New Economics Papers
on Law and Economics
Issue of 2007‒11‒10
sixteen papers chosen by
Jeong-Joon Lee, Towson University

  1. Environmental Economics By Robert N. Stavins
  2. Environmental Law and Policy By Richard L. Revesz; Robert Stavins
  3. Immigration and Crime in Early 20th Century America By Carolyn Moehling; Anne Morrison Piehl
  4. The Informal Sector, Second Version By Aureo de Paula; Jose A. Scheinkman
  5. Double-Sided Moral Hazard, Efficiency Wages and Litigation By Oliver Gürtler; Matthias Kräkel
  6. The Legal Framework of Employment Relations By Simon Deakin; Wanjiru Njoya
  7. The Regulation of Women's Pay: From Individual Rights to Reflexive Law? By Simon Deakin; Colm McLaughlin
  8. Japan's Paradoxical Response to the new 'Global Standard' in Corporate Governance By John Buchanan; Simon Deakin
  9. The Evolution of Labour Law: Calibrating and Comparing Regulatory Regimes By Simon Deakin; Priya Lele; Mathias Siems
  10. Labour Law, Judicial Efficiency and Informal Employment in India By Sonja Fagernäs
  11. The Resource Curse: A Corporate Transparency Channel By Art Durnev; Sergei Guriev
  12. Crime and the labor market: a search model with optimal contracts By Bryan Engelhardt; Guillaume Rocheteau; Peter Rupert
  13. Urban crime and labor mobility By Subhayu Bandyopadhyay; Christopher H. Wheeler
  14. Inequality and Employment in a Dual Economy: Enforcement of Labor Regulation in Brazil By Rita Almeida; Pedro Carneiro
  15. Pinning Down the Value of Statistical Life By Thomas J. Kniesner; W. Kip Viscusi; Christopher Woock; James P. Ziliak
  16. Privacy Protection and Technology Diffusion: The Case of Electronic Medical Records By Catherine Tucker; Amalia Miller

  1. By: Robert N. Stavins
    Abstract: This article provides an overview of the economics of environmental policy, including the setting of goals and targets, notably the Kaldor-Hicks criterion and the related method of assessment known as benefit-cost analysis. Also reviewed are the means of environmental policy, that is, the choice of specific policy instruments, featuring an examination of potential criteria for assessing alternative instruments, with focus on cost-effectiveness. The theoretical foundations and experiential highlights of individual instruments are reviewed, including conventional command-and-control mechanisms and market-based instruments.
    JEL: K32 Q28 Q38 Q48
    Date: 2007–11
  2. By: Richard L. Revesz; Robert Stavins
    Abstract: This chapter for the Handbook of Law and Economics provides an economic perspective of environmental law and policy. We examine the ends of environmental policy, that is, the setting of goals and targets, beginning with normative issues, notably the Kaldor-Hicks criterion and the related method of assessment known as benefit-cost analysis. We examine this analytical method in detail, including its theoretical foundations and empirical methods of estimation of compliance costs and environmental benefits. We review critiques of benefit-cost analysis, and examine alternative approaches to analyzing the goals of environmental policies. <br><br>We examine the means of environmental policy, that is, the choice of specific policy instruments, beginning with an examination of potential criteria for assessing alternative instruments, with particular focus on cost-effectiveness. The theoretical foundations and experiential highlights of individual instruments are reviewed, including conventional, command-and-control mechanisms, market-based instruments, and liability rules. Three cross-cutting issues receive attention: uncertainty; technological change; and distributional considerations. We identify normative lessons in regard to design, implementation, and the identification of new applications, and we examine positive issues: the historical dominance of command-and-control; the prevalence in new proposals of tradeable permits allocated without charge; and the relatively recent increase in attention given to market-based instruments. <br><br>We also examine the question of how environmental responsibility is and should be allocated among the various levels of government. We provide a positive review of the responsibilities of Federal, state, and local levels of government in the environmental realm, plus a normative assessment of this allocation of regulatory responsibility. We focus on three arguments that have been made for Federal environmental regulation: competition among political jurisdictions and the race to the bottom; transboundary environmental problems; and public choice and systematic bias.
    JEL: K32 Q28 Q38 Q48
    Date: 2007–11
  3. By: Carolyn Moehling; Anne Morrison Piehl
    Abstract: Research on crime in the late 20th century has consistently shown that immigrants have lower rates of involvement in criminal activity than natives. We find that a century ago immigrants may have been slightly more likely than natives to be involved in crime. In 1904 prison commitment rates for more serious crimes were quite similar by nativity for all ages except ages 18 and 19 when the commitment rate for immigrants was higher than for the native born. By 1930, immigrants were less likely than natives to be committed to prisons at all ages 20 and older. But this advantage disappears when one looks at commitments for violent offenses. <br><br>Aggregation bias and the absence of accurate population data meant that analysts at the time missed these important features of the immigrant-native incarceration comparison. The relative decline of the criminality of the foreign born reflected a growing gap between natives and immigrants at older ages, one that was driven by sharp increases in the commitment rates of the native born, while commitment rates for the foreign born were remarkably stable.
    JEL: J01 K4 N3
    Date: 2007–11
  4. By: Aureo de Paula (Department of Economics, University of Pennsylvania); Jose A. Scheinkman (Department of Economics, Princeton University)
    Abstract: This paper investigates the determinants of informal economic activity. We present two equilibrium models of informality and test their implications using a survey of 48,000+ small firms in Brazil. We define informality as tax avoidance; firms in the informal sector avoid tax payments but suffer other limitations. In the first model there is a single industry and informal firms face a higher cost of capital and a limitation on size. As a result informal firms are smaller and have a lower capital-labor ratio. When education is an imperfect proxy for ability, we show that the interaction of the manager’s education and formality has a positive correlation with firm size. These implications are supported by our empirical analysis. A novel theoretical contribution in this paper is a model that highlights the role of value added taxes in transmitting informality. It predicts that the informality of a firm is correlated to the informality of firms from which it buys or sells. The model also implies that higher tolerance for informal firms in one production stage increases tax avoidance in downstream and upstream sectors. Empirical analysis shows that, in fact, various measures of formality of suppliers and purchasers (and its enforcement) are correlated with the formality of a firm. Even more interestingly, when we look at sectors where Brazilian firms are not subject to the credit system of value added tax, but instead the value added tax is applied at some stage of production at a rate that is estimated by the State, this chain effect vanishes.
    Keywords: Informal Sector, VAT, Tax Avoidance
    JEL: H2 H3 K4
    Date: 2007–08–27
  5. By: Oliver Gürtler; Matthias Kräkel
    Abstract: We consider a double-sided moral hazard problem where each party can renege on the signed contract since there does not exist any verifi- able performance signal. It is shown that ex-post litigation can restore incentives of the agent. Moreover, when the litigation can be settled by the parties the pure threat of using the legal system may suffice to make the principal implement first-best effort. As is shown in the paper, this finding is rather robust. In particular, it holds for sit- uations where the agent is protected by limited liability, where the parties have different technologies in the litigation contest, or where the agent is risk averse.
    Keywords: double-sided moral hazard, efficiency wage, litigation contest, settlement
    JEL: D86 J33 K41
  6. By: Simon Deakin; Wanjiru Njoya
    Abstract: The aim of this paper is to reassess the place of labour law in the wider area of employment relations research and to argue the case for labour law's importance to social scientists. We give an analytical account of the principal institutional features of labour law as a form of legal regulation, from an interdisciplinary perspective which takes into account both the internal workings of the labour law system and the social and economic context within which it has evolved. We analyze, in the manner of an internal or 'immanent' critique, the categories which are generally used within labour law discourse to describe the social and economic relations of employment; account for their emergence and evolution in historical terms; consider the origins of their diversity across different national systems; and look at future prospects for convergence or divergence.
    Keywords: labour law; employment relations; legal diversity; legal convergence
    JEL: K31 J5 J8
    Date: 2007–09
  7. By: Simon Deakin; Colm McLaughlin
    Abstract: Legislation mandating equality of pay between women and men was among the earliest forms of sex discrimination legislation to be adopted in Britain. However, the model embodied in the Equal Pay Act 1970 is increasingly being questioned: the law is, at one and the same time, highly complex and difficult to apply, while apparently contributing little to the further narrowing of the pay gap. As a result there is a growing debate about whether a shift in regulatory strategy is needed, away from direct legal enforcement to a more flexible approach, based around the concept of 'reflexive law'. This paper provides an assessment of whether reflexive approaches are likely to work in the equal pay area.
    Keywords: equal pay, sex discrimination, reflexive law
    JEL: K31 J7
    Date: 2007–09
  8. By: John Buchanan; Simon Deakin
    Abstract: We suggest, on the basis of empirical research into the implementation of recent legal reforms, that Japan is not moving inexorably towards a 'global standard' in corporate governance, based on external monitoring and a market for corporate control. Japanese corporate governance is nevertheless changing: in part as an indirect response to legal initiatives, new structures and practices are emerging, aimed at providing greater flexibility in decision-making, while retaining the organisational core of the Japanese firm. The paradoxical effect of legal reforms aimed, in large part, at transplanting the global standard, may be to renew the distinctive Japanese model of the corporation.
    Keywords: corporate governance, company law reform, Japan
    JEL: G34 K22
    Date: 2007–09
  9. By: Simon Deakin; Priya Lele; Mathias Siems
    Abstract: We present evidence on the evolution of labour law in five countries (the UK, USA, Germany, France and India) using a newly-created dataset which measures legal change over time. The results cast light on the claim that legal origin, or the influence of common law and civil law regulatory styles, affects the content of labour law regimes. We find some divergence between common law and civil law countries at the aggregate level but a more complex picture when the index is decomposed so as to identify changes in specific areas of labour law. We discuss the potential significance of this relatively new approach to the measurement of law for understanding the forces at work in the evolution of labour law.
    Keywords: labour law, legal origin
    JEL: J53 K31
    Date: 2007–09
  10. By: Sonja Fagernäs
    Abstract: This study assesses the effects of industrial disputes legislation and the dispute settlement process on informal versus formal employment in India. It uses indicators of pro-worker court awards and court efficiency as well as amendments to the Industrial Disputes Act (IDA) at the level of Indian states. The state-level IDA amendments are classified as pro-worker or pro-employer and enforcement enhancing. Three complementary empirical approaches and data sources are used. These include a quasi-panel dataset constructed from four household employment surveys (NSSO) between 1983-1999, a state-industry level panel dataset for organised (formal) sector industrial units (ASI) for 1980-1997 and a cross-sectional survey of unorganised (informal) manufacturing firms for 2000/2001.
    Keywords: Informal employment, labour law, industrial disputes, judicial efficiency, employment structure
    JEL: J21 K31 O17
    Date: 2007–09
  11. By: Art Durnev (Desautels Faculty of Management, McGill University); Sergei Guriev (CEFIR, New Economic School and CEPR)
    Abstract: We propose and investigate a new channel through which the resource curse - a stylized fact that countries rich in natural resources grow slower - operates. Predatory governments are more likely to expropriate corporate profits in natural-resource industries when the price of resources is higher. Corporations whose profits are more dependent on the price of resources can mitigate the risk of expropriation by reducing corporate transparency. Lower transparency, in turn, leads to inefficient capital allocation and slower economic growth. Using a panel of 72 industries from 51 countries over 16 years, we demonstrate that the negative effect of expropriation risk on corporate transparency is stronger for industries that are especially vulnerable to expropriation, in particular, for industries whose profits are highly correlated with oil prices. Controlling for country, year, and industry fixed effects, we find that corporate transparency is lower in more oil price?dependent industries when the price of oil is high and property rights are poorly protected. Furthermore, corporate growth is hampered in oil price?sensitive industries because of less efficient capital allocation driven by adverse effects of lower transparency.
    Keywords: Resource Curse, Oil Reserves, Expropriation, Autocracy, Transparency and Disclosure, Investment Efficiency, Industry Growth
    JEL: G18 L7 G15 G38 K42 O43
    Date: 2007–10
  12. By: Bryan Engelhardt; Guillaume Rocheteau; Peter Rupert
    Abstract: This paper extends the Pissarides (2000) model of the labor market to include crime and punishment `a la Becker (1968). All workers, irrespective of their labor force status can commit crimes and the employment contract is determined optimally. The model is used to study, analytically and quantitatively, the effects of various labor market and crime policies. For instance, a more generous unemployment insurance system reduces the crime rate of the unemployed but its effect on the crime rate of the employed depends on job duration and jail sentences. When the model is calibrated to U.S. data, the overall effect on crime is positive but quantitatively small. Wage subsidies reduce unemployment and crime rates of employed and unemployed workers, and improve society’s welfare. Hiring subsidies reduce unemployment but they can raise the crime rate of employed workers. Crime policies (police technology and jail sentences) affect crime rates signifi cantly but have only negligible effects on the labor market.
    Keywords: Crime ; Unemployment ; Labor market
    Date: 2007
  13. By: Subhayu Bandyopadhyay; Christopher H. Wheeler
    Abstract: We present a model of crime where two municipalities exist within a metro area (MSA). Consistent with the literature, local law enforcement has a crime reduction effect and a crime diversion effect. The former confers a spillover benefit to the other municipality, while the latter a spillover cost. If the net spillovers are positive (negative), then the respective Nash enforcement levels are too low (high) from the perspective of the MSA. When we allow for Tiebout type mobility, labor will move to the location offering lower disutility crime (including the tax burden). To attract labor both jurisdictions would like to raise the relative crime that exists in the competing region. Interestingly, this could raise or reduce enforcement compared to the immobility case. If it was too high (low) under immobility, it will be raised (reduced) further under mobility. In the symmetric case, neither can gain any labor, but the competition for it pushes the jurisdictions further away from the efficient (cooperative) outcome. Thus, mobility must be welfare reducing. We also consider asymmetry in the context of differences in efficiency of enforcement. The low cost municipality has the lower crime damage (inclusive of the tax burden) and attracts labor. Mobility is necessarily welfare reducing for the high cost municipality and for the MSA, but it has an ambiguous effect on the low cost municipality.
    Date: 2007
  14. By: Rita Almeida (World Bank and IZA); Pedro Carneiro (University College London, IFS, cemmap and IZA)
    Abstract: This paper studies the impact of an increase in the enforcement of labor regulations on unemployment and inequality, using city level data from Brazil. We find that stricter enforcement (affecting the payment of mandated benefits to formal workers) leads to: higher unemployment, less income inequality, a higher proportion of formal employment, and a lower formal wage premium. Our results are consistent with a model where stricter enforcement causes a contraction in labor demand in the formal sector; and where workers value mandated benefits highly, so that there is an increase in the formal sector labor supply, an increase in the willingness to become unemployed to search for a formal sector job, and a decrease in labor supply to the informal sector.
    Keywords: enforcement, labor regulations, inequality, unemployment, informal sector
    JEL: J23 J30 K31 D63
    Date: 2007–10
  15. By: Thomas J. Kniesner (Syracuse University and IZA); W. Kip Viscusi (Vanderbilt University); Christopher Woock (The Conference Board); James P. Ziliak (University of Kentucky)
    Abstract: Our research addresses fundamental long-standing concerns in the compensating wage differentials literature and its public policy implications: the econometric properties of estimates of the value of statistical life (VSL) and the wide range of such estimates from about $0.5 million to about $21 million. We address most of the prominent econometric issues by applying panel data, a new and more accurate fatality risk measure, and systematic selection of panel estimator in our research. Controlling for measurement error, endogeneity, individual heterogeneity, and state dependence yields both a reasonable average level and narrow range for the estimated value of a statistical life of about $5.5-$7.5 million.
    Keywords: VSL, panel data, fixed effects, random effects, PSID
    JEL: I10 J17 J28 K00
    Date: 2007–10
  16. By: Catherine Tucker (MIT Sloan); Amalia Miller (Department of Economics, University of Virginia)
    Abstract: Some policymakers argue that consumers need legal protection of their privacy before they adopt interactive technologies. Others contend that privacy regulations impose costs that deter adoption. We contribute to this growing debate by quantifying the effect of state privacy regulation on the diffusion of Electronic Medical Record technology (EMR). EMR allows medical providers to store and exchange patient information using computers rather than paper records. Hospitals may not adopt EMR if patients feel their privacy is not safeguarded by regulation. Alternatively, privacy protection may inhibit adoption if hospitals cannot benefit from exchanging patient information with one another. In the US, medical privacy laws that restrict the ability of hospitals to disclose patient information vary across time and across states. We exploit this variation to explore how privacy laws affect whether hospitals adopt EMR. Our results suggest that inhibition of EMR's network benefits reduces hospital adoption by up to 25 percent. We find similar evidence when we control for the endogeneity of state laws using variation in signups to the Do Not Call list.
    Keywords: Technology adoption, privacy laws, network effects, hospitals
    JEL: I1 K2 L5 O3
    Date: 2007–09

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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