 K14
    Date: 2007–06
  5. By: Radha Iyengar
    Abstract: The right to an equal and fair trial regardless of wealth is a hallmark of American jurisprudence. To ensure this right, the government pays attorneys to represent financially needy clients. In the U.S. federal court system, indigent defendants are represented by either public defenders who are salaried employees of the court or private attorneys, known as Criminal Justice Act (CJA) attorneys, who are compensated on an hourly basis. This study measures differences in performance of these types of attorneys and explores some potential causes for these differences. Exploiting the use of random case assignment between the two types of attorneys, an analysis of federal criminal case level data from 1997-2001 from 51 districts indicates that public defenders perform significantly better than CJA panel attorneys in terms of lower conviction rates and sentence lengths. An analysis of data from three districts linking attorney experience, wages, law school quality and average caseload suggests that these variables account for over half of the overall difference in performance. These systematic differences in performance disproportionately affect minority and immigrant communities and as such may constitute a civil rights violation under Title VI of the Civil Rights Act.
    JEL: H4 J3 K4
    Date: 2007–06
  6. By: Miguel A. Malo; Luis Toharia
    Abstract: In this article, we explain that, in Spain, a relatively minor reform in unemployment benefits regulation has introduced a system to dismiss at will. Therefore, the fairness of the dismissal is not important in practice, although the whole legal system requiring a fair cause for dismissals remains. We present different empirical evidence supporting such statement.
    Keywords: Dismissal, Labour Law, Severance Pay
    JEL: K31 J53 J32
    Date: 2007–05
  7. By: Lutz-Alexander Busch (University of Waterloo); Phil Curry (Simon Fraser University)
    Abstract: This paper develops a model that explains the persistence of excess demand for some goods. It offers that, for some goods, consumers care about who else is consuming the good. As such, their willingness to pay depends on their beliefs about the other consumers. We demonstrate that screening mechanisms that impose costs in negative correlation to an individual's (positive) externality can increase profits while appearing to generate excess demand. We feel that such a model is appropriate in that casual observation seems to indicate that it does well in predicting which goods would use such a screening mechanism and which would not.
    Keywords: excess demand, distributional waits, scalping, pricing
    JEL: L11 K42
    Date: 2007–06

This issue is ©2007 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.