New Economics Papers
on Law and Economics
Issue of 2007‒07‒07
nine papers chosen by
Jeong-Joon Lee, Towson University

  1. The Origins of State Capacity: Property Rights, Taxation, and Politics By Besley, Timothy J.; Persson, Torsten
  2. Sub-federal administrative regulation of entry in Russia By Kolomak Evgeniya
  3. Racial Discrimination Among NBA Referees By Joseph Price; Justin Wolfers
  4. Pitfalls to Avoid when Measuring Institutions: Is 'Doing Business' Damaging Business? By Benito Arruñada
  5. Causes and Consequences of Tax Morale: An Empirical Investigation By Benno Torgler; Markus Schaffner
  6. Ownership structure, sharing of control and legal framework. International evidence By López de Foronda Pérez, Óscar; López-Iturriaga, Félix; Santamaría Mariscal, Marcos
  7. UK Merger Remedies under Scrutiny By Michael Harker
  8. To Abuse, or not to Abuse: Discrimination between Consumers By Pinar Akman
  9. Introducing Competition and Deregulating the British Domestic Energy Markets: a Legal and Economic Discussion By Michael Harker; Catherine Waddams Price

  1. By: Besley, Timothy J.; Persson, Torsten
    Abstract: Economists generally assume the existence of sufficient institutions to sustain a market economy and tax the citizens. However, this starting point cannot easily be taken for granted in many states, neither in history nor in the developing world of today. This paper develops a framework where "policy choices", regulation of markets and tax rates, are constrained by "economic institutions", which in turn reflect past investments in legal and fiscal state capacity. We study the economic and political determinants of these investments. The analysis shows that common interest public goods, such as fighting external wars, as well as political stability and inclusive political institutions, are conducive to building state capacity. Preliminary empirical evidence based on cross-country data find a number of correlations consistent with the theory.
    Keywords: development; property rights; state capacity
    JEL: D70 E60 H10 K40 O10
    Date: 2007–06
  2. By: Kolomak Evgeniya
    Abstract: The project assesses the sub-federal regulation of market entry around Russian regions by addressing two problems: what are the consequences of the regulation and what determines the variation of the market entry regulation among the regions. Assumptions of public interest regulation and public choice theories are tested. Empirical base of the project is the constructed data set, describing the administrative regulation of entry by start-up companies in Russian regions.
    JEL: K2 K4
    Date: 2007–05–10
  3. By: Joseph Price (Cornell University); Justin Wolfers (Wharton School, University of Pennsylvania, CEPR, NBER and IZA)
    Abstract: The NBA provides an intriguing place to test for taste-based discrimination: referees and players are involved in repeated interactions in a high-pressure setting with referees making the type of split-second decisions that might allow implicit racial biases to manifest themselves. Moreover, the referees receive constant monitoring and feedback on their performance. (Commissioner Stern has claimed that NBA referees "are the most ranked, rated, reviewed, statistically analyzed and mentored group of employees of any company in any place in the world.") The essentially arbitrary assignment of refereeing crews to basketball games, and the number of repeated interactions allow us to convincingly test for own-race preferences. We find - even conditioning on player and referee fixed effects (and specific game fixed effects) - that more personal fouls are called against players when they are officiated by an opposite-race refereeing crew than when officiated by an own-race crew. These biases are sufficiently large that we find appreciable differences in whether predominantly black teams are more likely to win or lose, based on the racial composition of the refereeing crew.
    Keywords: discrimination, race, evaluation, basketball, own-race bias, implicit discrimination
    JEL: K42 J15 J71
    Date: 2007–06
  4. By: Benito Arruñada
    Abstract: Over recent years, both governments and international aid organizations have been devoting large amounts of resources to “simplifying” the procedures for setting up and formalizing firms. Many of these actions have focused on reducing the initial costs of setting up the firm, disregarding the more important role of business registers as a source of reliable information for judges, government departments and, above all, other firms. This reliable information is essential for reducing transaction costs in future dealings with all sorts of economic agents, both public and private. The priorities of reform policies should therefore be thoroughly reviewed, stressing the value of the legal institutions rather than trivializing them as is often the case.
    Keywords: Starting business, doing business, informal economy, company registers
    JEL: K22 K23 L59 O17
    Date: 2007–06
  5. By: Benno Torgler; Markus Schaffner
    Abstract: Many taxpayers truthfully declare their income to the tax administration. Why? In this paper we have found a significant correlation between tax morale and tax evasion, controlling a variety of factors. Furthermore we have analysed tax morale as dependent variable and studied the determinants that shape it. The results indicate that factors such as the tax administration, tax system, tax awareness, compliance perceptions, trust in officials and others, and the willingness to obey have a relatively strong impact on tax morale.
    Keywords: tax morale, tax compliance, tax evasion, tax system, tax administration, social capital
    JEL: H26
    Date: 2007–07–01
  6. By: López de Foronda Pérez, Óscar (Departamento de Economía y Administración de Empresas, Facultad de Ciencias Económicas y Empresariales, Universidad de Burgos); López-Iturriaga, Félix; Santamaría Mariscal, Marcos (Departamento de Economía y Administración de Empresas, Facultad de Ciencias Económicas y Empresariales, Universidad de Burgos)
    Abstract: We analyze the relation between capital structure, ownership structure, and corporate value for a sample of 1,216 firms from 15 European countries. Our results stress two different conflicts of interest and show the differential role played by the mechanisms of corporate control depending on the legal and institutional environment. In common law countries, as a consequence of the relationships between managers and shareholders, capital structure and managerial ownership are the most effective mechanisms of control. In civil law countries, however, as a consequence of the conflicts between majority and minority shareholders, the ownership concentration and the sharing of control within the firm become crucial. In this scenario, the second reference shareholder plays a critical role in contesting the control of the dominant largest shareholder in order to reduce the extraction of private benefits and improve the firm’s performance
    Keywords: Law and finance approach, capital structure, ownership structure, corporate governance.
    Date: 2007–06
  7. By: Michael Harker (Centre for Competition Policy, University of East Anglia)
    Abstract: This paper focuses on the Somerfield decision of the Competition Appeal Tribunal (CAT). In that decision, the CAT demonstrated a high degree of deference to the Competition Commission where the latter was scoping divestiture remedies in a merger case. This approach is consistent with the case law of the US and the EC and, it is argued, is appropriate given the need for procedural expediency. The decision is placed in the wider context of the debates over the efficacy of merger remedies and the appropriate limits of judicial supervision of agency discretion in this area.
    Keywords: Merger remedies, divestiture, merger appraisal
    JEL: K21
    Date: 2006–10
  8. By: Pinar Akman (Centre for Competition Policy, University of East Anglia)
    Abstract: This paper questions whether discrimination between consumers by a dominant undertaking can and should constitute an abuse of a dominant position under Article 82EC. By finding that it can, the paper challenges the traditional interpretation of the discrimination ban under that provision, namely that discrimination constitutes abuse only when directed against the intermediate customers of the dominant undertaking. As such, the paper seeks to clarify the scope of Article 82EC as regards discrimination, and elaborate on whether discrimination between consumers should be abusive. This is done from both a law and an economics perspective, in order to put forward a proposal to ensure that competition law does not prohibit discrimination where economics finds it potentiall welfare enhancing.
    Keywords: Abuse of a dominant position, (price) discrimination, consumer welfare
    JEL: K21
    Date: 2006–11
  9. By: Michael Harker (Centre for Competition Policy, University of East Anglia); Catherine Waddams Price (Centre for Competition Policy, University of East Anglia)
    Abstract: In this article we chart the development of competition and deregulation of the British retail energy markets, explaining the evolution of competitive constraints when consumers are introduced to supplier choice for the first time. In the context of rising real energy prices for consumers, and continued market power on the part of the incumbents, we address the question of whether the control of pricing practices through the ex post provisions of the general competition law is sufficient to protect consumers. We also explore the issue of whether reliance solely on these provisions is desirable given the uncertainty which surrounds the application of the Chapter II prohibition (governing abuse of dominance), specifically in respect of price discrimination in final markets. We conclude that the outcome of the liberalisation experiment in terms of delivering benefits for consumers is unclear.
    Keywords: Energy markets, deregulation, monopoly, competition, dominance, market power, consumer switching, switching behaviour, price rebalancing, ex post and ex ante regulation
    JEL: K21 K23 I38 L12 L41 L51 L94 L95
    Date: 2006–11

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.
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