New Economics Papers
on Law and Economics
Issue of 2008‒07‒14
twelve papers chosen by
Jeong-Joon Lee, Towson University

  1. The institutions of house tenancy markets in post-war Western Europe: an economic analysis By Juan S. Mora
  2. Global Market Surveillance By Cumming, D.; Johan, S.A.
  3. Microjustice By Barendrecht, J.M.; Nispen, P. van
  4. Priorities for the justice system: responding to the most urgent legal problems of individuals By Barendrecht, J.M.; Kamminga, Y.P.; Verdonschot, J.H.
  5. What is the Role of Legal Systems in Financial Intermediation? Theory and Evidence By Bottazzi, L.; Da Rin, M.; Hellmann, T.
  6. Forensic Econometrics: The Effect of Duggan and Levitt’s Study on Corruption in Professional Sumo By Helmut Dietl; Markus Lang; Stephan Werner
  7. Fines, Leniency, Rewards and Organized Crime: Evidence from Antitrust Experiments By Bigoni, Maria; Fridolfsson, Sven-Olof; Le Coq, Chloé; Spagnolo, Giancarlo
  8. Rule of Law, Institutional Quality and Information By Bruno, Randolph Luca
  9. Estimating the Causal Effect of Gun Prevalence on Homicide Rates: A Local Average Treatment Effect Approach By Kovandzic, Tomislav; Schaffer, Mark; Kleck, Gary
  10. Vengeance By Naci H. Mocan
  11. Lifting the Curse of Dimensionality: Measures of the Labor Legislation Climate in the States During the Progressive Era By Price V. Fishback; Rebecca Holmes; Samuel Allen
  12. Optimal Policy with Heterogeneous Preferences By Louis Kaplow

  1. By: Juan S. Mora
    Abstract: This study provides an economic analysis of the post-War institutions of the European tenancy markets. Two representative types of market interventions are analyzed: the introduction of compulsory terms in the tenancy contracts and rent control. First of all this study offers a description and an analysis of the recent history of those institutions. The cases of Spain (as a benchmark), Italy, Finland and UK are analyzed more in depth, as examples of "big reformers" during the 20th century, in order to extract some general conclusions about the evolution of the European institutions in the last decades. Then the effects of those interventions are theoretically explored by adapting a model of tenancy markets (Basu and Emerson, 2000). The results show that the analyzed institutions potentially entail negative effects for the European tenancy markets. Those effects are consistent with the tendences observed during the second half of the 20th century in the different european markets.
    Keywords: Rent control, Institutions, Tenancy contracts, Compulsory terms
    JEL: N4 K12 L51 R31 O47
    Date: 2008–06
  2. By: Cumming, D.; Johan, S.A. (Tilburg University, Tilburg Law and Economics Center)
    Date: 2008
  3. By: Barendrecht, J.M.; Nispen, P. van (Tilburg University, Tilburg Law and Economics Center)
    Date: 2008
  4. By: Barendrecht, J.M.; Kamminga, Y.P.; Verdonschot, J.H. (Tilburg University, Tilburg Law and Economics Center)
    Date: 2008
  5. By: Bottazzi, L.; Da Rin, M.; Hellmann, T. (Tilburg University, Tilburg Law and Economics Center)
    Date: 2008
  6. By: Helmut Dietl (Institute for Strategy and Business Economics, University of Zurich); Markus Lang (Institute for Strategy and Business Economics, University of Zurich); Stephan Werner (Institute for Strategy and Business Economics, University of Zurich)
    Abstract: In the December 2002 issue of the American Economic Review, Mark Duggan and Steven D. Levitt published an article on corruption in professional sumo. In this article, the authors provide empirical evidence for match rigging in professional sumo. The article caused tremendous attention and uproar because sumo wrestling has a more than 2000 year-old history and is usually characterized by honesty, tradition and rituals. In this paper, we analyze the effect of Duggan and Levitt’s econometric research on corruption in sumo wrestling by comparing the outcome of critical matches before, during and after the period of the publication process. We show that Duggan and Levitt’s study significantly reduced corruption in sumo wrestling. The reduction is caused by two effects. First, the sumo association reacted to Duggan and Levitt’s study by reducing the value of the eighth win. Second, we show that the level of corruption is heavily influenced by public scrutiny. Moreover, we identify two additional strategies for match rigging: sudden weakness and stable reciprocity.
    Keywords: Corruption, incentive scheme, social ties, monitoring
    JEL: K42 L83 M21 M52
    Date: 2008
  7. By: Bigoni, Maria (IMT-Lucca); Fridolfsson, Sven-Olof (Research Institute of Industrial Economics (IFN)); Le Coq, Chloé (Stockholm Institute of Transition Economies); Spagnolo, Giancarlo (Stockholm Institute of Transition Economics)
    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 differing 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. If the ringleader is excluded from the leniency program the deterrence effect of leniency falls and prices are higher than otherwise. As for tacit collusion, under standard anti-trust enforcement or leniency programs subjects who do not communicate (do not go for explicit cartels) tend to choose weakly higher prices than where there is no anti-trust enforcement. 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: Law Enforcement; Antitrust; Cartel Deterrence; Leniency; Experiment
    JEL: K21 K42 L13 L41
    Date: 2008–04–24
  8. By: Bruno, Randolph Luca (University of Bologna)
    Abstract: The focus of this paper is the analysis of the persistent lawlessness attitude observed in some transition and developing countries where an overall increase in the quality of institutions is recorded. The mechanism of information diffusion on institutional quality is explored using a model where the state confronts a continuum of agents prone to either strip assets or to invest. The model predicts that high uncertainty and potential sunk costs in a situation of rule of law enforcement push the economy towards anarchy, a Pareto-dominated equilibrium. Vice versa, if the assets' value and the cost of asset-stripping are high, this is instrumental to a rule of law enforcement, a Pareto-dominant equilibrium. High institutional quality can increase the likelihood of rule of law enforcement if there is enough information about the strength of institutions. On the other hand, if good institutions and good information about institutions do not come together, there is scope for the puzzled co-existence of advancement in reforms and poor property rights protection.
    Keywords: rule of law, institutions, global games
    JEL: D81 C72 K42
    Date: 2008–05
  9. By: Kovandzic, Tomislav (University of Texas at Dallas); Schaffer, Mark (Heriot-Watt University, Edinburgh); Kleck, Gary (Florida State University)
    Abstract: This paper uses a “local average treatment effect” (LATE) framework in an attempt to disentangle the separate effects of criminal and noncriminal gun prevalence on violence rates. We first show that a number of previous studies have failed to properly address the problems of endogeneity, proxy validity, or heterogeneity in criminality. We demonstrate that the time series proxy problem is severe; previous panel data studies have used proxies that are essentially uncorrelated in time series with direct measures of gun relevance. We adopt instead a cross-section approach: we use U.S. county-level data for 1990, and we proxy gun prevalence levels by the percent of suicides committed with guns, which recent research indicates is the best measure of gun levels for cross-sectional research. We instrument gun levels with three plausibly exogenous instruments: subscriptions to outdoor sports magazines, voting preferences in the 1988 Presidential election, and numbers of military veterans. In our LATE framework, the estimated impact of gun prevalence is a weighted average of a possibly negative impact of noncriminal gun prevalence on homicide and a presumed positive impact of criminal gun prevalence. We find evidence of a significant negative impact, and interpret it as primarily “local to noncriminals”, i.e., primarily determined by a negative deterrent effect of noncriminal gun prevalence. The beneficiaries of the reduced level of violence may include substantial numbers of (urban) criminals, the murders of whom decrease via spillovers from noncriminal gun prevalence.
    Keywords: crime, homicide, gun levels, endogeneity
    JEL: K42 C51 C52
    Date: 2008–07
  10. By: Naci H. Mocan
    Abstract: This paper investigates the extent of vengeful feelings and their determinants using data on more than 89,000 individuals from 53 countries. Country characteristics (such as per-capita income, average education of the country, presence of an armed conflict, the extent of the rule-of-law, uninterrupted democracy, individualism) as well as personal attributes of the individuals influence vengeful feelings. The magnitude of vengeful feelings is greater for people in low-income countries, in countries with low levels of education, low levels of the rule-of-law, in collectivist countries and in countries that experienced an armed conflict in recent history. Females, older people, working people, people who live in high-crime areas of their country and people who are at the bottom 50% of their country's income distribution are more vengeful. The intensity of vengeful feelings dies off gradually over time. The findings suggest that vengeful feelings of people are subdued as a country develops economically and becomes more stable politically and socially and that both country characteristics and personal attributes are important determinants of vengeance. Poor people who live in higher-income societies that are ethno-linguistically homogeneous are as vengeful as rich people who live in low-income societies that are ethno-linguistically fragmented. These results reinforce the idea that some puzzles about individual choice can best be explained by considering the interplay of personal and cultural factors.
    JEL: H56 I0 K4 K42 O1 P16
    Date: 2008–07
  11. By: Price V. Fishback; Rebecca Holmes; Samuel Allen
    Abstract: One of the most difficult problems in the social sciences is measuring the policy climate in societies. Prior to the 1930s the vast majority of labor regulations in the U.S. were enacted at the state level. In this paper we develop several summary measures of labor regulation that document the changes in labor regulation across states and over time during the Progressive Era. The measures include an Employer-Share-Weighted Index (ESWI) that weights regulations by the share of workers affected and builds up the overall index from 17 categories of regulation; the number of pages of laws; appropriations for spending on labor issues per worker; and two nonparametric COORDINATES that summarize locations in a policy space. We describe the pluses and minuses of the measures, how strongly they are correlated, and show the stories that they tell about the changes in labor regulation during the progressive era. We then provide preliminary evidence on the extent to which the labor regulation measures are associated with political and economic correlates identified as important in histories of industrial relations and labor markets.
    JEL: J18 K31 N31 N32 N41 N42
    Date: 2008–07
  12. By: Louis Kaplow
    Abstract: Optimal policy rules--including those regarding income taxation, commodity taxation, public goods, and externalities--are typically derived in models with homogeneous preferences. This article reconsiders many central results for the case in which preferences for commodities, public goods, and externalities are heterogeneous. When preference differences are observable, standard second-best results in basic settings are unaffected, except those for the optimal income tax. Optimal levels of income taxation may be higher, the same, or lower on types who derive more utility from various goods, depending on the nature of preference differences and the concavity of the social welfare function. When preference differences are unobservable, all policy rules may change. The determinants of even the direction of optimal rule adjustments are many and subtle.
    JEL: D61 D62 D63 H21 H23 H24 H43 K34
    Date: 2008–07

This issue is ©2008 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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