New Economics Papers
on Law and Economics
Issue of 2008‒01‒12
six papers chosen by
Jeong-Joon Lee, Towson University

  1. Ownership and Control in the Entrepreneurial Firm: An International History of Private Limited Companies By Timothy Guinnane; Ron Harris; Naomi R. Lamoreaux; Jean-Laurent Rosenthal
  2. Intellectual Property Rights and Competition Policy By Ganslandt, Mattias
  3. More Men, More Crime: Evidence from China’s One-Child Policy By Lena Edlund; Hongbin Li; Junjian Yi; Junsen Zhang
  4. Do Legal Standards Affect Ethical Concerns of Consumers? By Dirk Engelmann; Dorothea Kübler
  5. Does Movie Violence Increase Violent Crime? By Gordon Dahl; Stefano DellaVigna
  6. The “Rainmaker’s Dilemma:” Bad Debt Loss Insurance in Settlement and Litigation By Roland Kirstein; Annette Kirstein; Hans Gerhard

  1. By: Timothy Guinnane (Economic Growth Center, Yale University); Ron Harris (Tel Aviv University); Naomi R. Lamoreaux (UCLA and NBER); Jean-Laurent Rosenthal (UCLA and NBER)
    Abstract: We use the history of private limited liability companies (PLLCs) to challenge two pervasive assumptions in the literature: (1) Anglo-American legal institutions were better for economic development than continental Europe’s civil-law institutions; and (2) the corporation was the superior form of business organization. Data on the number and types of firms organized in France, Germany, the UK, and the US show that that the PLLC became the form of choice for small- and medium-size enterprises wherever and whenever it was introduced. The PLLC’s key advantage was its flexible internal governance rules that allowed its users to limit the threat of untimely dissolution inherent in partnerships without taking on the full danger of minority oppression that the corporation entailed. The PLLC was first successfully introduced in Germany, a code country, in 1892. Great Britain, a common-law country followed in 1907, and France, a code country, in 1925. The laggard was the US, a common-law country whose courts had effectively killed earlier attempts to enact the form.
    Keywords: limited company, partnership, corporation, legal regime, common law, civil law
    JEL: N8 G3 O16 K22
    Date: 2007–12
  2. By: Ganslandt, Mattias (Research Institute of Industrial Economics (IFN))
    Abstract: Intellectual property rights and competition policy are intimately related. In this paper I survey the economic literature analyzing the interaction between intellectual property law and competition law and how the boundary between these two policies is drawn in practice. Recognizing that intellectual property rights and competition law can interact in many different ways, the presentation focuses on several key issues. The economic literature on the interaction between competition law and intellectual property rights shows that these regulatory systems are consistent in terms of basic principles. Significant tensions exist, however, and it is difficult to balance IPR and competition law in practice. The significant differences in approach between the United States and the European Union simply reflect the underlying reality that efforts to achieve a sensible balance do not result in policy harmonization.
    Keywords: IPR; Competition Policy; Antitrust Policy; Cross-licensing; Refusal to License; Patent Pools; Tying; Patent Litigation
    JEL: K21 L41 O31 O34
    Date: 2008–01–02
  3. By: Lena Edlund (Columbia University and IZA); Hongbin Li (Chinese University of Hong Kong and Tsinghua University); Junjian Yi (Chinese University of Hong Kong); Junsen Zhang (Chinese University of Hong Kong and IZA)
    Abstract: Crime rates almost doubled in China between 1992 and 2004. Over the same period, sex ratios (males to females) in the crime-prone ages of 16-25 years rose sharply, from 1.053 to 1.093. Although scarcity of females is commonly believed to be a source of male antisocial behavior, a causal link has been difficult to establish. Sex-ratio variation is typically either small or related to social conditions liable to also affect crime rates. This paper exploits two unique features of the Chinese experience: the change in the sex ratio was both large and mainly in response to the implementation of the one-child policy. Using annual province-level data covering the years 1988-2004, we find that a 0.01 increase in the sex ratio raised the violent and property crime rates by some 5-6%, suggesting that the increasing maleness of the young adult population may account for as much as a third of the overall rise in crime.
    Keywords: male-biased sex ratios, crime, one-child policy, China
    JEL: J12 J13 K42
    Date: 2007–12
  4. By: Dirk Engelmann (Royal Holloway, University of London); Dorothea Kübler (Technical University Berlin and IZA)
    Abstract: In order to address the impact of regulation on ethical concerns of consumers, we study the effect of a minimum wage. In our experimental market, consumers have monopsony power, firms engage in Bertrand competition, and workers are passive recipients of a wage payment. Two treatments are employed, one with no minimum wage in the first part but with a minimum wage in the second part, and one treatment with a minimum wage at the outset that is abolished in the second part. In both treatments, wages decrease over time in the first part even though some consumers show an interest in fair wages. If a minimum wage is in place, wages decline even faster. Introducing a minimum wage in a mature market raises average wages, while abolishing it lowers them. We discuss the implications of our results, such as the crowding out of ethical behavior through legal regulation.
    Keywords: fairness, crowding out, consumer behavior, minimum wage, experimental economics
    JEL: C91 J88 K31
    Date: 2007–12
  5. By: Gordon Dahl; Stefano DellaVigna
    Abstract: Laboratory experiments in psychology find that media violence increases aggression in the short run. We analyze whether media violence affects violent crime in the field. We exploit variation in the violence of blockbuster movies from 1995 to 2004, and study the effect on same-day assaults. We find that violent crime decreases on days with larger theater audiences for violent movies. The effect is partly due to voluntary incapacitation: between 6PM and 12AM, a one million increase in the audience for violent movies reduces violent crime by 1.1 to 1.3 percent. After exposure to the movie, between 12AM and 6AM, violent crime is reduced by an even larger percent. This finding is explained by the self-selection of violent individuals into violent movie attendance, leading to a substitution away from more volatile activities. In particular, movie attendance appears to reduce alcohol consumption. Like the laboratory experiments, we find indirect evidence that movie violence increases violent crime; however, this effect is dominated by the reduction in crime induced by a substitution away from more dangerous activities. Overall, our estimates suggest that in the short-run violent movies deter almost 1,000 assaults on an average weekend. While our design does not allow us to estimate long-run effects, we find no evidence of medium-run effects up to three weeks after initial exposure.
    JEL: A12 C91 C93 J08
    Date: 2008–01
  6. By: Roland Kirstein (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg); Annette Kirstein (University of Karlsruhe); Hans Gerhard (Saarland University)
    Abstract: In this paper, we analyze the impact of Bad Debt Loss Insurance on settlement outcomes. A huge success in a settlement or trial can turn into a disaster when the defendant goes bankrupt before paying the plaintiff’s claim. “Rainmakers” face the following dilemma: the greater the success, the greater the defendant’s bankruptcy risk. The starting point of our paper is a simple trial and litigation model with perfect and complete information. We add the possibility of a defendant’s bankruptcy, and of buying Bad Debt Loss Insurance for both the settlement and the trial stage. We demonstrate that trial insurance and settlement insurance have different impacts on the predicted outcome of settlement negotiations. Trial insurance tends to increase the settlement result; therefore, it generates a contract rent for the insurer and the insured. Settlement insurance, however, may have the opposite effect, as it decreases the settlement result.
    Keywords: Strategic Insurance, British Cost Allocation Rule, Nash Bargaining Solution
    JEL: K41 C78 G22
    Date: 2008–01

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