New Economics Papers
on Law and Economics
Issue of 2008‒10‒07
thirteen papers chosen by
Jeong-Joon Lee, Towson University

  1. The Risk of Divorce and Household Saving Behavior By Libertad González Luna; Berkay Özcan
  2. Legal Change and the Social Value of Lawsuits By Thomas J. Miceli
  3. Lerning by Copying By Francisco Martinez
  4. Independent Children, Inconsistent Adults: International Child Migration and the Legal Framework By Jacqueline Bhabha
  5. The Easy Core Case for Judicial Review By Alon Harel; Tsvi Kahana
  6. EMU-related News and Financial Markets in the Czech Republic, Hungary, and Poland By Wolfgang Kerber; Jürgen-Peter Kretschmer; Georg von Wangenheim
  7. Tax Evasion Dynamics in the Czech Republic: First Evidence of an Evasional Kuznets Curve By Jan Hanousek; Filip Palda
  8. Voting in the European Union - Central Europe’s lost voice By Ondřej Schneider
  9. Remedies, Performance Excuses, and Investment Incentives By Urs Schweizer;
  10. Does Social Democracy Matter? Corporate Governance Reforms in Switzerland and Sweden (1980-2005) By Gerhard Schnyder
  11. The Reflexive Properties of Corporate Governance Codes: The Reception of the 'Comply or Explain' Approach in Slovenia By Nina Cankar; Simon Deakin; Marko Simoneti
  12. Beyond the Cartel Law Handbook: How Corruption, Social Norms and Collectivist Business Cultures can Undermine Conventional Enforcement Tools By Andreas Stephan
  13. The Effect of Gun Shows on Gun-Related Deaths: Evidence from California and Texas By Mark Duggan; Randi Hjalmarsson; Brian A. Jacob

  1. By: Libertad González Luna; Berkay Özcan
    Abstract: We analyze the impact of an increase in the risk of divorce on the saving behaviour of married couples. From a theoretical perspective, the expected sign of the effect is ambiguous. We take advantage of the legalization of divorce in Ireland in 1996 as an exogenous increase in the likelihood of marital dissolution. We analyze the saving behaviour over time of couples who were married before the law was passed. We propose a difference-in-differences approach where we use as comparison groups either married couples in other European countries (not affected by the law change), or Irish families who did not experience a significant increase in the expected risk of divorce (such as very religious families, or single individuals). Our results suggest that the increase in the risk of divorce brought about by the law was followed by an increase in the propensity to save of married couples, consistent with a rise in precautionary savings interpretation. An increase in the risk of marital dissolution of about 40 percent led to a 7 to 13 percent rise in the proportion of married couples reporting positive savings.
    Keywords: Divorce, saving, marriage, divorce law
    JEL: J12 D10 K36 E21 D91
    Date: 2008–09
  2. By: Thomas J. Miceli (University of Connecticut)
    Abstract: This paper integrates the literatures on the social value of lawsuits, the evolution of the law, and judicial preferences to evaluate the hypothesis that the law evolves toward efficiency. The setting is a simple accident model with costly litigation where the efficient law minimizes the sum of accident plus litigation costs. In the steady state equilibrium, the distribution of legal rules is not necessarily efficient but instead depends on a combination of selective litigation, judicial bias, and precedent.
    Keywords: Efficiency of the law, judicial decision making, legal change, precedent, value of lawsuits
    JEL: K40 K41
    Date: 2008–09
  3. By: Francisco Martinez (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: We analyze the behavior of a multiproduct monopolist, a duopolist and consumers who are able to learn by copying. We show that when the effect of learning by copying is strong and the cost of copying is low enough, consumers decide to copy all goods, independently of their prices. This suggests that the DRM systems implemented by the digital industry have adverse consequences, because they hinder the use of original information goods and provide consumers with an incentive for copying. Moreover, we obtain two more kinds of equilibrium: one where each firm sells to the consumer who values its good more highly and another where each firm sells to all consumers. These results are robust when we consider that consumers’ preferences are “opposed.” Finally, by analyzing social welfare we show that, from a static perspective, the multiproduct monopoly provides a welfare at least as great as the duopoly and, from a dynamic perspective, a duopolist has at least the same incentive to create a new product as a monopolist.
    Keywords: Consumers, Learning by Copying, Opposed Preferences, DRM, Copy, Piracy.
    JEL: K42 L11 L86 O34
    Date: 2008–06–13
  4. By: Jacqueline Bhabha
    Abstract: Like adults, children migrate across borders for different reasons and in varying circumstances; and they face legal consequences as a result of their migration. Two of these consequences are common to all child migrants and have far-reaching implications: the child migrants become non-citizens or aliens once they cross a border, and they face a new social environment once they leave home. The existing legal framework does not directly address either of these consequences. Domestic child protection law, which addresses the problems facing children without satisfactory homes, does not often cover issues of foreign citizenship, including the risk of deportation and lack of entitlement to social benefits that non-citizen children can face. And migration law, which establishes the parameters of lawful status for recognized categories of migrant, does not deal with the needs and circumstances of most children who travel independently of their families. However, international law has long recognized the distinctive needs of some groups of child migrants. In the Declaration on the Rights of the Child, adopted by the League of Nations in 1924, the first ever international child rights declaration, two of the five principles articulated define rights relevant to child migrants: (1) the primacy of the child’s right to relief in times of distress (a precursor to attention to the special needs of refugee children) and (2) the imperative of protection for exploited children (prefiguring concern with child trafficking). More recent regional and domestic legislation regulating immigration has included provisions promoting family unity and by implication the migration of children with or to join their adult relatives. A broader engagement with the many other aspects of child migration however has been absent. There is no single piece of international or regional legislation that systematically and comprehensively addresses the issue. As a result the body of relevant legislation, though quite extensive and diverse, has an impact on child migrants which is inconsistent and incomplete.
    Keywords: international bill of human rights; migrant children; migration law;
    JEL: K33
    Date: 2008
  5. By: Alon Harel; Tsvi Kahana
    Abstract: This paper defends judicial review on the grounds that judicial review is necessary for protecting “a right to a hearing.” Judicial review is praised by its advocates on the basis of instrumentalist reasons, i.e., because of its desirable contingent consequences such as protecting rights, romoting democracy, maintaining stability, etc. We argue that instrumentalist easons for judicial review are bound to fail and that an adequate defense of udicial review requires justifying judicial review on non-instrumentalist grounds. A non-instrumentalist justification grounds judicial review in essential attributes of he judicial process. In searching for a non-instrumental justification we establish that judicial review is designed to protect the right to a hearing. The right to a hearing consists of hree components: the opportunity to voice a grievance, the opportunity to be rovided with a justification for a decision that impinges (or may have impinged) on one’s rights and, last, the duty to reconsider the initial decision giving rise to the grievance. The right to a hearing is valued independently of the merit of the decisions generated by the judicial process. We also argue that the recent proposals to reinforce popular or democratic participation in shaping the Constitution are wrong because they are detrimental to the right to a hearing.
    Date: 2008–09
  6. By: Wolfgang Kerber (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Jürgen-Peter Kretschmer (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Georg von Wangenheim (Departmentof Economics, Universitaet Kassel)
    Abstract: Although both in US antitrust and European competition law there is a clear evolution to a much broader application of "rule of reason" (instead of per-se rules), there is also an increasing awareness of the problems of a case-by-case approach. The "error costs approach" (minimizing the sum of welfare costs of decision errors and administrative costs) allows not only to decide between these two extremes, but also to design optimally differentiated rules (with an optimal depth of investigation) as intermediate solutions between simple per-se rules and a fullscale rule of reason. In this paper we present a decision-theoretic model that can be used as an instrument for deriving optimal rules for a sequential investigation process in competition law. Such a sequential investigation can be interpreted as a step-by-step sorting process into ever smaller subclasses of cases that help to discriminate better between pro- and anticompetitive cases. We analyze both the problem of optimal stopping of the investigation and optimal sequencing of the assessment criteria in an investigation. To illustrate, we show how a more differentiated rule on resale price maintenance could be derived after the rejection of its per-se prohibition by the US Supreme Court in the "Leegin" case 2007.
    Keywords: Law Enforcement, Decision-Making, Competition Law, Antitrust Law
    JEL: K20 K21 K40 D81
    Date: 2008
  7. By: Jan Hanousek; Filip Palda
    Abstract: Using surveys of the Czech Republic taken in 2000, 2002, 2004, and 2006 we measure how the percentage of tax evaders evolved from 1995 until 2006. We find that at first evasion rose, leveled off, and then fell along a quadratic path, suggesting the existence of what we call an evasional Kuznets curve. Our paper is the first to document the existence of an evasional Kuznets curve and to show how it can help improve Markov-chain predictions of tax evasion. We conclude by suggesting that the evasional Kuznets curve may be a subset of a larger trend in evasion for both transitional and developed economies.
    Keywords: Underground economy, tax evasion, Markov chains, transition, evasional Kuznets curve.
    JEL: H26 H43 K42 O17
    Date: 2008–09
  8. By: Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; CESifo, Munich, Germany; Georgetown University)
    Abstract: Ten Central European countries became members of the European Union in the years 2004 - 2007. They constitute 20% of the EU’s total population; and even though their economic output is much lower, it rises dynamically. New members’ impact on the EU policies has nevertheless been limited. This is due not only to the arcane voting rules within the EU, but also to the lack of a common agenda among the Central European countries. Our paper illustrates that the new members rarely vote together and that their influence is thus fairly limited. We argue that as the EU seemingly lacks energy to implement further reforms that would stimulate its economy, impetus for change may come from Central European countries. To that end, however, they have to coordinate their voting and become a more coherent voting group than they are now.
    Keywords: European Union, voting system, European Council, new member states
    JEL: J08 J51 K31
    Date: 2008–09
  9. By: Urs Schweizer; (Department of Economics, University of Bonn, Adenauerallee 24, 53113 Bonn, Germany; )
    Abstract: Contract law is usually perceived as a strict liability system. When a promisor fails to perform he is held liable even if he is without fault. If, however, an unusual contingency has arisen he may be excused from performing provided that he has taken reasonable precautions. For a setting with uncertain costs of and benefits from performance, it is shown that a fixed price contract is sufficient to generate efficient reliance and precautions incentives under the following legal regime. If the promisor has met the appropriate precaution standard then he is excused if performance fails to be profitable. Alternative regimes, in contrast, where he is excused if performance is inefficient or even is extremely costly distort investment incentives quite generally.
    Keywords: performance excuse, impracticability doctrine, overreliance, efficient precaution
    JEL: K12
    Date: 2008–09
  10. By: Gerhard Schnyder
    Abstract: This paper tests the accuracy of Roe's (2003) claim that 'social democracies' tend to have insider-orientated corporate governance systems, for two extreme cases concerning Roe's independent variable: Switzerland and Sweden. Starting from a position in which both were clearly insider-orientated systems, there was a significant weakening of insider control in Switzerland during the 1990s, but no comparable change in Sweden up until the early 2000s. These developments occurred against the background of contrasting political contexts in the two countries: in Switzerland, change took place in a context of stable dominance over the political arena by centre-right parties; in Sweden, no change took place despite the fact that centre-right parties managed several times to break the traditional social-democratic dominance over government. Thus it would seem that political power relations as such do not explain the observed trajectories of these two corporate governance systems. Instead, the different trajectories are explained by the different preferences of central political and economic actors. The Swiss labour movement, which was traditionally under the dominance of a strong employer side, had important incentives to favour increasing external shareholder control over firms. Conversely, the Swedish labour movement, which had played a considerable part in the shaping of the Swedish corporate governance system, had no such incentives. Also, as Swiss banks started to reorientate their strategies towards financial market-related activities, they became a very important pro-shareholder reform force in Switzerland. Swedish banks, which were part of business groups in which financial interests did not necessarily prevail over industrial interests, did not play any comparable role.
    Keywords: Corporate governance, Switzerland, Sweden, political economy
    JEL: K22 P26 P51
    Date: 2008–09
  11. By: Nina Cankar; Simon Deakin; Marko Simoneti
    Abstract: The Slovenian Corporate Governance Code for Public Joint-Stock Companies was adopted in March 2004. Using a systems-theoretical approach, we examine the extent to which the implementation of the Code has resulted in the kinds of 'reflexive' learning processes which the 'comply or explain' approach aims to bring about. The adoption of the Code has already had an impact on the wider legal system, triggering certain changes in the body of core company law, and assisting the process of adjustment to EU-level norms. On the whole, companies' implementation strategies are strikingly similar both in terms of the contents of deviations as well as in the type of disclosure and explanations for deviations. At the same time, the quality of disclosures is low, with effective comply-or-explain declarations representing only a small minority of disclosures. On this basis, the Code has been more effective, to date, in legitimating Slovenia's adjustment to transnational norms and standards, than in stimulating institutional learning.
    Keywords: corporate governance, comply or explain, disclosure, reflexive law, EU law, transplants, Slovenia
    JEL: G34 G38 K22
    Date: 2008–09
  12. By: Andreas Stephan (Centre for Competition Policy, University of East Anglia)
    Abstract: The combination of leniency programmes, high sanctions, complaints from customers and private actions for damages, has proven very successful at uncovering and punishing cartel agreements in the US. Countless jurisdictions are being encouraged to adopt these ‘conventional’ enforcement tools, in the absence of an international competition authority. The purpose of this paper is to widen the debate on cartel enforcement by identifying three issues which can undermine their effectiveness in some jurisdictions: (1) Corruption and organised crime; (2) Social norms that are sympathetic to collusive practices; (3) Collectivist business cultures built on personal relationships.
    Keywords: cartels, leniency programmes, enforcement, corruption, organised crime, social norms, collectivism
    JEL: D21 K21 K42 L40 Z1
    Date: 2008–09
  13. By: Mark Duggan; Randi Hjalmarsson; Brian A. Jacob
    Abstract: Thousands of gun shows take place in the U.S. each year. Gun control advocates argue that because sales at gun shows are much less regulated than other sales, such shows make it easier for potential criminals to obtain a gun. Similarly, one might be concerned that gun shows would exacerbate suicide rates by providing individuals considering suicide with a more lethal means of ending their lives. On the other hand, proponents argue that gun shows are innocuous since potential criminals can acquire guns quite easily through other black market sales or theft. In this paper, we use data from Gun and Knife Show Calendar combined with vital statistics data to examine the effect of gun shows. We find no evidence that gun shows lead to substantial increases in either gun homicides or suicides. In addition, tighter regulation of gun shows does not appear to reduce the number of firearms-related deaths.
    JEL: H0 I1 K4
    Date: 2008–10

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