New Economics Papers
on Law and Economics
Issue of 2009‒01‒10
seven papers chosen by
Jeong-Joon Lee, Towson University

  1. Testing Leniency Programs Experimentally: The Impact of Change in Parameterization By Jana Krajcova
  2. Competition Policy and Market Leaders By Ilir Maçi; Kresimir Zigic
  3. Testing Leniency Programs Experimentally: The Impact of “Natural” Framing By Jana Krajcova; Andreas Ortmann
  4. Lost in the Mail: A Field Experiment on Crime By Marco Castillo; Ragan Petrie; Maximo Torero; Angelino Viceisza
  5. On the Ambiguous Effects of Repression By Eric Langlais
  6. Trade Disputes, Quality Choice, and Economic Integration By Richard Chisik
  7. Limited Incremental Linking and Unlinked Trade Agreements By Richard Chisik

  1. By: Jana Krajcova
    Abstract: I analyze subjects’ sensitivity to parametric change that does not affect the theoretical prediction. I find that increasing the value of an illegal transaction to a briber and reducing the penalties to both culprits leads to more bribes being paid but does not affect the cooperation of the bribee. My data also suggest that trust and preferences towards others might play a role. My paper provides a testbed for experimental testing of anti-corruption measures and adds evidence to the on-going discussion on the need for sociodemographic controls.
    Keywords: Corruption, anti-corruption mechanisms, optimal contract, monitoring.
    JEL: C91 D02 D73 K42
    Date: 2008–10
  2. By: Ilir Maçi; Kresimir Zigic
    Abstract: We study the potential loss in social welfare and changes in incentives to invest in R&D that result when the market leading firm is deprived of its position. We show that under plausible assumptions like free entry or repeated market interactions there is a social value of market leadership and its mechanical removal by means of competition policy is likely to be harmful for society.
    Keywords: Market leaders, Competition policy, Innovation.
    JEL: F12 F13 L11 L13 L16 K21
    Date: 2008–11
  3. By: Jana Krajcova; Andreas Ortmann
    Abstract: We study the effects of loaded instructions in a bribery experiment. We find a strong gender effect: men and women react differently to real-world framing. The treatment effect becomes significant once we allow for genderspecific coefficients. Our paper contributes to the (small) literature on experimental tests of (anti-)corruption measures and adds evidence to the (mixed) results on gender effects and the on-going discussion on the need for sociodemographic controls.
    Keywords: Corruption, anti-corruption mechanisms, optimal contract, monitoring
    JEL: C91 D02 D73 K42
    Date: 2008–11
  4. By: Marco Castillo; Ragan Petrie; Maximo Torero; Angelino Viceisza
    Abstract: Crime in the mail sector can hamper the development of electronic markets. We use a field experiment to detect crime and measure its differential impacts. We subtly, and realistically, manipulate the content and information available in mail sent to households and detect high levels of shirking and stealing. Eighteen percent of the mail never arrived at its destination, and even more was lost if there was even a slight hint of something additional inside the envelope. Our study demonstrates that privatization has been unable to extricate moral hazard and that crime is strategic and not equally distributed across the population.
    Date: 2009–01
  5. By: Eric Langlais
    Abstract: The purpose of this note is to investigate the optimal enforcement of the penal code when criminals invest in a specific class of avoidance activities termed dissembling activities (i.e. self-protection efforts undertaken by criminals to hedge their illegal gains in case of detection and arrestation). We show that the penal law may have two different screening effects: it may separate the population of potential criminals between those who commit the crime and those who do not, and in the former group, between those who undertake dissembling efforts and those who do not. Then, we show that it is never optimal to use less than the maximal fine in contrast to what may occur with avoidance detection (i.e. efforts undertaken in order to reduce the probability of arrestation: MALIK [1990]); and furthermore, that the optimal penal code may imply overdeterrence. Finally, we show that any reform of the penal code has ambiguous effects when criminals undertake dissembling activities which are a by-product of illegal activities, since increasing the maximum possible fine may increase or decrease the number of crimes committed and may increase or decrease the proportion of illegal gains hedged by criminals.
    Keywords: deterrence, dissembling activities, optimal enforcement of law
    JEL: D81 K42
    Date: 2008
  6. By: Richard Chisik (Department of Economics, Florida International University)
    Abstract: Recent work demonstrates the importance of developing high quality output in order to compete in export markets and other recent studies verify the prevalence of fixed and ongoing trade costs while participating in those markets. I consider the joint choice of quality and export promotion costs when trade relationships are subject to temporary disputes. When transparency is low and macroeconomic instability is high, disputes arrive more frequently and, therefore, firms may inefficiently choose lower levels of quality and export promotion. These, in turn, build shallower trading relationships with less trade volumes and higher tariffs, and generate greater trade reductions during the more common trade disputes. Several institutional features of the WTO that are generally lacking in preferential trade agreements such as improved transparency, dispute investigation, and the provision to recommend asymmetric continuation payoffs can ameliorate these inefficient quality choice outcomes. Hence, lower quality output and lower quality trading relationships may be more endemic to countries that depend on preferential trading areas as opposed to the WTO.
    Keywords: Quality Choice, Irreversibilities, Economic Integration Dispute Settlement, Dynamic Games, WTO, Preferential Trade Agreements
    JEL: F13 F15 C73 K33
    Date: 2009–01
  7. By: Richard Chisik (Department of Economics, Florida International University)
    Abstract: The broadened scope of the GATT/WTO through successive rounds of trade liberalization is explained as a result of trade partner specificity and cross retaliation or linked punishments. In more recent years, however, countries have pursued trade liberalization through sector specific zero-for-zero agreements and preferential trade agreements, both of which have a reduced chance of suffering cross retaliation. This increase in unlinked agreements can be explained by the inclusion of imperfect observability into our model. If the dispute generating noise is perfectly correlated across sectors, however, then it provides no reason not to link agreements in a static sense and in many cases incremental (or successive round) linking can still generate more liberalization than static linking. It is only when the noise is imperfectly correlated that linking becomes problematic so that some sectors can enforce more liberalization in an unlinked agreement. As the correlation drops and/or the noise increases, static and incremental linking become increasingly burdensome. A further detriment to linking agreements is the number of sectors already covered. There is a natural limit to the number of linked agreements (that depends on the correlation between the noise terms) so that when facing a mature agreement that links many sectors, further liberalization will eventually be pursued through unlinked agreements.
    Keywords: Trade Disputes, WTO, Dispute Settlement, Dynamic Games.
    JEL: F13 F15 C73 F51 F53 K33
    Date: 2009–02

This issue is ©2009 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.