New Economics Papers
on Law and Economics
Issue of 2007‒07‒13
ten papers chosen by
Jeong-Joon Lee, Towson University

  1. Is the World Flat? Or Do Countries Still Matter? By Alberto Chong; Mark Gradstein
  2. Money Laundering and its Regulation By Alberto Chong; Florencio López-de-Silanes
  4. The New Market for Federal Judicial Law Clerks By Christopher Avery; Christine Jolls; Richard Posner; Alvin E. Roth
  5. Why are Immigrants' Incarceration Rates so Low? Evidence on Selective Immigration, Deterrence, and Deportation By Kristin F. Butcher; Anne Morrison Piehl
  6. Rethinking the Informal Economy: Linkages with the Formal Economy and the Formal Regulatory Environment By Martha Alter Chen
  7. The Regulatory Perception of the Marketing Function: an Interpretation of UK Competition Authority Investigations 1950-2005 By John K. Ashton; Andrew Pressey
  8. Bargaining over Remedies in Merger Regulation By Bruce Lyons; Andrei Medvedev
  9. Searching for the Long-Lost Soul of Article 82EC By Pinar Akman
  10. Survey of Public Attitudes to Price-Fixing and Cartel Enforcement in Britain By Andreas Stephan

  1. By: Alberto Chong (Inter-American Development Bank); Mark Gradstein (Ben Gurion University/CEPR/CESifo)
    Abstract: This paper revisits the effects of a country’s institutional framework on individual firms’ behavior, in particular focusing on their propensity to comply with legal rules. The theoretical model presented here suggests that these effects may be of paramount significance—contrary to the recently popularized paradigm arguing that differences across countries have ceased to matter much. This paper’s empirical strategy consists of explaining the variation in measures of noncompliance with legal rules and employs a rich dataset based on thousands of firms from dozens of countries. We find that most of the variation emanates from country-wide differences in institutional quality, although some firm characteristics play a role as well. Our conclusion is that countries still matter in providing institutional infrastructure, which determines to a large extent the context within which firms operate.
    Keywords: Firms; Institutions; Law compliance; Country differences; Globalization
    JEL: D21 K42 O17 O57
    Date: 2006–11
  2. By: Alberto Chong (Inter-American Development Bank); Florencio López-de-Silanes (University of Amsterdam and NBER)
    Abstract: The recent wave of terrorist attacks has increased the attention paid to money laundering activities. Using several methodologies, this paper investigates empirically the determinants of money laundering and its regulation in over 80 countries by assembling a cross-country dataset on proxies for money laundering and the prevalence of feeding activities. The paper additionally constructs specific money laundering regulation indices based on available information on laws and their mechanisms of enforcement and measures their impact on money laundering proxies. The paper finds that tougher money laundering regulations, particularly those that criminalize feeding activities and improve disclosure, are linked to lower levels of money laundering across countries; the results are robust to potential endogeneity of money laundering regulation. The relevance of historical factors in explaining the variation of money laundering regulation across countries sheds light on theories of institutions and provides room for further action, particularly in the areas of the law that improve the impact of criminalization, including liability of intermediaries, reductions of the burden of proof and better disclosure.
    Keywords: Money laundering; regulation; laws; crime; enforcement
    JEL: K40 G10
    Date: 2007–01
  3. By: Epp Kallaste; Krista Jaakson; Raul Eamets
    Abstract: he authors analyse why the institution of non-unionised employ-ees’ representatives (NER) is created if its functions overlap with those of the unions, including collective bargaining and information-consultation. We aim to find how NERs are created and what their role in comparison to unionised representatives is. The case study involves interviews with representatives and the managing director, as well as a survey of the employees in two companies. The results show that with a weak union, employers initiated the institution of NER in order to involve the whole workforce in the collective agreement. NER was elected by employees even though the institution was initiated by employer. The roles of the two representatives do not differ much, the main function for both being collective bargaining with minor provision for information and consultation.
    Keywords: Participation, industrial relations, trade unions, work councils
    JEL: J53 J83 K31 M12 M54
    Date: 2007
  4. By: Christopher Avery; Christine Jolls; Richard Posner; Alvin E. Roth
    Abstract: In the past, judges have often hired applicants for judicial clerkships as early as the beginning of the second year of law school for positions commencing approximately two years down the road. In the new hiring regime for federal judicial law clerks, by contrast, judges are exhorted to follow a set of start dates for considering and hiring applicants during the fall of the third year of law school. Using the same general methodology as we employed in a study of the market for federal judicial law clerks conducted in 1998-2000, we have broadly surveyed both federal appellate judges and law students about their experiences of the new market for law clerks. This paper analyzes our findings within the prevailing economic framework for studying markets with tendencies toward "early" hiring. Our data make clear that the movement of the clerkship market back to the third year of law school is highly valued by judges, but we also find that a strong majority of the judges responding to our surveys has concluded that nonadherence to the specified start dates is very substantial -- a conclusion we are able to corroborate with specific quantitative data from both judge and student surveys. The consistent experience of a wide range of other markets suggests that such nonadherence in the law clerk market will lead to either a reversion to very early hiring or the use of a centralized matching system such as that used for medical residencies. We suggest, however, potential avenues by which the clerkship market could stabilize at something like its present pattern of mixed adherence and nonadherence, thereby avoiding the complete abandonment of the current system.
    JEL: J41 J44 J48 K49
    Date: 2007–07
  5. By: Kristin F. Butcher; Anne Morrison Piehl
    Abstract: The perception that immigration adversely affects crime rates led to legislation in the 1990s that particularly increased punishment of criminal aliens. In fact, immigrants have much lower institutionalization (incarceration) rates than the native born - on the order of one-fifth the rate of natives. More recently arrived immigrants have the lowest relative incarceration rates, and this difference increased from 1980 to 2000. We examine whether the improvement in immigrants' relative incarceration rates over the last three decades is linked to increased deportation, immigrant self-selection, or deterrence. Our evidence suggests that deportation does not drive the results. Rather, the process of migration selects individuals who either have lower criminal propensities or are more responsive to deterrent effects than the average native. Immigrants who were already in the country reduced their relative institutionalization probability over the decades; and the newly arrived immigrants in the 1980s and 1990s seem to be particularly unlikely to be involved in criminal activity, consistent with increasingly positive selection along this dimension.
    JEL: J1 J2 K4
    Date: 2007–07
  6. By: Martha Alter Chen
    Abstract: This paper explores the relationship of the informal economy to the formal economy and the formal regulatory environment. It begins with a discussion of the concept of the informal economy and its size, composition, and segmentation. It then discusses the linkages between the informal economy and the formal economy and the formal regulatory environment. The conclusion suggests why and how more equitable linkages between the informal economy and the formal economy should be promoted through an appropriate inclusive policy and regulatory environment.
    Keywords: informal sector, informal economy, informal enterprises, informal workers, formal economy, formal regulatory environment, linkages, formalization
    JEL: J01 J08 K23 K31 L22 L25 L26 O17
    Date: 2007–07
  7. By: John K. Ashton (Centre for Competition Policy, University of East Anglia); Andrew Pressey (Norwich Business School, University of East Anglia)
    Abstract: This paper explores and quantifies the link between marketing and rulings on competition or antitrust law made by UK competition or antitrust authorities. This examination is timely due to both the changing form and increasing severity of competition law in the UK and the strong associations identified between marketing and antitrust law in the US literature. Through a comprehensive examination of past UK competition rulings from 1950-2005, the frequency and content of the principal forms of uncompetitive behaviour during the last half century are recorded. A high proportion of competition law violations are associated with the marketing function. UK competition authorities have viewed specific marketing practices and, more generally, the direction, scope and scale of marketing activity to be causes for concern. We conclude that marketers need to develop a greater awareness of competition law and contribute more to the ongoing discussion as to the present and future form of competition policy.
    Keywords: Marketing, marketing practices, competition law, antitrust law, anticompetitive behaviour
    JEL: M31 K21 L42
    Date: 2007–01
  8. By: Bruce Lyons (Centre for Competition Policy, University of East Anglia); Andrei Medvedev (Centre for Competition Policy, University of East Anglia)
    Abstract: This paper provides a first attempt to understand how outcomes are determined by the standard institutions of merger control. In particular, we focus on the internationally standard 2-phase investigation structure and remedy negotiations of the form practiced by the EC. We find that there are inherent biases in remedy outcomes, and identifiable circumstances where offers will be excessive and where they will be deficient. In particular, we find clear circumstances in which firms offer excessive remedies, which goes against a possible intuition that firms should expect to extract an information rent for possessing superior information about competition in the market.
    Keywords: Merger regulation, merger remedies, competition policy, bargaining
    JEL: K21 L41 L51
    Date: 2007–02
  9. By: Pinar Akman (Centre for Competition Policy, University of East Anglia)
    Abstract: This paper examines the travaux preparatoires (prepatory documents) of Article 82EC which have so far been disregarded in the literature in order to find out the legislative intent of the provision. The legislative intent is important for understanding what Article 82EC currently is and aims at since its objectives have never been set out clearly by Community institutions. By using the travaux preparatoires the paper seeks to defy the common position that Article 82EC is based on 'ordoliberal' foundations. It shows that the drafters of Article 82EC were mainly concerned with increasing 'efficiency' and were not against accumulation of power per se. They did not intend to protect the competitors of dominant undertakings, but merely their customers. Thus, the provision was intended to apply to only 'exploitative' abuses and not 'exclusionary' abuses. Their main worry being 'increasing the size of the pie', their position on the objective of Article 82EC was closer to what one might today call 'total welfare' than 'consumer welfare'.
    Keywords: Abuse of a dominant position, legislative intent, travaux preparatoires, welfare, abuse, efficiency
    JEL: K21
    Date: 2007–03
  10. By: Andreas Stephan (Centre for Competition Policy, University of East Anglia)
    Abstract: The paper reports on results from a public survey on attitudes to collusion and cartel enforcement in Britain. Respondents demonstrate an understanding that price-fixing is harmful and should be punished. While there is strong support for high corporate fines and naming and shaming, only 1 in 10 Britons think individuals responsible should be imprisoned. Weak perceptions of the severity of price-fixing are confirmed by only 6 in 10 people considering such practices to be dishonest. Sex and age stronly influence attitudes. Education and newspaper readership have less of an effect, indicating poor information dissemination. Only 20% would report their employer's involvement in price-fixing without guarantees of anonymity and/or a reward; 14% would not report at all for fear of consequences. Public opinion is divided as to whether leniency programmes are justifiable. Respondents consider public enforcement to be more important than compensating parties injured by cartels.
    Keywords: Cartels, public survey, enforcement, UK cartel offence, leniency, private enforcement, competition law
    JEL: L13 L42 K21 L41
    Date: 2007–05

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