New Economics Papers
on Law and Economics
Issue of 2009‒01‒17
fifteen papers chosen by
Jeong-Joon Lee, Towson University

  1. Federal Securities Regulations and Stock Market Returns By Tung Liu; Courtenay C. Stone; Gary J. Santoni
  2. International Technology Transfer for Climate Policy By David Popp
  3. Non-comparative versus Comparative Advertising as a Quality Signal By Winand Emons; Claude Fluet
  4. Free Riders, Holdouts, and Public Use: A Tale of Two Externalities By Thomas J. Miceli
  5. Global Democracy: In the Beginning By Robert E. Goodin
  6. Immigration and crime: an empirical analysis By Milo Bianchi; Paolo Buonanno; Paolo Pinotti
  7. The Relevance of Judicial Procedure for Economic Growth By Bernd Hayo; Stefan Voigt
  8. Maximal Cartel Pricing and Leniency Programs By Harold Houba; Evgenia Motchenkova; Quan Wen
  9. Trade and Expropriation: A Factor Proportions Approach By Arghya Ghosh; Peter Robertson
  10. Enforcement and Environmental Quality in a Decentralized Emission Trading System By Edilio Valentini; Edilio Valentini
  11. Voluntary Cleanups and Redevelopment Potential: Lessons from Baltimore, Maryland By Anna Alberini; Dennis Guignet
  13. Bankruptcy: Is It Enough to Forgive or Must We Also Forget? By Ronel Elul; Piero Gottardi
  14. Regulation and Distrust By Philippe Aghion; Yann Algan; Pierre Cahuc; Andrei Shleifer
  15. The Effects of Pharmaceutical Marketing and Promotion on Adverse Drug Events and Regulation By Guy David; Sara Markowitz; Seth Richards

  1. By: Tung Liu (Department of Economics, Ball State University); Courtenay C. Stone (Department of Economics, Ball State University); Gary J. Santoni (Department of Economics, Ball State University)
    Abstract: This paper uses the EGARCH-M model to examine the impact of federal securities statutes on the mean and variance of total real U.S. stock market returns. In contrast to previous work, this study employs a longer time period, utilizes a broader array of stocks and examines the impact of eight major federal securities acts and their 573 amendments from 1933 through 2007. Despite the popular appeal of this legislation, our results indicate that these federal securities statutes and amendments have had no statistical impact on the mean or variance of total real stock returns over the past 75 years.
    Keywords: securities regulations, SEC, GARCH, stock returns
    JEL: C22 G38 K22
    Date: 2008–12
  2. By: David Popp (Center for Policy Research, Maxwell School of Citizenship and Public Affairs, 426 Eggers Hall, Syracuse University, Syracuse, New York USA 13244-1020)
    Abstract: While the developed world is starting to limit emissions of greenhouse gases, emissions from the developing world are increasing as a result of economic growth. Reducing these emissions while still enabling developing countries to grow requires the use of new technologies. In most cases, these technologies are first created in high-income countries. Thus, the challenge for climate policy is to encourage the transfer of these climate-friendly technologies to the developing world. This policy brief reviews the economic literature on environmental technology transfer. It then discusses the implications of this literature for climate policy, focuing on the Clean Developmenht Mechanism (CDM) ofthe Kyoto Protocol. It concludes by asking whether the current structure of the CDM provides sufficient incentives for technology transfer. Are CDM projects providing real emissions reductions, or are developed countries simply receiving credit for reductions that developing countries could have achieved on their own? What lessons can we learn from recent experience that may guide the development of the CDM (or other similar policy tools) during the next round of international climate policy negotiations?
    Keywords: Kyoto Protocol, greenhouse gases, global warming, clean development mechanism, carbon dioxide, GHG emissions, sustainability
    JEL: D43 F23 K32 L24 L71 O3 Q5
    Date: 2008–10
  3. By: Winand Emons; Claude Fluet
    Abstract: Two firms produce a product with a horizontal and a vertical characteristic. We call the vertical characteristic quality. The difference in the quality levels determines how the firms share the market. Firms know the quality levels, consumers do not. Under non-comparative advertising a firm may signal its own quality. Under comparative advertising firms may signal the quality differential. In both scenarios the firms may attempt to mislead at a cost. If firms advertise, in both scenarios equilibria are revealing. Under comparative advertising the firms never advertise together which they may do under non-comparative advertising.
    Keywords: advertising; costly state falsification; signalling
    JEL: D82 K41 K42
    Date: 2008–12
  4. By: Thomas J. Miceli (University of Connecticut)
    Abstract: Free riders and holdouts are market failures that potentially impede the completion of otherwise beneficial transactions. The key difference is that the free rider problem is a demand side externality that requires taxation to compel payment for a public good, while the holdout problem is a supply side externality that requires eminent domain to force the sale of land for large scale projects. This paper highlights that distinction between these two problems and uses the resulting insights to clarify the meaning of the public use requirement of the Fifth Amendment takings clause.
    Keywords: Eminent domain, free riders, holdouts, public use, takings
    JEL: H41 K11
    Date: 2009–01
  5. By: Robert E. Goodin (Philosophy Program, Research School of Social Sciences, Australian National University)
    Abstract: Talk about global democracy seems to be fixated on a Reform-Act model of democracy, with 'one person one vote for all affected by the decisions' as for example in a second popularly-apportioned chamber of UN. Politically, that seems wildly unrealistic. But remember that the Reform Acts came very late in process of democratization domestically. The first steps in the beginning that eventually led to full democratization of that sort were: a) limiting the arbitrary rule on the part of the sovereign; and (b) making the sovereign accountable to others (initially a limited set of others, which then expanded). Globally, there are moves afoot globally in both those directions. And once those pieces are in place, there are good reasons for expecting the circle of accountability basically only to expand and virtually never to contract.
    Keywords: global democracy, accountability, rule of law
    JEL: F53 H11 K33 N40
    Date: 2008–05
  6. By: Milo Bianchi (Paris School of Economics); Paolo Buonanno (Università di Bergamo); Paolo Pinotti (Banca d'Italia)
    Abstract: In this paper we examine the empirical relationship between immigration and crime across Italian provinces during the period 1990-2003. Drawing on police data, we first document that the size of the immigrant population is positively correlated with the incidence of property crimes and with the overall crime rate. We then use instrumental variables based on migration towards other European countries to identify the causal impact of exogenous changes in the immigrant population of Italy. According to these estimates, immigration increases only the incidence of robberies and has no effect on all other types of crime. Since robberies represent a very small fraction of all criminal offences, the effect on the overall crime rate is not significantly different from zero.
    Keywords: immigration, crime
    JEL: F22 J15 K42 R10
    Date: 2008–12
  7. By: Bernd Hayo (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Stefan Voigt (Faculty of Business Administration and Economics, Philipps Universitaet Marburg)
    Abstract: It has been argued that procedural formalism undermines economic efficiency by fostering rent-seeking and corruption. We challenge this view by arguing that a number of judicial procedures foster economic growth by increasing the predict-ability of court decisions, which leads to more transactions and higher investment levels. We investigate the effects on economic growth of 15 judicial procedures. Employing a standard growth model, we find in a cross-section of 67 countries that timeliness, written—as opposed to oral—procedures, and the right to counsel have a positive effect on growth, whereas the number of independent procedural actions as well as the presumption of innocence have negative effects. Our results partially contradict the results of former studies based on the Lex Mundi dataset.
    Keywords: Judicial procedure, legal formalism, judicial Independence, rule of law, investment, growth.
    JEL: H11 K40 P51
    Date: 2008
  8. By: Harold Houba (VU University Amsterdam); Evgenia Motchenkova (VU University Amsterdam); Quan Wen (Vanderbilt University, Nashville (TN), USA)
    Abstract: For a general class of oligopoly models with price competition, we analyze the impact of ex-ante leniency programs in antitrust regulation on the endogenous maximal-sustainable cartel price. This impact depends upon industry characteristics including its cartel culture. Our analysis disentangles the effects of traditional antitrust regulation and the leniency program. Ex-ante leniency programs are effective if and only if these offer substantial rewards to the self-reporting firm. This is in contrast to currently employed programs that are therefore ineffective.
    Keywords: Cartel; Antitrust Policy; Antitrust Law; Antitrust regulation; Leniency program; Self-reporting; repeated game
    JEL: L41 K21 C72
    Date: 2008–12–17
  9. By: Arghya Ghosh (School of Economics, The University of New South Wales); Peter Robertson (School of Economics, The University of New South Wales)
    Abstract: An extended small open economy model is developed and used to examine the effect of trade on the illicit expropriation of incomes and the provision of legal services. We derive conditions under which trade liberalization will reduce expropriation activities. We also derive sufficient conditions for the gains from trade to be amplified or muted relative to the standard model. The signs of these effects depend on factor intensity rankings and factor abundance ratios. Thus the results show that trade liberalization will be beneficial to countries that export labor intensive goods by reducing the incentives for illicit expropriation and reducing the costs of providing legal services. The model also shows that trade liberalization can increase expropriation, particularly for countries that import labor intensive goods and have labor intensive crime problems.
    Keywords: Expropriation; Factor Proportions; Gains from Trade; Legal Services
    JEL: F1 K42
    Date: 2008–10
  10. By: Edilio Valentini (Università "G. D'Annunzio" di Chieti-Pescara); Edilio Valentini (Università "G. D'Annunzio" di Chieti-Pescara)
    Abstract: This paper addresses the issue of whether the powers of monitoring compliance and allocating tradeable emissions allowances within a federation of countries should be appointed to a unique federal regulator or decentralized to several local regulators. To this end, we develop a two stage game played by environmental regulator(s) and the polluting industries of two countries. Regulator(s) choose the amount of emission allowances to be issued and set the level of monitoring effort to achieve full compliance, while regulated firms choose actual emissions and the number of permits to be held. We identify various, possibly conflicting, spillovers among states in a decentralized setting. We show that cost advantage in favor of local regulators is not sufficient to justify decentralization. Nevertheless, cost differential in monitoring violations can imply lower emissions and greater welfare under a decentralized institutional setting than under a centralized one. However, while a better environmental quality under decentralization is a sufficient condition for higher welfare under the same regime, it is not also a necessary condition.
    Keywords: Emissions Trading, Environmental Federalism, Enforcement, Monitoring Cost
    JEL: F18 K42 Q53
    Date: 2008–12
  11. By: Anna Alberini (University of Maryland); Dennis Guignet (University of Maryland)
    Abstract: Policy has increasingly shifted towards economic incentives and liability attenuation for promoting cleanup and redevelopment of contaminated sites, but little is known about the effectiveness of such policies. An example of such legislation is State Voluntary Cleanup Programs (VCPs), which were established in the US in the 1990s and to date have been implemented in almost every state. We examine Baltimore properties that participated in the Maryland VCP from its inception in 1997 to the end of 2006. Specifically, we examine what type of properties tend to participate in these programs, how these properties compare to other eligible but non-participating sites, and what is the redevelopment potential of VCP properties and implications towards open space conversion. We find that most applicants (66%) actually requested a “No Further Action Determination” directly, rather than proposing cleanup. VCP properties tend to be industrial, located in industrial areas, and away from residential neighborhoods. In more recent years larger industrial properties have increasingly enrolled in the program. The majority of sites are reused as industrial or commercial. In contrast to Alberini (2007), this suggests that pressure for residential development does not drive VCP participation. Based on differences in zoning requirements, the VCP may reduce demand for potentially contaminating activities on pristine land by as much as 1,238 to 6,444 acres, in Baltimore alone.
    Keywords: Brownfields, Contaminated Sites, Voluntary Cleanup Programs, Incentives
    JEL: R14 Q58 K32
    Date: 2008–10
  12. By: NWAOBI, GODWIN (Quantitative Economics Research Bureau)
    Abstract: Nigeria was incorporated in 1914 when Frederick Lugard (First Governor General) amalgamated the two British protectorates of Northern and Southern Nigeria and the Crown Colony of Lagos into a single entity. The primary reason for amalgamation was economic rather then political. It is therefore, a matter for great regret that this country (Nigeria) has sulfured as a result of the all-pervasive disunity that has characterized all government action since our accession to independence in 1960. This disunity has distorted, complicated and to a large extent stultified every development effort undertaken by government. This paper therefore argents that the much-celebrated Nigeria reform progress might be rhetoric or much ado about nothing. And that the âÃÂÃÂBB-, BB and BâÃÂàrating of the Nigerian economy might have been a baseless exercise. Consequently, the paper recommends the adoption of e-governance (development) as a therapy for a heterogeneous and divisible nation such as Nigerian (Ceteris Paribus).
    Keywords: war; nigeria; biafra; ethnicity; trabalism; regionalcrises; disturbances; policy; democracy; governance-voting; elections; economy; corruption; coup; constitution; nigerdelta
    JEL: G30 H10 H70 K40 P16 Z10
    Date: 2009–01–05
  13. By: Ronel Elul; Piero Gottardi
    Abstract: In many countries, lenders are restricted in their access to information about borrowers’ past defaults. We study this provision in a model of repeated borrowing and lending with moral hazard and adverse selection. We analyze its effects on borrowers’ incentives and access to credit, and identify conditions under which it is optimal. We argue that “forgetting” must be the outcome of a regulatory intervention by the government. Our model’s predictions are consistent with the cross-country relationship between credit bureau regulations and provision of credit, as well as the evidence on the impact of these regulations on borrowers’ and lenders’ behavior.
    Keywords: Bankruptcy, Information, Incentives, Fresh Start
    JEL: D86 G33 K35
    Date: 2008
  14. By: Philippe Aghion; Yann Algan; Pierre Cahuc; Andrei Shleifer
    Abstract: In a cross-section of countries, government regulation is strongly negatively correlated with social capital. We document this correlation, and present a model explaining it. In the model, distrust creates public demand for regulation, while regulation in turn discourages social capital accumulation, leading to multiple equilibria. A key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt. We test this and other implications of the model using country- and individual-level data on social capital and beliefs about government’s role, as well as on changes in beliefs and in trust during the transition from socialism.
    JEL: K2 P5
    Date: 2009–01
  15. By: Guy David; Sara Markowitz; Seth Richards
    Abstract: This paper analyzes the relationship between postmarketing promotional activity and reporting of adverse drug events by modeling the interaction between a welfare maximizing regulator (the FDA) and a profit maximizing firm. In our analysis demand is sensitive to both promotion and regulatory interventions. Promotion-driven market expansions enhance profitability yet may involve the risk that the drug would be prescribed inappropriately, leading to adverse regulatory actions against the firm. The model exposes the effects of the current regulatory system on consumer and producer welfare. Particularly, the emphasis on safety over benefits distorts the market allocation of drugs away from some of the most appropriate users. We then empirically test the relationship between drug promotion and reporting of adverse reactions using an innovative combination of commercial data on pharmaceutical promotion and FDA data on regulatory interventions and adverse drug reactions. We provide some evidence that increased levels of promotion and advertising lead to increased reporting of adverse medical events for certain conditions.
    JEL: I1 K0 K2
    Date: 2009–01

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