New Economics Papers
on Law and Economics
Issue of 2009‒02‒14
eleven papers chosen by
Jeong-Joon Lee, Towson University

  1. Living in Two Neighborhoods – Social Interaction Effects in the Lab By Armin Falk; Urs Fischbacher; Simon Gaechter
  2. Labour market institutions in Hungary with a focus on wage and employment flexibility By Hedvig Horváth; Zoltán Szalai
  3. Non-comparative versus Comparative Advertising as a Quality Signal By Winand Emons; Claude Fluet
  4. Crime and the Labour Market: Evidence from a Survey of Inmates By Entorf, Horst
  5. The Effect of Dental Hygiene Regulation on Access to Care By Tanya Wanchek
  6. Patent Protection, Takeovers, and Startup Innovation: A Dynamic Approach By Andreas Panagopoulos; In-Uck Park
  7. Do Shorter Product Cycles Induce Patent Thickets? By Beschorner, Patrick Frank Ernst
  8. Ex Post Regulation Facilitates Collusion By Beschorner, Patrick Frank Ernst
  9. Statute Law or Case Law? By Luca Anderlini; Leonardo Felli; Alessandro Riboni
  10. A note on non-competes, bargaining and training by firms By Nicola Meccheri
  11. The Economic Drivers of Human Trafficking: Micro-Evidence from Five Eastern European Countries By Toman Omar Mahmoud; Christoph Trebesch

  1. By: Armin Falk (University of Bonn); Urs Fischbacher (University of Konstanz); Simon Gaechter (University of Nottingham)
    Abstract: Field evidence suggests that people belonging to the same group often behave similarly, i.e., behavior exhibits social interaction effects. We conduct a laboratory experiment that avoids the identification problem present in the field and allows us to study the behavioral logic of social interaction effects. Our novel design feature is that each subject is simultaneously a member of two randomly assigned and identical groups where only members (‘neighbors’) are different. We study behavior in a coordination game with multiple equilibria and a public goods game, which has only one equilibrium in material payoffs. We speak of social interactions if the same subject at the same time makes group-specific decisions that depend on their respective neighbors’ decisions. We find that a majority of subjects exhibits social interaction effects both when the game has multiple equilibria in material payoffs and when it only has one equilibrium.
    Keywords: Social interactions, identification, experiments, coordination, cooperation
    JEL: C91 H41 K42 H26
    Date: 2009–01
  2. By: Hedvig Horváth (Central European University); Zoltán Szalai (Magyar Nemzeti Bank)
    Abstract: It is widely believed today, that the operation of the labour markets is influenced by institutional factors, affecting macroeconomic adjustment in response to shocks. In this way, labour market institutions affect both cyclical and long-term growth and inflation performance of an economy. The aim of our paper is to review the operation of Hungarian labour market institutions from the point of view of labour market flexibility and find its place in international comparison in the light of existing stock of knowledge on the subject. We describe the institutional setup of the labour markets through seven dimensions (unemployment generosity, tax wedge, active labour market policies, employment protection legislation, product market regulation, union density and coverage and wage bargaining institutions) for which internationally comparable data are available. We conclude that the Hungarian labour market institutions are rather flexible in EU-comparison. However, tax wedge is high and the active labour market policies still perform poorly, both contributing to weak employment.
    Keywords: wage flexibility, unemployment, labour market institutions, product market regulation, policy complementarity.
    JEL: J31 J51 K20 L43
    Date: 2008
  3. By: Winand Emons; Claude Fluet
    Abstract: Two firms produce a product with a horizontal and a vertical characteristic. We call the vertical characteristics 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: 2009
  4. By: Entorf, Horst (University of Frankfurt)
    Abstract: In this paper data from a survey of 1,771 inmates conducted in 31 German prisons provide microeconometric evidence on the relationship between individual anticipated labour market opportunities and the perceived probability of future recidivism. Results show that inmates with poor labour market prospects expect a significantly higher rate of future recidivism. Having a closer look at subgroups of prisoners reveals that drug and alcohol addiction cause adverse effects. Thus, improving prisoner health care by installing effective anti-drug programmes would be one of the most effective measures against crime.
    Keywords: inmates survey, recidivism, job opportunities, illicit drug use
    JEL: J38 J68 K42
    Date: 2009–01
  5. By: Tanya Wanchek (Center for Economic and Policy Studies)
    Abstract: By specializing in preventative oral healthcare, dental hygienists (DHs) have the potential to improve oral health in the United States. DHs decrease the cost and increase the availability of oral healthcare beyond what would be provided by dentists alone. Yet, laws and regulations in many U.S. states prevent DHs from fulfilling their potential. A prior study by Wing et al. (2005) found that states that impose more restrictions on the functions DHs are permitted to perform have lower wages and poorer oral health outcomes. This study adds entry restrictions, including educational and licensure requirements, to the analysis by developing a model in which a state’s entry and practice restrictions jointly affect the DH labor market and access to care. After evaluating anecdotal evidence from four case studies, we estimate the effect of variations in entry and practice restrictions across the U.S. using a three stage least squares (3SLS) estimation method. The results are consistent with the hypotheses that entry restrictions reduce employment rates, practice restrictions increase productivity and wage rates, and wage and employment rates are endogenous to each other and jointly influence access to care. The implication for states seeking to improve oral health is that both entry and practice laws and regulations must be considered jointly in order to significantly improve access to care.
    Keywords: Oral health, dental hygiene regulation, occupational licensure
    JEL: J44 I11 K23 J21
    Date: 2009–01–29
  6. By: Andreas Panagopoulos; In-Uck Park
    Abstract: The impact of IP protection on the innovation incentives of startup firms is examined in a dynamic model where an incumbent faces a sequence of potential startups and the incumbent's chance of winning an infringement lawsuit increases with the size of its patent portfolio. It is shown that takeover deals generate extra benefits for the incumbent via its enhanced future bargaining positions, a part of which accrues to the current startup as an increased bargaining share. This increased bargaining share can be large enough to justify the startup's innovation activity that would not have taken place otherwise. This effect may be greatest under moderate levels of IP protection, because the increase in the bargaining share, being proportional to the marginal benefits brought by the last patent added to the portfolio, would be too small if the protection was too weak while it would taper off too quickly if the protection was excessive.
    Keywords: Patent litigation, takeovers, patent portfolios
    JEL: O31 O34 L21 L24 K0
    Date: 2008–05
  7. By: Beschorner, Patrick Frank Ernst
    Abstract: The traditional argument that shorter product cycles favor trade secret over patenting is reviewed. A game theoretic model provides an argument that shorter product cycles can induce firms to file more patent applications. The firms may be trapped in a prisoners' dilemma where all firms would jointly prefer to patent less and to not have a patent thicket. If firms start applying for patents on technologies which are not yet mature in order to cover ideas that may eventually turn successful, this may create a patent thicket. The transition into a situation where firms start patenting many ideas instead of single mature technologies is initiated and accelerated when network effects are present or patents exhibit a blocking property.
    Keywords: patent thicket, product cycles, licensing, network effects
    JEL: K2 L1 L2 O31
    Date: 2008
  8. By: Beschorner, Patrick Frank Ernst
    Abstract: Under ex ante access regulation entrants often claim that access fees are excessive. I show that this is only the case if further entry is admitted. If the entrant is protected from further entry it would agree with the incumbent upon a strictly positive access fee which may exceed the efficient level. Ex post regulation facilitates this type of collusion and should be abandoned.
    Keywords: entry deterrence, access regulation, network infrastructure, vertical differentiation
    JEL: K21 K23 L42 L51
    Date: 2008
  9. By: Luca Anderlini; Leonardo Felli; Alessandro Riboni
    Abstract: In a Case Law regime Courts have more flexibility than in a Statute Law regime. Since Statutes are inevitably incomplete, this confers an advantage to the Case Law regime over the Statute Law one. However, all Courts rule ex-post, after most economic decisions are already taken. Therefore, the advantage of flexibility for Case Law is unavoidably paired with the potential for time-inconsistency. Under Case Law, Courts may be tempted to behave myopically and neglect ex-ante welfare because, ex-post, this may afford extra gains from trade for the parties currently in Court. The temptation to behave myopically is traded off against the effect of a Court's ruling, as a precedent, on the rulings of future Courts. When Case Law matures this temptation prevails and Case Law Courts succumb to the time-inconsistency problem. Statute Law, on the other hand pairs the lack of flexibility with the ability to commit in advance to a given (forward looking) rule. This solves the time-inconsistency problem afflicting the Case Law Courts. We conclude that when the nature of the legal environment is sufficiently heterogeneous and/or changes sufficiently often, the Case Law regime is superior: flexibility is the prevailing concern. By the same token, when the legal environment is sufficiently homogeneous and/or does not change very often, the Statute Law regime dominates: the ability to overcome the time-inconsistency problem is the dominant consideration.
    Keywords: Statute Law, Case Law, Flexibility, Rigidity, Time-Inconsistency, Precedents
    JEL: C79 D74 D89 K40 L14
    Date: 2008
  10. By: Nicola Meccheri
    Abstract: This paper analyzes how non-competes, via wage bargaining, can affect firms’ incentives to provide their employees with on-the-job training. The results show that non-competes increase incentives to provide general training, but reduce those related to specific training.
    Keywords: non-competes, bargaining, general training, specific training
    JEL: J24 J41 K31
    Date: 2008–01–01
  11. By: Toman Omar Mahmoud; Christoph Trebesch
    Abstract: Human trafficking is a humanitarian problem of global scale, but quantitative research on the issue barely exists. This paper is a first attempt to explore the economic drivers of human trafficking and migrant exploitation using micro data. We argue that migration pressure combined with informal migration patterns and incomplete information are the key determinants of human trafficking. To test our argument, we use a unique new dataset of 5513 households from Belarus, Bulgaria, Moldova, Romania, and Ukraine. The main result is in line with our expectations: Migrant families in high migration areas and with larger migrant networks are much more likely to have a trafficked victim among their members. Our results also indicate that illegal migration increases trafficking risks and that awareness campaigns and a reduction of information asymmetries might be an effective strategy to reduce the crime
    Keywords: Human Trafficking, Migrant Exploitation, Illegal Migration, Migration Networks, Eastern Europe
    JEL: F22 J61 K42 O17
    Date: 2009–02

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