New Economics Papers
on Law and Economics
Issue of 2008‒06‒13
eight papers chosen by
Jeong-Joon Lee, Towson University

  1. Democracy in America: Labor Mobility, Ideology, and Constitutional Reform By Congleton, R.D.
  2. The EU Constitutional Process: A Failure of Political Representation? By Ben Crum
  3. On the Role and Design of Dispute Settlement Procedures in International Trade Agreements By Giovanni Maggi; Robert W. Staiger
  4. Welfare Payments and Crime By C. Fritz Foley
  5. An Equilibrium Model of Lawmaking By Thomas J. Miceli
  6. Discretionary Behavior and Racial Bias in Issuing Traffic Tickets: Theory and Evidence By Nejat Anbarci; Jungmin Lee
  7. Legal Damages for Losses of Chances By Urs Schweizer
  8. Trial and settlement negotiations between asymmetrically skilled parties By Chopard, Bertrand; Cortade, Thomas; Langlais, Eric

  1. By: Congleton, R.D.
    Abstract: Constitutional democracy in the United States emerged very gradually through a long series of constitutional bargains in the course of three centuries. No revolutions or revolutionary threats were necessary or evident during most of the three century–long transition to constitutional democracy in America. As in Europe, legislative authority gradually increased, wealth-based suffrage laws were gradually eliminated, the secret ballot was introduced, and the power of elected officials increased. For the most part, this occurred peacefully and lawfully, with few instances of open warfare or revolutionary threats. A theory of constitutional exchange grounded in rational choice models provides a good explanation for the distinctive features of American constitutional history, as it does for much of the West, although it does less well at explaining the timing of some changes.
    Date: 2007–09
  2. By: Ben Crum
    Abstract: This paper proposes to assess the representative quality of European Union decision-making by way of a micro-approach which traces the effectiveness of the mechanisms of representation that connect the European peoples to the decision-making process. In particular, it proposes to distinguish systematically between ‘upstream’ controls that delimit the mandate of political representatives and ‘downstream’ controls that allow political representatives to justify their decisions through deliberation. This approach is applied to the various phases of the making of the EU Constitutional Treaty and its dramatic failure due to the negative referendum verdicts in France and the Netherlands. Thus it is demonstrated that the EU Constitutional process has suffered from a lack of mechanisms for aligning politicians with public opinion. In particular, ‘upstream’ controls fell short in the very conception of the process in the 2001 Laeken Declaration and in the negotiations in the Intergovernmental Conference. On the other hand, ‘downstream’ controls remained under-activated in the European Convention and came too late in the ratification phase. Thus the Laeken process emerges as a process involving drifting political elites that, once brought face to face with their democratic principals again, failed to convincingly justify their actions. As the superimposition of the various phases had the overall effect of blurring all lines of political control and accountability over the process, it was eventually to the people to pull the emergency brake to prevent its outcome from taking effect.
    Keywords: European Council; political representation; intergovernmental conferences; deliberative democracy; legitimacy; European Convention
    Date: 2008–06–15
  3. By: Giovanni Maggi; Robert W. Staiger
    Abstract: Formal economic analysis of trade agreements typically treats disputes as synonymous with concerns about enforcement. But in reality, most WTO disputes involve disagreements of interpretation concerning the agreement, or instances where the agreement is simply silent. And some have suggested that the WTO's Dispute Settlement Body (DSB) might serve a useful purpose by granting "exceptions" to rigid contractual obligations in some circumstances. In each of these three cases, the role played by the DSB amounts to "completing" various dimensions of an incomplete contract. Moreover, there is a debate among legal scholars on whether or not precedent-setting in DSB rulings may enhance the performance of the institution. All of this points to the importance of understanding the implications of the different possible degrees of activism in the role played by the DSB. In this paper we bring formal analysis to bear on this broad question. We characterize the choice of contractual form and DSB role that is optimal for governments under various contracting conditions. A novel feature of our approach is that it highlights the interaction between the design of the contract and the design of the dispute settlement procedure, and it views these as two components of a single over-arching institutional design problem.
    JEL: D02 D78 D86 F13 K12 K33
    Date: 2008–06
  4. By: C. Fritz Foley
    Abstract: This paper tests the hypothesis that the timing of welfare payments affects criminal activity. Analysis of daily reported incidents of major crimes in twelve U.S. cities reveals an increase in crime over the course of monthly welfare payment cycles. This increase reflects an increase in crimes that are likely to have a direct financial motivation like burglary, larceny-theft, motor vehicle theft, and robbery, as opposed to other kinds of crime like arson, assault, homicide, and rape. Temporal patterns in crime are observed in jurisdictions in which disbursements are focused at the beginning of monthly welfare payment cycles and not in jurisdictions in which disbursements are relatively more staggered.
    JEL: D91 I38 K42
    Date: 2008–06
  5. By: Thomas J. Miceli (University of Connecticut)
    Abstract: This paper embeds a model of lawmaking in an equilibrium framework in which the demand for trials is rationed by court delay. The lawmaking process depends on a combination of selective litigation, judicial bias, and precedent. The steady state equilibrium of the model determines both the length of delay and the distribution of legal rules. Comparative statics show that an increase in the supply of trials reduces delay but may or may not increase the proportion of efficient rules. An increase in the fraction of judges biased in favor of the efficient rule, however, will likely improve efficiency on both counts.
    Keywords: Court delay, judicial decisionmaking, lawmaking, precedent, rationing by waiting
    JEL: K40 K41
    Date: 2008–05
  6. By: Nejat Anbarci (Department of Economics, Florida International University); Jungmin Lee (Department of Economics, Florida International University)
    Abstract: Recently, police departments, legislators, media, and the public at large in the U.S. have increasingly been concerned about racial disparities in officers' issuing traffic tickets. Ascertaining the extent to which an observed disparity reflects racial bias is the crucial issue. First, we use a theoretical model which borrows features from the recent literature regarding racial bias in vehicle searches. In our model, motorists, picking the speed to travel at, take into account the probability of getting ticketed and the speed that the officer will cite, while officers maximize a benefit function generically increasing in the speed of ticketed drivers; this benefit function, however, is general enough to allow officers to give certain drivers a break by citing them at a lower speed than they were traveling. Empirically, we exploit the existence of a massive accumulation of speeding tickets at 10 m.p.h. over the speed limit to elicit officers' discretionary behavior and leniency. Surprisingly,about 30% of all ticketed drivers were cited for driving exactly at this particular speed. Using our novel measure of officers' leniency, we find that especially white and male officers are heavily engaged in discretionary behavior. We also find officers' discretion is racially biased; minority officers are less lenient to minority drivers. This is interesting in comparison with Antonovics and Knight (forthcoming) who, using the same data set, found evidence on own-race preferences in vehicle searches.
    Keywords: Discretionary behavior, strict behavior, leniency, racial bias, drivers' speeding decision, officers' ticketing and citation decision.
    JEL: J70 K42
    Date: 2008–06
  7. By: Urs Schweizer (Department of Economics, University of Bonn, Adenauerallee 24-42, 53113 Bonn, Germany)
    Abstract: This paper deals with legal damages if losses of chances are at stake. In response to disparate ad hoc rules that have emerged from legal practice in Europe, the present paper proposes a unifying principle to handle such cases. Quite generally, the purpose of a damages award is to compensate the claimant and should be based on the difference in value between due performance and actual performance. To cope with limited observability, it is suggested to still award the difference though on average over the observed event. The paper calculates damages in line with this general principle. The proposed damage scheme is shown to fully compensate the victim and to provide efficient incentives for precaution, be it that multiple injurers act non-cooperatively or in concert, even if losses of chances are at stake.
    Keywords: estimating legal damages, liability for torts, liability for breach of contracts, uncertain causation,difference hypothesis
    JEL: K12 K13 D62
    Date: 2008–05
  8. By: Chopard, Bertrand; Cortade, Thomas; Langlais, Eric
    Abstract: Parties engaged in a litigation generally enter the discovery process with different informations regarding their case and/or an unequal endowment in terms of skill and ability to produce evidence and predict the outcome of a trial. Hence, they have to bear different legal costs to assess the (equilibrium) plaintiff's win rate. The paper analyses pretrial negotiations and revisits the selection hypothesis in the case where these legal expenditures are private information. This assumption is consistent with empirical evidence (Osborne, 1999). Two alternative situations are investigated, depending on whether there exists a unilateral or a bilateral informational asymmetry.\ Our general result is that efficient pretrial negotiations select cases with the smallest legal expenditures as those going to trial, while cases with largest costs prefer to settle. Under the one-sided asymmetric information assumption, we find that the American rule yields more trials and higher aggregate legal expenditures than the French and British rules. The two-sided case leads to a higher rate of trials, but in contrast provides less clear-cut predictions regarding the influence of fee-shifting.
    Keywords: litigation; unilateral and bilateral asymmetric information; legal expenditures
    JEL: D0 K0 D82 K41
    Date: 2008–06–06

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