New Economics Papers
on Law and Economics
Issue of 2008‒08‒14
eleven papers chosen by
Jeong-Joon Lee, Towson University

  1. A Tradable Permit System in an Intertemporal Economy: A General Equilibrium Approach By Kenichi Akao; Shunsuke Managi
  2. What Ethics Can Learn From Experimental Economics - If Anything By Werner Güth; Hartmut Kliemt
  3. When It’s (Mostly) the Taking Part that Counts: The Post-Application Consequences of Employment Tribunal Claims By Drinkwater, Stephen; Latreille, Paul L.; Knight, Ben
  4. Labour Regulation and Employment Dynamics at the State Level in India By Sean Dougherty
  5. On the (In)Effectiveness of Some Commonly Proposed Anti-Corruption Reforms By Evrenk, Haldun
  6. Mackerels in the Moonlight: A Duopoly Model of Political Agency By Evrenk, Haldun
  7. A Game-Theoretic Explanation for the Persistence of Political Corruption By Evrenk, Haldun
  8. Caveat Venditor: The Conditional Effect of Relationship-Specific Investment on Contractual Behavior By Peter Murrell; Radu Paun
  9. 'Consumer Welfare' and Article 82EC: Practice and Rhetoric By Pinar Akman
  10. European Commission Opinions to National Courts in Antitrust Cases: Consistent Application and the Judicial-Administrative Relationship By Kathryn Wright
  11. Licensing probabilistic Patents: The duopoly case. By Vargas Barrenechea, Martin

  1. By: Kenichi Akao (School of Social Sciences, Waseda University, and Institute of Economic Research, Kyoto University); Shunsuke Managi (Faculty of Business Administration, Yokohama National University)
    Abstract: The creation of an artificial market through a tradable permit system as a remedy against market failure is gaining popularity among analysts and policymakers. We show that in an intertemporal competitive economy, a tradable permit system may not achieve efficiency without setting appropriate permit interest rates (rewards for holding permits), and to find them, we must know in advance the path of efficient permit prices, which is difficult or impossible to obtain. We deal with this problem in two ways. First, we seek a special case in which the permit interest rates are given by a simple rule. Second, we propose a mechanism by which the permit interest rates are generated endogenously. The determinacy of an equilibrium under a tradable permit system is also examined.
    Keywords: Auction; artificial market, tradable permit system, general equilibrium, permit interest rate, permit bank, indeterminacy
    JEL: H23 K32 Q58
    Date: 2008–08
  2. By: Werner Güth (Max Planck Institute of Economics, Jena, Strategic Interaction Group); Hartmut Kliemt (Frankfurt School of Finance and Management)
    Abstract: Relying on the specific example of ultimatum bargaining experiments this paper explores the possible role of empirical knowledge of behavioural "norm(ative) facts" within the search for an inter-personal (W)RE - (Wide) Reflective Equilibrium on normative issues. Assuming that pro-social behaviour "reveals" ethical orientations, it is argued that these "norm-facts" can and should be used along with stated preferences in justificatory arguments of normative ethics and economics of the "means to given ends" variety.
    Keywords: Meta-Ethics, Experimental Economics, Reflective Equilibrium
    JEL: D64 D7 K00 Z13
    Date: 2008–08–12
  3. By: Drinkwater, Stephen (University of Surrey); Latreille, Paul L. (University of Wales, Swansea); Knight, Ben (University of Warwick)
    Abstract: This paper uses the 2003 Survey of Employment Tribunal Applications to examine the post-application employment consequences for individuals registering complaints to Employment Tribunals following dismissal or redundancy. In examining this issue, we consider a number of pieces of evidence: (i) the probability of finding another job; (ii) the time taken to get a new job and (iii) the pay/status of the new job. It is found that age plays a significant role in aspects (i) and (iii), whilst those who previously held managerial positions generally took longest to get a new job and found it most difficult to achieve a similar level of pay/status in their current jobs. Long-term health problems/disability is associated with significantly worse outcomes on all three measures. Respondents whose cases were dismissed by the tribunals without hearings fared worst in terms of obtaining a new job and the time it took to do so compared with other outcomes. There were, however, fewer differences by outcome in the relative pay/status of the claimant’s current job.
    Keywords: employment tribunals, job separations, job search
    JEL: K4 J0
    Date: 2008–08
  4. By: Sean Dougherty
    Abstract: Over the past decade, labour market outcomes have improved in India, with net employment rising markedly for the economy as a whole. However, these gains have arisen primarily in the unorganized and informal sectors of the economy, where productivity and wages are generally much lower than in the formal organized sector. It is only India’s organized sector that is subject to labour market regulation, and here employment has fallen. The role of employment protection legislation in affecting employment outcomes is controversial both in the OECD area and in India. This paper looks at the impact of employment protection legislation and related regulation on the dynamics of employment in the organized sector of the economy, using newly constructed measures of national regulation and state labour reforms. We find that while reforms have taken some of the bite out of core labour laws, more comprehensive reforms are needed to address the distortions that have emerged. This working paper relates to the 2007 Economic Survey of India ( <P>Réglementation du travail et dynamiques de l’emploi au niveau de l’État en Inde <BR>Au cours de la dernière décennie, les résultats du marché du travail se sont améliorés en Inde, l’emploi net augmentant de façon sensible dans l’ensemble de l’économie. Cependant, ces gains sont intervenus essentiellement dans les secteurs non organisé et informel de l’économie, où la productivité et les salaires sont généralement bien moindres que dans le secteur organisé formel. Seul le secteur organisé est assujetti à la réglementation du marché du travail et, dans ce secteur, l’emploi a diminué. L’incidence de la législation de protection de l’emploi sur la performance du marché du travail est sujette à controverses aussi bien dans la zone de l’OCDE qu’en Inde. Le présent article examine l’impact de cette législation et des réglementations associées sur la dynamique de l’emploi dans le secteur organisé de l’économie, en utilisant de nouvelles mesures de la réglementation nationale et des réformes au niveau des Etats. Il ressort de cette étude que si les réformes ont permis d’assouplir quelque peu la rigidité du droit fondamental du travail, des mesures plus approfondies sont nécessaires pour remédier aux distorsions qui sont apparues. Ce document de travail se rapporte à l’Étude économique de l’Inde 2007 (
    Keywords: labour laws, employment protection indicators, job turnover, labour market distortions, législation du travail, indicateurs de protection de l’emploi, rotation du travail, distorsion du marché du travail
    JEL: G38 J21 J63 K20
    Date: 2008–08–04
  5. By: Evrenk, Haldun (Suffolk University, Department of Economics)
    Abstract: Using a theoretical model of two-candidate political competition under probabilistic voting, I study the effectiveness of the following anti-corruption reforms: (i) higher wages for politicians, (ii) higher penalties for political corruption, and (iii) constitutional constraints on the tax rates and the public good levels. In the setup I study, the competing candidates may differ in their popularity, (non-verifiable) ability, and corruptibility. I find that the reforms are more likely to be effective when the candidates are (almost) identical. When the candidates differ significantly from each other, each reform may increase equilibrium level of corruption or reduce voters' welfare.
    Keywords: Anti-Corruption Reform; Political Corruption; Constitutional Constraints
    JEL: D72 H30 H83 K42
    Date: 2008–05–15
  6. By: Evrenk, Haldun (Suffolk University, Department of Economics)
    Abstract: I study political competition between two candidates who could differ in their ability, popularity, and ethics. In elections, each candidate proposes a flat (income) tax rate and a public good level. A high(er)-ability candidate can produce the public good using less funds. Collected taxes that are not used in public goods production are stolen by the elected politician. The voting decision is probabilistic; it depends on a candidate's fiscal policy and his popularity. I prove that the pure strategy Nash Equilibrium exists and that there are at most two separate equilibria. I also provide a fully solved example.
    Keywords: Political Agency; Political Corruption; Nash Equilibrium
    JEL: D72 H30 H83 K42
    Date: 2008–04–25
  7. By: Evrenk, Haldun (Suffolk University, Department of Economics)
    Abstract: Using a theoretical model of two-candidate competition, I study the political support for a fully effective and costless reform targeting high level political corruption. I find that when the candidates have a high discount factor, and when the level of political corruption is not too low, both corrupt and honest candidates have incentives to oppose the reform. I also find that a fully informed and fully coordinated electorate can change a candidate's incentives by bundling the reform with high wages and by voting strategically.
    Keywords: Political Corruption; Political Economy of Anti-Corruption Reform
    JEL: D72 K42
    Date: 2008–04–20
  8. By: Peter Murrell (Department of Economics, University of Maryland); Radu Paun (Competition Council of Romania)
    Abstract: We offer a new perspective on the effect of relationship-specific investment on contract complexity, which has broad implications because complex contracts and vertical integration are substitutes. A simple model using transaction cost economics (TCE) predicts that buyer and seller relationship-specific investments have opposite effects on contract complexity. The model also predicts the signs of biases in OLS estimates of the effect of relationship-specific investments: unobserved heterogeneity causes downward bias in the estimated difference between the effects of buyer and seller specific investment, reducing the probability of finding opposite effects. We examine these predictions using data on agreements made by Romanian firms. When accounting for unobserved heterogeneity, seller relationship-specific investment has a positive effect on contract complexity while buyer investment has a negative effect. OLS estimates do not generate this result. The unique contribution of the paper is in simultaneously implementing TCE empirically, countering the problem of unobserved heterogeneity, generating estimates of the effects of specific investment that have opposite signs on opposite sides of the agreement, and explaining patterns of bias in the OLS estimates. Additionally, regional variation in court quality affects the complexity of contracts, suggesting that even moderate amounts of legal reform can have appreciable effects.
    Keywords: transaction cost economics, TCE, contract, contract complexity, property-rights theory, relationship-specific investment, legal system, transition, Romania
    JEL: D23 K12 L14 L22 O17 P3
    Date: 2008–07
  9. By: Pinar Akman (Centre for Competition Policy and Norwich Law School, University of East Anglia)
    Abstract: This paper questions whether the objective of Article 82EC is indeed enhancing ‘consumer welfare’ as suggested by the EC Commission when one examines the application of the provision thus far. It critically analyses the case law of the EC Commission and Courts to show that there is great dissonance between the practice and the policy declarations on the provision. When one considers the practice alongside the rhetoric, Article 82EC appears as a provision enforced without a clear standard of harm leading to doubts about the legitimacy of enforcement. The article suggests that without a properly defined standard applied in actual decisions by the EC Commission and upheld by the EC Courts, the modernisation of Article 82EC cannot succeed.
    Keywords: Article 82EC, consumer welfare, restriction of competition, abuse of a dominant position, enforcement
    JEL: K21 P46
    Date: 2008–07
  10. By: Kathryn Wright (Centre for Competition Policy, University of East Anglia)
    Abstract: The House of Lords judgment in Inntrepreneur v Crehan, where the court did not consider itself bound by a finding of the European Commission, demonstrated the potentially contentious and constitutionally significant nature of the relationship between the European Commission and national judges in the field of antitrust. The decentralisation of enforcement of Articles 81 and 82EC arguably carries greater risks of divergent application of EC antitrust enforcement rules. While national competition authorities are linked through the European Competition Network, no such mechanism exists for national courts as this would offend against the principles of judicial independence and procedural autonomy. The Commission, as primary enforcer of competition law in the Community, has therefore attempted to complement the formal judicial 'dialogue' of the European Court of Justice's preliminary reference procedure with a strengthening of its own relations with the national courts. After addressing the broader theoretical context of administrative intervention in judicial decision-making, this paper examines the use of one tool to promote consistent application of EC antitrust rules - non-binding European Commission opinions and amicus curiae briefs to national courts in antitrust proceedings under Article 15 of the Modernisation Regulation. It identifies national cases where the Commission has actually intervened under Article 15 and assesses the nature and efficacy of this soft law mechanism. One finding is the difficulty in finding and tracing the cases, making the impact of the Commission’s advice difficult to judge. Transparency is desirable for legitimacy, legal certainty, and if Commission opinions are to have the most impact for promoting convergent application of EC antitrust rules among national judges.
    Keywords: European Commission, national courts, amicus curiae, Modernisation Regulation, public and private competition enforcement
    JEL: K12 K49 P48
    Date: 2008–07
  11. By: Vargas Barrenechea, Martin
    Abstract: In this work we study licensing games of non drastic innovations under the shadow of probabilistic patents. We study the situation of a insider innovator that get a new reduction cost innovation and acts in a duopoly market under Cournout competition. When the property rights are not ironclad the potential licensee additional to the option of use the backstop technology instead of the new technology ,has the option of infringe the patent. Under infringement the patent holder can sue the infringer in a court and if its successful could get a order of damages payment. Then when the infringer decides about what kind of technology to use the infringement is always better than to use the backstop technology then a difference of the ironclad licensing games probabilistic rights, change the threats points and makes attractive for the patent holder just to license big innovations under the Lost Profit rule.
    Keywords: Patents; innovation economics; probabilistic property rights; damage rules
    JEL: L0 K42 C72
    Date: 2008–08

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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