New Economics Papers
on Law and Economics
Issue of 2008‒04‒15
ten papers chosen by
Jeong-Joon Lee, Towson University

  1. Fines, Leniency, Rewards and Organized Crime: Evidence from Antitrust Experiments By Bigoni, Maria; Fridolfsson, Sven-Olof; Le Coq, Chloe; Spagnolo, Giancarlo
  2. Assessing Job Flows Across Countries: The Role of Industry, Firm Size and Regulations By John Haltiwanger; Stefano Scarpetta; Helena Schweiger
  3. Improving Product Market Regulation in India: An International and Cross-State comparison By Paul Conway; Richard Herd
  4. Product Market Regulation and economic performance across Indian States By Paul Conway; Richard Herd; Thomas Chalaux
  5. The Social versus Private Incentive to Sue By Thomas J. Miceli
  6. Crime and Social Sanction By Paolo Buonanno; Daniel Montolio; Paolo Vanin
  7. Expectation Damages, Divisible Contracts, and Bilateral Investment By Susanne Ohlendorf
  8. Unmarried fertility, crime, and cocial stigma By Kendall, Todd; Tamura, Robert
  9. The Role of Contribution among Defendants in Private Antitrust Litigation By Morten Hviid; Andrei Medvedev
  10. An Economic Assessment of EC Merger Control: 1957–2007 By Bruce Lyons

  1. By: Bigoni, Maria (IMT-Lucca); Fridolfsson, Sven-Olof (IFN); Le Coq, Chloe (SITE); Spagnolo, Giancarlo (Tor Vergata university, SITE, and CEPR)
    Abstract: Leniency policies and rewards for whistleblowers are being introduced in ever more fields of law enforcement, though their deterrence effects are often hard to observe, and the likely effect of changes in the specific features of these schemes can only be observed experimentally. This paper reports results from an experiment designed to examine the effects of fines, leniency programs, and reward schemes for whistleblowers on firms' decision to form cartels (cartel deterrence) and on their price choices. Our subjects play a repeated Bertrand price game with differentiated goods and uncertain duration, and we run several treatments different in the probability of cartels being caught, the level of fine, the possibility of self-reporting (and not paying a fine), the existence of a reward for reporting. We find that fines following successful investigations but without leniency have a deterrence effect (reduce the number of cartels formed) but also a pro-collusive effect (increase collusive prices in surviving cartels). Leniency programs might not be more efficient than standard antitrust enforcement, since in our experiment they do deter a significantly higher fraction of cartels from forming, but they also induce even higher prices in those cartels that are not reported, pushing average market price significantly up relative to treatments without antitrust enforcement. With rewards for whistle blowing, instead, cartels are systematically reported, which completely disrupts subjects' ability to form cartels and sustain high prices, and almost complete deterrence is achieved. We also analyze post-conviction behavior, finding that there is a strong expost deterrence (desistance) effect. Moreover post-conviction prices are on average lower than before even though the average prices within cartels are the same. Finally, we find a strong cultural effect comparing treatments in Stockholm with those in Rome, suggesting that optimal law enforcement institutions differ with culture.
    Keywords: Anti-trust; Collusion; Experiment; Leniency
    JEL: K21 L13 L41
    Date: 2008–03–27
  2. By: John Haltiwanger; Stefano Scarpetta; Helena Schweiger
    Abstract: This paper analyzes job flows in a sample of 16 industrial and emerging economies over the past decade, exploiting a harmonized firm-level dataset. It shows that industry and firm size effects (and especially firm size) account for a large fraction in the overall variability in job flows. However, large residual differences remain in the job flow patterns across countries. To account for the latter, the paper explores the role of differences in employment protection legislation across countries. Using a difference-in-difference approach that minimizes possible endogeneity and omitted variable problems, our findings show that hiring and firing costs tend to curb job flows, particularly in those industries and firm size classes that require more frequent labor adjustment.
    JEL: J23 J53 K31
    Date: 2008–04
  3. By: Paul Conway; Richard Herd
    Abstract: Competition in product markets has been found to be an important determinant of economic performance in developed and developing countries. This paper uses the OECD's indicators of product market regulation (PMR) to assess the extent to which India's regulatory environment is supportive of competition in markets for goods and services. The results indicate that although liberalisation has improved the regulatory environment to international best practices in a few areas, the overall stance of product market regulation is still relatively restrictive. The regulatory environment is also found to vary markedly across the 21 Indian states for which the PMR indicators are estimated. The paper goes on to review various aspects of product market regulation in India and suggest a number of policy initiatives that would improve the degree to which competitive market forces are able to operate. This working Paper relates to the 2007 Economic Survey of India ( <P>Améliorer la réglementation des marchés de produits en inde : comparaison internationale et situation dans les différents États <BR>On sait aujourd'hui que la concurrence sur les marchés de produits est un déterminant important de la performance économique des pays développés et en développement. Utilisant les indicateurs de réglementation des marchés de produits (RMP) mis au point par l'OCDE, la présente note examine dans quelle mesure les dispositions en vigueur en Inde permettent à la concurrence de s'exercer sur les marchés de biens et de services. Il ressort de cette analyse que, bien que l'environnement réglementaire ait été aligné sur les meilleures pratiques internationales dans quelques domaines grâce à des mesures de libéralisation, la réglementation des marchés de produits demeure relativement restrictive dans l'ensemble. Par ailleurs, la situation est très variable suivant les 21 États de la Fédération pour lesquels les indicateurs de RMP sont estimés. Après un examen de différents aspects de la réglementation des marchés de produits en Inde, un certain nombre d'initiatives sont proposées dans le but de faciliter le jeu des mécanismes concurrentiels du marché. Ce document de travail se rapporte à l'Étude économique de l'Inde 2007 (
    Keywords: product market regulation, competition, concurrence, indicators, indicateurs, réglementation des marchés de produits
    JEL: K2 L5 O1
    Date: 2008–03–28
  4. By: Paul Conway; Richard Herd; Thomas Chalaux
    Abstract: This paper uses the OECD's indicators of product market regulation to assess the extent to which the regulatory environment affects economic performance across Indian states. The degree to which product market regulation is supportive of competition is found to vary considerably across states. Furthermore, regression results indicate that these differences in regulation have a significant impact on both labour and total factor productivity. States in which the regulatory environment restricts competition have lower productivity growth in comparison to states in which regulation is more supportive of competition. Relatively liberal states are also found to attract more foreign investment and have a larger share of employment in the organised sector in comparison to states with a more restrictive regulatory environment. State governments that have enacted a relatively liberal regulatory framework have also been more successful at infrastructure provision. Ongoing reform of product market regulation is necessary to improve productivity growth further and ensure that the benefits of reform are distributed more widely across the country. This working Paper relates to the 2007 Economic Survey of India ( <P>Réglementation des marchés de produits et performances économiques dans les États de l'Union indienne <BR>Nous utilisons dans ce document les indicateurs de réglementation des marchés de produits (RMP) de l'OCDE pour évaluer les répercussions de l'environnement réglementaire sur les performances économiques des États de l'Union indienne. Nous parvenons à la conclusion que la mesure dans laquelle la réglementation des marchés de produits favorise la concurrence varie considérablement suivant les États. En outre, les résultats obtenus par analyse de régression indiquent que ces différences de réglementation ont un impact sensible tant sur la productivité de la main-d'oeuvre que sur la productivité totale des facteurs. Les États où l'environnement réglementaire restreint la concurrence enregistrent des gains de productivité plus faibles que ceux dans lesquels la réglementation est plus propice au libre jeu des forces du marché. Nous montrons également que les États relativement libéraux attirent davantage l'investissement étranger, qu'ils ont de meilleures infrastructures, et que le secteur organisé y représente une proportion plus importante de l'emploi que dans les États ayant un cadre réglementaire plus restrictif. Les États qui ont décrété un système réglementaire relativement libéral sont aussi ceux qui ont connu le plus de réussite dans l'approvisionnement en infrastructure. Les autorités doivent aller plus loin dans la réforme de la réglementation des marchés de produits pour renforcer encore la croissance de la productivité, et veiller à ce que les fruits des réformes soient plus largement distribués dans l'ensemble du pays. Ce document de travail se rapporte à l'Étude économique de l'Inde 2007 (
    Keywords: productivity convergence, institutions and growth, convergence de la productivité, institutions et croissance
    JEL: K2 L5 O1 O4
    Date: 2008–03–28
  5. By: Thomas J. Miceli (University of Connecticut)
    Abstract: The private value of lawsuits is based on plaintiffs' expected recovery at trial compared to their filing costs, whereas the social value consists of the incentives suits create for injurers to invest in accident avoidance. Generally, there is no relationship between these two values: there may be either too many or too few suits from a social perspective. Thus, there is scope for corrective measures, although there is no simple policy. Extending the model to consider a negligence rule rather than strict liability, and to allow for pretrial settlements, leads to some modified conclusions but does not alter the basic insights.
    Keywords: Accidents, deterrence, lawsuits, litigation costs, social versus private value
    JEL: K13 K40 K41
    Date: 2008–04
  6. By: Paolo Buonanno (University of Bergamo); Daniel Montolio (University of Utrecht); Paolo Vanin (University of Padova)
    Abstract: Social sanctions may be a strong deterrent of crime. This paper presents a formal model that relates crime and social sanction to social interaction density. We empirically test the theoretical predictions using a provincial level panel dataset on dierent crimes in Italy between 1996 and 2003. We exploit detailed demographic and geo-morphological information to develop exogenous measures of social interaction density. We estimate a spatial panel model by means of a GMM procedure and we nd that provinces with denser social interactions display significantly and substantially lower rates of property crime, but not of violent crime.
    Keywords: Crime, Spatial Panel, Social Interaction, Social Sanction
    JEL: A14 K42 Z13
    Date: 2008–03
  7. By: Susanne Ohlendorf (University of Bonn, Wirtschaftspolitische Abteilung, Adenauer Alle 24-42, 53113 Bonn, Germany, email:
    Abstract: This paper examines the efficiency of expectation damages as a breach remedy in a bilateral trade setting with renegotiation and relationship-specific investment by the buyer and the seller. As demonstrated by Edlin and Reichelstein (1996), no contract that specifies only a fixed quantity and a fixed per-unit price can induce efficient investment if marginal cost is constant and deterministic. We show that this result does not extend to more general payoff functions. If both parties face the risk of breaching, the first best becomes attainable with a simple price-quantity contract.
    Keywords: breach remedies, renegotiation, hold-up
    JEL: K12 D86 L14
    Date: 2008–03
  8. By: Kendall, Todd; Tamura, Robert
    Abstract: Children born to unmarried parents may receive lower human capital investments in youth, leading to higher levels of criminal activity as adults. Therefore, unmarried fertility may be positively associated with future crime. On the other hand, in an environment in which social stigma attached to non-marital fertility is high, many low match quality parents will choose (or be forced) to marry, and children reared in these families may actually be worse off than had their parents not married. We explore these effects empirically, finding that over the long run, unmarried fertility is positively associated with murder and property crime, but that the degree of social stigma has affected this relationship. For instance, our results suggest that some marriages in the 1940s and 1950s were of such low quality that the children involved would have been better off in single-parent households; however, this finding is reversed for marriages in the 1960s and thereafter – many marriages that would have benefited children have since been foregone. We also discuss implications for the debate over the “abortion-crime” link of Donohue and Levitt (2001).
    Keywords: unmarried fertility; abortion; future crime; social stigma
    JEL: J13 Z13 K42
    Date: 2008–04–01
  9. By: Morten Hviid (School of Law and Centre for Competition Policy, University of East Anglia); Andrei Medvedev (Centre for Competition Policy, University of East Anglia)
    Abstract: To date the experience of the incidence of private actions for damages in antitrust cases has differed markedly across jurisdictions. The procedural rules surrounding private litigation may account for some of these differences. This paper explores the effect of rules concerning contribution among multiple defendants who are joint and severally liable for a cartel infringement. The no-contribution rule is shown to lead to higher levels of aggregate damages and more information revelation to the private plaintiff. However, the no-contribution rule also has the potential to neuter any public leniency programme, thereby possibly reducing the number of cartels detected.
    Keywords: cartels, leniency, private damages
    JEL: K21 K42 L40
    Date: 2008–02
  10. By: Bruce Lyons (School of Economics and Centre for Competition Policy, University of East Anglia)
    Abstract: This paper provides an assessment of EC merger policy from three perspectives. First, it places the evolution of merger policy alongside the evolution of economic ideas in relation to competition and industrial organisation. Second, it highlights recent developments in the practical economic appraisal of competition in four areas: unilateral (non-coordinated) effects, particularly the appropriate use of simulation techniques and the efficiency defence; coordinated effects (collective dominance), particularly the role of the Community Courts; non-horizontal effects, particularly the need for the new guidelines; and remedies, particularly weaknesses in current practice. Third, it develops a simple bargaining approach to merger policy evaluation to draw conclusions about the trend in overall effectiveness of EC merger policy since 1989.
    Keywords: merger control, unilateral effects, collective dominance, remedies, merger policy
    JEL: C78 K21 L41
    Date: 2008–03

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