New Economics Papers
on Law and Economics
Issue of 2012‒02‒20
thirteen papers chosen by
Jeong-Joon Lee, Towson University

  1. Laws and Norms By Benabou, Roland; Tirole, Jean
  2. Monitoring and enforcement of environmental regulations. Lessons from a natural field experiment in Norway By Kjetil Telle
  3. Crime and the transition to marriage. The roles of gender and partner’s criminal involvement By Christian Weisæth Monsbakken, Torkild Hovde Lyngstad, Torbjørn Skardhamar
  4. The effect of tourism on crime in Italy: a dynamic panel approach By Bianca Biagi; Maria Giovanna Brandano; Claudio Detotto
  5. Limited liability and shares’ pricing: sufficient but not necessary By Paolo Maggioni
  6. The introduction of limited liability in nineteenth century England By Paolo Maggioni
  7. Right to the city and critical reflections on property rights activism in China’s urban renewal contexts By Hyun Bang Shin
  8. Economic Analysis of Pay-for-delay Settlements and Their Legal Ruling By Gratz, Linda
  9. Standards and Incentives under Moral Hazard with Limited Liability By Reinshagen, Felix
  10. What is Systemic Risk and what can be done about it? A Legal Perspective By Joanna Gray
  11. Attorney empowerment in Voir Dire and the racial composition of juries By Lehmann, Jee-Yeon; Smith, Jeremy
  12. Police and Crime Against Firms in Developing Economies By Islam, Asif
  13. Is There a Gender Bias in Crime Against Firms for Developing Economies? By Islam, Asif

  1. By: Benabou, Roland (Princeton University); Tirole, Jean (IDEI)
    Abstract: This paper analyzes how private decisions and public policies are shaped by personal and societal preferences ("values"), material or other explicit incentives ("laws") and social sanctions or rewards ("norms"). It first examines how honor, stigma and social norms arise from individuals' behaviors and inferences, and how they interact with material incentives. It then characterizes optimal incentive-setting in the presence of norms, deriving in particular appropriately modified versions of Pigou and Ramsey taxation. Incorporating agents' imperfect knowledge of the distribution of preferences opens up to analysis several new questions. The first is social psychologists' practice of "norms-based interventions", namely campaigns and messages that seek to alter people's perceptions of what constitutes "normal" behavior or values among their peers. The model makes clear how such interventions operate, but also how their effectiveness is limited by a credibility problem, particularly when the descriptive and prescriptive norms conflict. The next main question is the expressive role of law. The choices of legislators and other principals naturally reflect their knowledge of societal preferences, and these same "community standards" are also what shapes social judgements and moral sentiments. Setting law thus means both imposing material incentives and sending a message about society's values, and hence about the norms that different behaviors are likely to encounter. The analysis, combining an informed principal with individually signaling agents, makes precise the notion of expressive law, determining in particular when a weakening or a strengthening of incentives is called for. Pushing further this logic, the paper also sheds light on why societies are often resistant to the message of economists, as well as on why they renounce certain policies, such as "cruel and unusual punishments", irrespective of effectiveness considerations, in order to express their being "civilized".
    Keywords: motivation, incentives, esteem, reputation, honor, stigma, social norms, culture, taxation, law, punishments, norms-based interventions, expressive content
    JEL: D64 D82 H41 K1 K42 Z13
    Date: 2012–01
  2. By: Kjetil Telle (Statistics Norway)
    Abstract: Relying on a small natural field experiment with random assignment of treatments, I estimate effects of three core elements of most monitoring and enforcement practices: self-reporting, audit frequency and specific deterrence. I find evidence of evasive reporting of violations in self-audits, as more violations are detected in on-site audits than in self-audits. Announcing the increased audit frequency has no effect on compliance, but an audit raises the firm’s subsequent compliance substantially.
    Keywords: environmental regulation; enforcement; EPA; natural field experiment; random assignment
    JEL: K42 C93 Q58 D21 H41
    Date: 2012–02
  3. By: Christian Weisæth Monsbakken, Torkild Hovde Lyngstad, Torbjørn Skardhamar (Statistics Norway)
    Abstract: Several previous studies have argued that marriage leads to a decline in criminal propensity. Most of these studies have focused on men and have given little attention to the characteristics of their partner and events related to changes in offending. In this article, we use Norwegian registry data to study changes in the criminal propensity for all persons who married between 1995 and 2001 (117,882 women and 120,912 men). We link data on individuals to data on their marital partners and obtain information on partners’ criminal histories. We find that the changes in offending rates related to marriage are anticipatory and strongest for men. The changes in offending vary substantially by partner’s criminal history.
    Keywords: marriage; crime; social control; gender; assortative mating
    JEL: J12 K14 K49
    Date: 2012–02
  4. By: Bianca Biagi; Maria Giovanna Brandano; Claudio Detotto
    Abstract: The purpose of this paper is to demonstrate that all else being equal, for the case of Italy, tourist areas tend to have a greater amount of crime that non-tourist ones in the long run. Following the literature of the economics of crime à la Becker (1968) and Enrlich (1973) and using a System GMM approach for the time span 1985-2003, we empirically test whether total crime in Italy is affected by tourist arrivals. Findings confirm the initial intuition of a positive relationship between tourism and crime in destinations. When controlling for the difference in the propensity to be victimized between tourists and residents, no relevant differences are found - the likelihood to be victimized is quite similar for the two groups. As a consequence, the main explanation of the impact of tourism on crime seems to be agglomeration and urbanisation effects. One can image that overcrowded cities give more opportunities to criminals to commit illegal activities regardless of the share of visitors and residents in destinations.
    Keywords: tourism; crime; externalities
    JEL: K00 D62 L83
    Date: 2012
  5. By: Paolo Maggioni
    Abstract: Limited liability has been seen as crucial for the development of capital markets. In this paper I use the CAPM to analyze how a company is priced differently under different liability regimes. I reach the conclusion that as far as the pricing and liquidity of shares is concerned, the positive features of a limited liability regime are common to “pro rata†unlimited liability. The prevalence of the unlimited liability regime over regimes of unlimited liability, prorata (or joint and several) should then be traced in other benefits that limiting liability may bring. Literature and history point to the relationship between bankruptcy procedures and liability regimes as the area where the limited liability regimes may be more cost effective and easier to implement.
    Keywords: Corporation and Securities Law
    JEL: K22
    Date: 2011
  6. By: Paolo Maggioni
    Abstract: In this paper I have analysed the development of company law from 1720 through to 1857. During this long period of time, company law assumed the characteristics it has now. At the starting point, company law stood with incorporation granted by the Crown or Parliament on one side and partnership regulated by common law on the other. The development of the modern corporation needed the definition of what were the problems connected to the fact that a firm is run in association and what is the legal framework that allows to solve efficiently with the lowest costs these problems. In this paper I show that the introduction of limited liability gets its meaning from the exact definition of many other aspects of company life, such as bankruptcy procedures, directors’ power and responsibility, shareholders rights, publicity regime for company acts. Accordingly it’s shown that the introduction of the limited liability regime can’t be studied in isolation and it was just the last step in a complex development process.
    Keywords: Corporation and Securities Law
    JEL: K22
    Date: 2011
  7. By: Hyun Bang Shin
    Abstract: The rapid transformation of urban socio-spatial landscape in China has resulted in an increasing degree of frustration and discontent among local residents who face threats of demolition and eviction. This has given rise to sporadic protests by local residents who are often known as 'nail households', that is, persistent protesters who are fixed to the land and hold onto their dwellings in protest against unwilling eviction and demolition of their dwellings. The presence of these protesters provides an effective example of local residents' out cry in China. This paper is an attempt to critically re-visit the existing debates on local residents' property rights activism in urban redevelopment processes, and to discuss the extent to which it can be an effective strategy. The paper refers to the right-to-the-city debate to examine whose right counts in China's urban renewal contexts. It also makes use of empirical findings, both quantitative and qualitative, to examine how nail houses are received among local residents and migrants, and discusses the extent to which migrants can fit into local residents' struggle against the top-down imposition of neighbourhood transformation. The paper ultimately calls for the need to form a place-based alliance that enables urbanites including migrants to come together to launch an effective claim on their right to the city.
    Keywords: right to the city, property rights, urban renewal, nail houses, displacement, China
    JEL: I38 K42 O18 P26
    Date: 2011–12
  8. By: Gratz, Linda
    Abstract: In this paper, we ask whether courts should continue to rule settlements in the context of pharmaceutical claims per se legal, when these settlements comprise payments from originator to generic companies, potentially delaying generic entry compared to the underlying litigation. Within a theoretical framework we compare consumer welfare under the rule of per se legality with that under alternative standards. We find that the rule of per se legality induces maximal collusion among settling companies. In comparison, the rule of per se illegality entirely prevents collusion and the rule of reason induces limited collusion when antitrust enforcement is subject to error. Contrary to intuition, limited collusion can be welfare enhancing as it increases companies' expected settlement profits and thus fosters generic entry. Generic companies obtain additional incentives to challenge probabilistic patents, which potentially leads to overall increased competition. We further show that generic entry is fostered more effectively by inducing limited collusion than by rewarding first generic entrants with an exclusivity right.
    Keywords: antitrust and intellectual property law; patent settlements; collusion; per se rule; rule of reason; Hatch-Waxman Act
    JEL: I18 K40 L40 O34
    Date: 2012–02
  9. By: Reinshagen, Felix
    Abstract: We consider a model of moral hazard with limited liability of the agent and effort that is two-dimensional. One dimension of the agent’s effort is observable and the other is not. The principal can thusmake the contract conditional not only on outcome but also on observable effort. The principal’s optimal contract gives the agent no rent and – in contrast to the first-best allocation – uses toomuch observable effort and too little unobservable effort. This distortion in the relative use of the two kinds of effort increases if the agent’s liability becomes more limited.
    Keywords: moral hazard; two-dimensional effort; regulation
    JEL: D82 D86 K32
    Date: 2012–02
  10. By: Joanna Gray
    Abstract: The global financial crisis challenges scholars from across many different disciplines to think about causes, immediate consequences and long term responses from the perspective of their particular disciplinary standpoint. This paper focuses on one particular response to the landscape and architecture of financial regulation that results from the lessons about the need to better recognise and counter risk to the financial system as a whole as opposed to its constituent parts and participants. One important policy response to the challenges posed by systemic risk has been the construction of the emergent macroprudential regulatory agenda that is now beginning to take root in practical forms and institutional architecture within the global, European and national spaces within which norms, standards and laws operate. It is argued here that this emerging agenda will challenge lawyers and legal systems more than may be being currently imagined.
    Date: 2011–10–15
  11. By: Lehmann, Jee-Yeon; Smith, Jeremy
    Abstract: Giving attorneys more power in the voir dire (jury selection) process may allow them to 1) find grounds for dismissal of jurors whom they wish to strike on a priori grounds; 2) acquire information that enables them to identify favorably-inclined jurors more precisely; or both. Attorneys who are more skilled can better use such increased power to retain the jurors they prefer. We show theoretically that, because defense attorneys prefer non-white jurors a priori, the interaction of empowerment and defense attorney skill should produce juries with a greater proportion of non-whites if only the first mechanism is operative, but need not have this effect if the second is operative. We then examine these issues using a detailed dataset on all non-capital felony trials in four large and diverse counties over a two-year period. We find that skilled and empowered attorneys can indeed stack juries by retaining jurors predisposed to their side at a greater rate, and that the distribution of relative attorney skill in our data is such that defendants benefit on average. However, we find that empowerment has a small and insignificant impact on the racial composition of the seated jury, regardless of attorney skill.
    Keywords: Discrimination; Voir Dire; Jury; Attorney Empowerment; Race
    JEL: K0 D81 C73
    Date: 2011–11–16
  12. By: Islam, Asif
    Abstract: Economic theory predicts that a rise in police presence will reduce criminal activity. However several studies in the literature have found mixed results. This study adds to the literature by exploring the relationship between the size of police and crime against firms, an important issue especially for developing economies. Using data for about 12,000 firms in 27 developing countries we find that increasing the police force has a negative effect on crime against firms. We also find that several macro-economic factors can weaken or strengthen this negative effect. The results are robust to various sensitivity checks.
    Keywords: Crime; Firms; Development; Police Size
    JEL: O10 K42 O50
    Date: 2011–12–15
  13. By: Islam, Asif
    Abstract: The literature has typically found a positive relationship between crime rates and female headed households. Female headed households tend to indicate instability and vulnerability, and thus a positive relationship may not be surprising. This study explores the relationship between female owned firms and losses due to crime experienced by firms using data for about 12,000 firms in 27 developing countries. Although we do find a similar positive relationship between female owned firms and losses due to crime, the results may suggest that the reason may be a gender bias in the incidence of crime. We find similar results for female owned and managed firms and losses due to crime. We also find that several macro-economic factors can weaken or strengthen the relationship between crime and female ownership and management. The results are robust to various sensitivity checks.
    Keywords: Crime; Firms; Gender; Development
    JEL: O10 K42 O50 J16
    Date: 2012–01–26

This issue is ©2012 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.