New Economics Papers
on Law and Economics
Issue of 2008‒03‒08
eight papers chosen by
Jeong-Joon Lee, Towson University

  1. Geography vs. Institutions at the Village Level By Michael Grimm; Stephan Klasen
  2. Medium-Sized Cities and the Dynamics of Creative Services By Claude LACOUR (GREThA-GRES); Sylvette PUISSANT (GREThA-GRES)
  3. Integrating Income Tax and National Insurance: an interim report By Stuart Adam; Glen Loutzenhiser
  4. Endogenous Verifiability and Optimality in Agency: A non-contingent approach By Manuel Willington; Roy Costilla
  5. An experimental test of the deterrence hypothesis By Hörisch, Hannah; Strassmair, Christina
  6. Do Sex Offender Registration and Notification Laws Affect Criminal Behavior? By J.J. Prescott; Jonah E. Rockoff
  7. Opportunistic Termination By Alexander Stremitzer
  8. On The Economics oF Organized Crime By Vimal Kumar; Stergios Skaperdas

  1. By: Michael Grimm; Stephan Klasen
    Abstract: There is a well-known debate about the roles of geography versus institutions in explaining the long-term development of countries. These debates have usually been based on cross-country regressions where questions about parameter heterogeneity, unobserved heterogeneity, and endogeneity cannot easily be controlled for. The innovation of Acemoglu, Johnson and Robinson (2001) was to address this last point by using settler mortality as an instrument for geography-induced endogenous institutions and found that this supported their line of reasoning. We believe there is value-added to consider this debate at the micro level within a country as particularly questions of parameter heterogeneity and unobserved heterogeneity are likely to be smaller than between countries. Moreover, at the micro level it is possible to identify more precise transmission mechanisms from geography via institutions to economic development outcomes. In particular, we examine the determinants of economic development across villages on the Indonesian Island of Sulawesi and find that geography-induced endogenous emergence of land rights is the critical institutional link between geographic conditions and technological change. We therefore highlight and empirically validate a new transmission channel from endogenously generated institutions on economic development.
    Keywords: Geography, migration, land rights, institutions, technology adoption, agricultural development, Indonesia
    JEL: K11 O12 Q12
    Date: 2008–02–26
    Abstract: This paper examines the development of “creative” services (research, information, art etc.), located in medium-sized areas. Insofar as urban dynamics lead to extend the advanced services outside metropolises, particular attention is given to issues concerning the definition of “medium-sized cities”, and their significance regarding urban systems; the approach in terms of creativity and metropolization clarifies the incidence of their economic contexts and their structuring role within spatial frameworks. The findings presented in this paper are based on the experiment of French cities. They precise the meanings and the limits of the urban size effect, which can play in favour of medium-sized areas growth, and to their detriment as well.
    Keywords: medium-sized cities, metropolization, services, niches, France
    JEL: J24 J44 R11 R23
    Date: 2008
  3. By: Stuart Adam (Institute for Fiscal Studies); Glen Loutzenhiser
    Abstract: <p><p><p>Income Tax and National Insurance are now sufficiently similar that merging them appears to be a plausible option, yet still sufficiently different that integration raises significant difficulties. This paper surveys the potential benefits of integration - increased transparency and reduced administrative and compliance costs - and the potential obstacles, assessing the extent to which each of the differences between Income Tax and NICs - in particular the contributory principle, the levying of an employer charge and the differences in tax base - constitute serious barriers to integration. The paper concludes that few of the difficulties look individually prohibitive, but that trying too hard to avoid significant reform of the current policy framework could produce a merged tax so complicated as to nullify much or all of the benefits of integration.</p></p></p>
    Keywords: Taxation, social insurance, administration
    JEL: H24 H25 H83 K34
    Date: 2007–12
  4. By: Manuel Willington (ILADES-Georgetown University, Universidad Alberto Hurtado); Roy Costilla
    Abstract: In the context of a principal-agent model where verification of an agent’s effort is endogenously determined through strategic interactions between contracting parties, we derive a necessary and suficient condition to achieve the first best with a non-contingent or incomplete contract. These conditions relate the Principal’s benefit, the Agent’s cost, the probability of winning and the cost of litigation. Also, these conditions are found to be more general than the ones established in Ishiguro (2002) within a similar setup.
    Keywords: incomplete contracts, endogenous verifiability, expectation damages.
    JEL: D20 D86 K41 M52
    Date: 2007–09
  5. By: Hörisch, Hannah; Strassmair, Christina
    Abstract: Crime has to be punished, but does punishment reduce crime? We conduct a neutrally framed laboratory experiment to test the deterrence hypothesis, namely that crime is weakly decreasing in deterrent incentives, i.e. severity and probability of punishment. In our experiment, subjects can steal from another participant's payoff. Deterrent incentives vary across and within sessions. The across subject analysis clearly rejects the deterrence hypothesis: except for very high levels of incentives, subjects steal more the stronger the incentives. We observe two types of subjects: selfish subjects who act according to the deterrence hypothesis and fair-minded subjects for whom deterrent incentives backfire.
    Keywords: deterrence; law and economics; incentives; crowding out; experiment
    JEL: K42 C91 D63
    Date: 2008–02–26
  6. By: J.J. Prescott; Jonah E. Rockoff
    Abstract: In recent decades, sex offenders have been the targets of some of the most far-reaching and novel crime legislation in the U.S. Two key innovations have been registration and notification laws which, respectively, require that convicted sex offenders provide valid contact information to law enforcement authorities, and that information on sex offenders be made public. Using detailed information on the timing and scope of changes in state law, we study how registration and notification affect the frequency of sex offenses and the incidence of offenses across victims, and check for any change in police response to reported crimes. We find evidence that registration reduces the frequency of sex offenses by providing law enforcement with information on local sex offenders. As we predict from a simple model of criminal behavior, this decrease in crime is concentrated among "local" victims (e.g., friends, acquaintances, neighbors), while there is little evidence of a decrease in crimes against strangers. We also find evidence that community notification deters crime, but in a way unanticipated by legislators. Our results correspond with a model in which community notification deters first-time sex offenses, but increases recidivism by registered offenders due to a change in the relative utility of legal and illegal behavior. This finding is consistent with work by criminologists suggesting that notification may increase recidivism by imposing social and financial costs on registered sex offenders and making non-criminal activity relatively less attractive. We regard this latter finding as potentially important, given that the purpose of community notification is to reduce recidivism.
    JEL: K14 K4
    Date: 2008–02
  7. By: Alexander Stremitzer (University of Bonn, Wirtschaftspolitische Abteilung, Adenauerallee 24-42, 53113 Bonn, Germany;
    Abstract: If a seller delivers a good non-conforming to the contract, Article 2 of the UCC as well as European warranty law allows consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer resorts to "opportunistic termination", i.e. takes non- conformity as a pretext to get rid of a contract he no longer wants. We show that the possibility of opportunistic termination might actually have positive ef- fects. Under some circumstances, it will lead to redistribution in favour of the buyer without any loss of effciency. Moreover, by curbing the monopoly power of the seller, a regime involving termination increases welfare by enabling a more effcient output level in a setting with multiple buyers.
    Keywords: contract law, warranties, breach remedies, termination, harmonization
    JEL: K12 C7 L40 D30
    Date: 2007–06
  8. By: Vimal Kumar (Department of Economics, University of California-Irvine); Stergios Skaperdas (Department of Economics, University of California-Irvine)
    Abstract: The core function of organized crime is the selling of protection. Protection can be real, against third-party crime, or manufactured by the organized crime groups themselves. Mafias and gangs emerge in areas of weak state control, because of prohibition and geographic, ethnic, or social isolation. Although competition is considered good in economics, in the case of organized crime the predatory competition that is more likely to take place is harmful. The costs of organized crime include the resources expended on the activity, more ordinary productive and investment distortions, as well as other dynamic effects on occupational choice.
    Keywords: Law and economics; Property rights; Governance
    JEL: K00 K42 L10 L22 O17
    Date: 2008–02

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