New Economics Papers
on Law and Economics
Issue of 2011‒01‒30
seven papers chosen by
Jeong-Joon Lee, Towson University

  1. Indirect Effects of a Policy Altering Criminal Behaviour: Evidence from the Italian Prison Experiment By Drago, Francesco; Galbiati, Roberto
  2. Turning 18: What a Difference Application of Adult Criminal Law Makes By Entorf, Horst
  3. Immigration, integration and terrorism: is there a clash of cultures? By Justina AV Fischer
  4. A tale of three countries, dispersed ownership and greater risk taking levels by management: risk monitoring tools in bank regulation and supervision – developments since the collapse of Barings Plc (re – visited) By Ojo, Marianne
  5. Crime and Punishment Revisited By Kelaher, Richard; Sarafidis, Vasilis
  6. Development of auditing in Malaysia: legal, political and historical influences By Azham, Ali; Teck Heang, Lee; Yusof, Nor Zalina; Ojo, Marianne
  7. Assessing China's Top-Down Securities Markets By William T. Allen; Han Shen

  1. By: Drago, Francesco (University of Naples, Parthenope); Galbiati, Roberto (CNRS)
    Abstract: We exploit the Collective Clemency Bill passed by the Italian Parliament in July 2006 to evaluate the indirect effects of a policy that randomly commutes actual sentences to expected sentences for 40 percent of the Italian prison population. We estimate the direct and indirect impact of the residual sentence – corresponding to a month less time served in prison associated with a month of expected sentence – at the date of release on individual recidivism. Using prison, nationality and region of residence to construct reference groups of former inmates, we find large indirect effects of this policy. In particular, we find that the reduction in the individuals' recidivism due to an increase in their peers’ residual sentence is at least as large as their response to an increase in their own residual sentence. From this result we estimate a social multiplier in crime of 2.
    Keywords: crime, social interactions, indirect effects
    JEL: K00 C90
    Date: 2010–12
  2. By: Entorf, Horst (Goethe University Frankfurt)
    Abstract: This paper contributes to the literature on specific deterrence by addressing the issue of selecting adolescents into adult and juvenile law systems. In Germany, different from the U.S. and most other countries, turning a critical cutoff age does not cause a sharp discontinuity from juvenile to adult penal law, but rather implies a shift to a discretionary system of both adult and juvenile law, dependent on the courts' impression of moral and mental personal development of the adolescent at the time of the act. The German legal system draws the line of adulthood at some fuzzy age interval between 18 and 21, which is well above the thresholds prevailing in the U.S. (16 to 18 years, state specific) and other countries such that the German evidence entails some external evidence to the previous literature mostly relying on U.S. data. Based on a unique inmate survey and two-equation models controlling for selectivity problems, results show that application of adult criminal law instead of juvenile penal law decreases expected recidivism of adolescents.
    Keywords: crime, recidivism, treatment effects, selection, survey data
    JEL: K14 C52 K42 H11
    Date: 2011–01
  3. By: Justina AV Fischer (:Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: We test whether immigrants are more prone to support terror than natives because of lower opportunity costs, using the international World Values Survey data. We show that, in general, economically, politically and socially non-integrated persons are more likely to accept using violence for achieving political goals, consistent with the economic model of crime. We also find evidence for the destructive effects of a ‘clash of cultures’: Immigrants in OECD countries who originate from more culturally distanced countries in Africa and Asia appear more likely to view using violence for political goals as justified. Most importantly, we find no evidence that the clashof-cultures effect is driven by Islam religion, which appears irrelevant to terror support. As robustness test we relate individual attitude to real-life behavior: using country panels of transnational terrorist attacks in OECD countries, we show that the population attitudes towards violence and terror determine the occurrence of terror incidents, as does the share of immigrants in the population. A further analysis shows a positive association of immigrants from Africa and Asia with transnational terror, while the majority religion Islam of the sending country does not appear to play a role. Again, we find that culture defined by geographic proximity dominates culture defined by religion.
    Keywords: K42, H56, O15, D74, Z1
    JEL: K42 H56 O15 D74 Z1
    Date: 2011–01–20
  4. By: Ojo, Marianne
    Abstract: This paper is aimed at explaining why higher concentrations of the ownership of large firms do not necessarily and automatically facilitate lower risk taking levels – where there is scope for the abuse of powers. As well as illustrating why effective corporate governance systems are essential in facilitating high levels of monitoring, accountability and disclosure, the paper also highlights why a consideration of the costs of ownership concentration and its benefits, is required in determining whether corporate governance systems will be effective or not.
    Keywords: corporate governance; ownership structures; banks; risk; regulation; monitoring; disclosure; accountability; liquidity; internal controls
    JEL: K2 G2 G3 D8
    Date: 2011–01–14
  5. By: Kelaher, Richard; Sarafidis, Vasilis
    Abstract: Despite an abundance of empirical evidence on crime spanning over forty years, there exists no consensus on the impact of the criminal justice system on crime activity. We argue that this may be due to the combined effect of simultaneity, omitted variable bias and aggregation bias that may confound many of these studies. We construct a new panel data set of local government areas in Australia and develop a testing framework for the implications of economic theory on crime behaviour. The empirical results suggest that the criminal justice system can potentially exert a much greater influence on crime activity than is the common view in the literature. In addition, we find that increasing the risk of apprehension and conviction is more influential in reducing crime than raising the expected severity of punishment. Violent crime is more persistent and relatively less responsive to law enforcement policies compared to non-violent crime.
    Keywords: Crime; deterrence; simultaneity; omitted variable bias; aggregation bias; panel data; GMM.
    JEL: C23 K42
    Date: 2011–01–11
  6. By: Azham, Ali; Teck Heang, Lee; Yusof, Nor Zalina; Ojo, Marianne
    Abstract: This work investigates the role and contribution of external auditing as practised in the Malaysian society during the forty year period from independence in 1957 to just before the onset of the Asian Financial Crisis in 1997. It applies the political economic theory introduced by Tinker (1980) and refined by Cooper & Sherer (1984), which focuses on the social relations aspects of professional activity rather than economic forces alone. In a case study format where qualitative data was gathered mainly from primary and secondary source materials, the study found that the function of auditing in the Malaysian society in most cases is devoid of any essence of mission; instead it is created, shaped and transformed by the pressures which give rise to its development over time. The largely insignificant role that it serves is intertwined within the contexts in which it operates.
    Keywords: external audit; Malaysia; politics; history; economy; Companies Act 1965; Companies Act 1985; British Companies Acts; Accountants Act 1967; Asian Financial Crisis
    JEL: K2 M4
    Date: 2007–07
  7. By: William T. Allen; Han Shen
    Abstract: China’s securities markets are unlike those of Amsterdam, London or New York. Those markets evolved over centuries from myriad interactions among those seeking finance on the one hand and savers seeking rewarding investments on the other. Such spontaneous securities markets did emerge throughout China in the 1980s following the start of economic liberalization, but these spontaneous markets were closed by the government in favor of new and tightly controlled exchanges established in the early 1990s in Shanghai and Shenzhen. These new markets, have been designed to and largely limited to, serving state purposes, that is to assist in the financing of the state sector of the economy. Rather than evolving in a bottom-up pattern, they are controlled, top-down securities markets. This essay reviews as of June 2010, the development of these markets, the economic functions they perform, the regulatory structure that controls and shapes them, and the governance mechanisms - legal and otherwise - that controls the management of the PRC listed companies. These markets represent a signal accomplishment of the Chinese leadership in producing in less than twenty years’ modern, albeit not yet fully developed, securities markets. Whether they can be further developed to serve more basic economic role than they have been permitted to play is a question with which the essay concludes.
    JEL: K2 K22 O53 O57
    Date: 2011–01

This issue is ©2011 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.