New Economics Papers
on Law and Economics
Issue of 2008‒11‒11
seven papers chosen by
Jeong-Joon Lee, Towson University

  1. A Retail Benchmarking Approach to Efficient Two-Way Access Pricing: Termination-Based Price Discrimination with Elastic Subscription Demand By Sjaak Hurkens; Doh-Shin Jeon
  2. Crime Networks with Bargaining and Build Frictions By Bryan Engelhardt
  3. The Long Term Effects of Legalizing Divorce on Children By Gonzalez, Libertad; Viitanen, Tarja
  4. The Political Economy of Corruption: A Philippine Illustrationa By James Roumasset
  5. Collusive networks in market sharing agreements in the presence of an antitrust authority By Flavia Roldán
  6. Politicians: Be Killed or Survive By Bruno S. Frey; Benno Torgler
  7. Leniency Programs for Multimarket Firms: The Effect of Amnesty Plus on Cartel Formation By Yassine LEFOUILI; Catherine ROUX

  1. By: Sjaak Hurkens (Institute for Economic Analysis (CSIC)); Doh-Shin Jeon (Department of Economics and Business, Universitat Pompeu Fabra)
    Abstract: We study how access pricing affects network competition when consumers' subscription demand is elastic and networks compete with non-linear prices and can use termination-based price discrimination. In the case of a fixed per minute termination charge, our model generalizes the results of Gans and King (2001), Dessein (2003) and Calzada and Valletti (2008). We show that a reduction of the termination charge below cost has two opposing effects: it softens competition and it helps to internalize network externalities. The former reduces consumer surplus while the latter increases it. Firms always prefer termination charge below cost, either to soften competition or to internalize the network effect. The regulator will favor termination below cost only when this boosts market penetration. Next, we consider the retail benchmarking approach (Jeon and Hurkens, 2008) that determines termination charges as a function of retail prices and show that this approach allows the regulator to increase subscription without distorting call volumes. Furthermore, we show that an informed regulator can even implement the first-best outcome by using this approach.
    Keywords: Networks, Access Pricing, Interconnection, Regulation, Telecommunications
    JEL: D4 K23 L51 L96
    Date: 2008–11
  2. By: Bryan Engelhardt (Department of Economics, College of the Holy Cross)
    Abstract: How does the timing, targets and types of anti-crime policies affect a network when criminal retailers search sequentially for wholesalers and crime opportunities? Given the illicit nature of crime, I analyze a non-competitive market where players bargain over the surplus. In such a market, some anti-crime policies distort revenue sharing, reduce matching frictions and increase market activity or crime. As an application, the model provides a new perspective on why the U.S. cocaine market saw rising consumption after the introduction of the “War on Drugs.”
    Keywords: crime, networks, search, matching
    JEL: C78 K42 L14
    Date: 2008–09
  3. By: Gonzalez, Libertad (Universitat Pompeu Fabra); Viitanen, Tarja (University of Sheffield)
    Abstract: We estimate the effect of divorce legalization on the long-term well-being of children. Our identification strategy relies on exploiting the different timing of divorce legalization across European countries. Using European Community Household Panel data, we compare the adult outcomes of cohorts who were raised in an environment where divorce was banned with cohorts raised after divorce was legalized in the same country. We also have "control" countries where all cohorts were exposed (or not exposed) to divorce as children, thus leading to a difference-in-differences approach. We find that women who grew up under legal divorce have lower earnings and income as well as worse health as adults compared with women who grew up under illegal divorce. These effects are not found for men. We find no effects of divorce legalization on children's family formation or dissolution patterns.
    Keywords: divorce, legislation, intergenerational effects, child outcomes
    JEL: J12 J13 K36
    Date: 2008–10
  4. By: James Roumasset (Department of Economics, University of Hawaii at Manoa; University of Hawaii Economic Research Organization)
    Abstract: This essay explores the nature, causes, and consequences of corruption as it pertains to entire regimes. Grand corruption is modeled as a type of unproductive rent-seeking at the highest levels of government. The economic costs of corruption are assumed to increase in the decentralization (and relaxation) of its governance, increase convexly in the percentage extracted, and decreasing in the opportunities for productive rent-seeking. Combining these assumptions with the benefits of corruption yields the results that optimal corruption revenues are increasing in greed of the regime and in economic opportunities but that the economic costs of corruption may be highest in the least avaricious regime. The theory is illustrated with a stylized account of corruption in three Philippine administrations, from 1973-1998. Policy implications are discussed, including the role of the economist in making corruption less attractive.
    Keywords: Corruption, Philippines, kleptocracy
    JEL: H11 K42 O5
    Date: 2008–10–27
  5. By: Flavia Roldán
    Abstract: This paper studies how the presence of an antitrust authority affects market-sharing agreements made by firms in oligopolistic markets. These agreements prevent firms from entering each other´s market. The set of market-sharing agreements defines a collusive network, which is under suspicion by antitrust authorities. This paper shows that, from the firm´s point of view, the probability of being caught is endogenous and depends on the agreements each firm has signed. Stable collusive networks can be decomposed into a set of isolated firms and complete alliances of different sizes. While in the absence of the antitrust authority, a network is stable if its alliances are large enough, when the antitrust authority is considered, the network is stability depends on the network configuration as a whole. Antitrust laws may have a pro-competitive effect as they give Firms in large alliances more incentives to cut their agreements at once.
    Keywords: Market-sharing, Economic networks, Antitrust authority, Oligopoly
    JEL: D43 K21 L41
    Date: 2008–09
  6. By: Bruno S. Frey; Benno Torgler
    Abstract: In the course of history, a large number of politicians have been assassinated. Rational choice hypotheses are developed and tested using panel data covering more than 100 countries over a period of 20 years. Several strategies, in addition to security measures, are shown to significantly reduce the probability of politicians being attacked or killed: extended institutional and governance quality, democracy, voice and accountability, a well functioning system of law and order, decentralization via the division of power and federalism, larger cabinet size and strengthened civil society. There is also support for a contagion effect.
    Keywords: Assassinations, rational choice, governance, democracy, dictatorship, deterrence, protection.
    JEL: D01 D70 K14 K42 Z10
    Date: 2008–10
  7. By: Yassine LEFOUILI; Catherine ROUX
    Abstract: We examine the effect of the Amnesty Plus policy on firms' incentives to engage in cartel activities. Amnesty Plus is a proactive antitrust enforcement strategy aimed at attracting amnesty applications by encouraging firms already convicted in one market to report collusive agreements in other markets. It has been heavily advertised that Amnesty Plus weakens cartel stability. We show to the contrary that Amnesty Plus does not always have this desirable effect. Only under specific conditions, Amnesty Plus deters a cartel which would have been sustainable under an antitrust policy without Amnesty Plus. Otherwise, Amnesty Plus is either neutral or even stabilizes a cartel. We also show that firms can exploit their multimarket contact to reduce the effectiveness of the Amnesty Plus policy.
    Keywords: Amnesty Plus; Leniency Program; Multimarket Contact; Antitrust Policy
    JEL: K21 K42 L41
    Date: 2008–10

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