New Economics Papers
on Law and Economics
Issue of 2007‒12‒15
six papers chosen by
Jeong-Joon Lee, Towson University

  1. Information Technology, Organization, and Productivity in the Public Sector: Evidence from Police Departments By Luis Garicano; Paul Heaton
  2. Substance Abuse Treatment and Motor Vehicle Fatalities By Beth A. Freeborn; Brian McManus
  3. Companies’ Financial Decisions under the Distributed Profit Taxation Regime of Estonia By Aaro Hazak
  4. Internationalisation of Patent Systems and New Developments in Globalising World By Ants Kukrus; Raul Kartus
  5. Institutions for Intuitive Man By Christoph Engel
  6. Tacit Collusion. The Neglected Experimental Evidence By Christoph Engel

  1. By: Luis Garicano; Paul Heaton
    Abstract: We examine how information technology (IT) contributes to organizational change, labordemand, and improved productivity in the public sector using a new panel data set of policedepartments covering 1987-2003. While IT adoption is associated with increasedadministrative and organizational complexity and use of more highly educated officers, ITitself does not appear to enhance crimefighting effectiveness. These results are robust tovarious methods for controlling for agency-level characteristics and the endogeneity of ITuse. IT investments do, however, appear to improve police productivity when complementedwith particular management practices-in this case, those associated with the Compstatprogram.
    Keywords: information technology, management practices, skills, productivity, police
    JEL: L23 M5 O33 K42
    Date: 2007–10
  2. By: Beth A. Freeborn (Department of Economics, College of William and Mary); Brian McManus (Olin School of Business at Washington University)
    Abstract: The danger of alcohol- and drug-impaired driving implies that policies that reduce substance abuse can save lives. Using several estimation approaches, we show that a US county’s supply of substance abuse treatment facilities is negatively and significantly related to the county’s number of motor vehicle deaths. We find that placing an additional treatment clinic in a county reduces the number of vehicle fatalities by 8%. An additional outpatient clinic, which specializes in treating the local population, can reduce the overall number of traffic deaths by 13% and the number of alcohol-related deaths by 24%.
    Keywords: substance abuse, alcohol, motor vehicle fatalities, drunk driving
    JEL: I1 I18 K42
    Date: 2007–12–07
  3. By: Aaro Hazak (School of Economics and Business Administration, Tallinn University of Technology)
    Abstract: This paper presents an empirical analysis of companies’ capital structure and dividend decisions under distributed profit taxation (DPT), the corporate taxation regime of Estonia since 2000. The survey is based on the financial information available from the Estonian Commercial Registry in respect of a sample of 51 thousand Estonian companies over a ten-year period. For the purposes of cross-country comparison, the Amadeus database information of 0.7 million companies from the European Union countries is used. The results give support to the hypothesis that the share of external financing in total capital of Estonian companies is lower in the conditions of DPT in comparison to that under the traditional gross profit taxation system. The DPT system has led companies to distribute lower portions of profit as dividends. The undistributed profits appear to be largely retained as surplus cash, instead of being reinvested into long term productive assets. DPT appears to have a positive impact on companies’ liquidity and sustainability, however the downside being the allocation of available funds into potentially inefficient investments. The results of the study may lead to discussions on introducing a similar system in other jurisdictions or on modifying the corporate taxation principles in Estonia.
    Keywords: capital structure, dividend policy, corporate taxation
    JEL: G32 G35 K34
    Date: 2007
  4. By: Ants Kukrus (Department of Public Economy at Tallinn University of Technology); Raul Kartus (Department of Public Economy at Tallinn University of Technology)
    Abstract: Deepening contradictions on the global level between the industrially developed countries and developing countries emerged in 2001 when the World Intellectual Property Organisation (WIPO) announced the Patent Agenda on the initiative of the industrially developed countries. The main source of the contradictions was the draft Substantive Patent Law Treaty (SPLT) with the intention to establish higher protection standards than provided by the TRIPS Agreement. The developing countries wish to protect genetic resources and traditional knowledge in the framework of patent law. The goal of industrially developed countries is strengthening of legal protection of inventions and harmonisation of the laws. The USA, Japan and the European Patent Organisation, whose patent offices (so-called Trilateral Partners) have started creation of new patent systems (New Route, Patent Prosecution Highway, Triway), are actually most interested in it. The European Patent Organisation has designed a network of cooperation between the European patent offices (European Patent Network). Due to the contradictions with the developing countries work on substantive patent law harmonisation takes place outside WIPO in ‘B+ Group’ of industrially developed countries.
    Keywords: WIPO Patent Agenda, Substantive Patent Law Treaty (SPLT), new patent systems, new route, patent prosecution highway, triway, B+ group, European Patent Network
    JEL: K10 K41
    Date: 2007
  5. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: By its critics, the rational choice model is routinely accused of being unrealistic. One key objection has it that, for all nontrivial problems, calculating the best response is cognitively way too taxing, given the severe cognitive limitations of the human mind. If one confines the analysis to consciously controlled decision-making, this criticism is certainly warranted. But it ignores a second mental apparatus. Unlike conscious deliberation, this apparatus does not work serially but in parallel. It handles huge amounts of information in almost no time. It only is not consciously accessible. Only the end result is propelled back to consciousness as an intuition. It is too early to decide whether the rational choice model is ultimately even descriptively correct. But at any rate institutional analysts and institutional designers are well advised to take this powerful mechanisms seriously. In appropriate contexts, institutions should see to it that decision-makers trust their intuitions. This frequently creates a dilemma. For better performance is often not the only goal pursued by institutional intervention. Accountability, predictability and regulability are also desired. Sometimes, clever interventions are able to get them both. Arguably, the obligation to write an explicit set of reasons for a court decision is a case in point. The judge is not obliged to report the mental processes by which she has taken her decision. Justification is only ex post control. Intuitive decision-making is even more desirable if the underlying social problem is excessively complex (NP hard, to be specific), or ill-defined. Sometimes, it is enough for society to give room for intuitive decision-making. For instance, in simple social dilemmas, a combination of cheater detection and punishing sentiments does the trick. However, intuition can be misled. For instance, punishing sentiments are triggered by a hurt sense of fairness. Now in more complex social dilemmas, there are competing fairness norms, and people intuitively choose with a self-serving bias. In such contexts, institutions must step in so that clashing intuitions do not lead to social unrest.
    Keywords: intuition, consciousness, rational choice, heuristics, ill-defined social problems, institutions
    JEL: B52 C72 D01 D02 D81 K40 K42
    Date: 2007–08
  6. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Both in the US and in Europe, antitrust authorities prohibit merger not only if the merged entity, in and of itself, is no longer sufficiently controlled by competition. The authorities also intervene if, post merger, the market structure has changed such that "tacit collusion" becomes disturbingly more likely. It seems that antitrust neglects the fact that, for more than 50 years, economists have been doing experiments on this very question. Almost any conceivable determinant of higher or lower collusion has been tested. This paper standardises the evidence by way of a meta-study, and relates experimental findings as closely as possible to antitrust doctrine.
    Keywords: Oligopoly, Coordinated Effects, Tacit Collusion, Merger Guidelines, Airtours, Experimental Markets
    JEL: D21 D43 K21 L13 L41
    Date: 2007–09

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