New Economics Papers
on Law and Economics
Issue of 2012‒10‒20
six papers chosen by
Jeong-Joon Lee, Towson University

  1. Shadow Economies in Highly Developed OECD Countries: What Are the Driving Forces? By Schneider, Friedrich; Buehn, Andreas
  2. Corruption and competition for resources. By Bjorvatn, Kjetil; Søreide, Tina
  3. Notional contracts: The Moral economy of contract farming arrangements in India By Sudha Narayanan
  4. Private and Public Control of Management By Charles Angelucci; Martijn A. Han; ;
  5. Cartelization Through Buyer Groups By Chris Doyle; Martijn A. Han; ;
  6. Are Bar Associations Anticompetitive? An Empirical Analysis of Recommended Prices for Legal Services in Spain By Zurimendi, Aitor; Ciarreta Antuñano, Aitor; Espinosa Alejos, María Paz

  1. By: Schneider, Friedrich (University of Linz); Buehn, Andreas (Utrecht University)
    Abstract: In this paper the main focus lies on 'driving forces' of the development and size of the shadow economy in highly developed 39 OECD countries. The influential factors on the shadow economy are tax policies and state regulation, which, if they rise, increase the shadow economy, but also other factors like economic ones (unemployment) are considered, too. Specifically it is shown that the main driving forces are unemployment, self-employment and the tax burden, which have different weights in these 39 countries. Between 1999 and 2010 indirect taxes have by far the largest relative impact (29.4%), followed by self-employment (22.2%), unemployment (16.9%), personal income taxes (13.1%) and tax morale (9.5%).
    Keywords: state regulation, tax pressure, tax morale, shadow economy, undeclared work
    JEL: K42 H26 D78
    Date: 2012–10
  2. By: Bjorvatn, Kjetil (Dept. of Economics, Norwegian School of Economics and Business Administration); Søreide, Tina (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: An increasing share of world FDI is carried out by multinationals from developing countries. These investors may have objectives and constraints that di¤er from their developed country counterparts. In this paper we focus on differences in attitudes to corruption, and how these may shape the competition for the right to extract resources in a developing country context. We show how di¤erences in the investors’ level of technology and differences in the host country government's trade-o¤ between bribes and taxes determine who wins the competition for the resource and the winning price. We …nd that the entry of a corrupt investor may induce the honest investor to offer bribes instead of taxes. Surprisingly, however, our analysis also demonstrates that under some conditions, the entry of a corrupt investor may in fact induce the honest investor to increase its tax payments.
    Keywords: Corruption; FDI; auction; natural resources.
    JEL: K20 K40 O10
    Date: 2012–09–14
  3. By: Sudha Narayanan (Indira Gandhi Institute of Development Research)
    Abstract: This study examines the moral economy of firm-farmer contracts in contract farming schemes in India, bringing together data from field surveys, conducted between 2007 and 2010, of 42 agribusinesses and 484 contract farmers from multiple commodity sectors. The central argument of this paper is that contract farming relationships in India are seen more as relationships and less as contracts, with formal enforcement mechanisms playing only a peripheral role in maintaining and supporting transactions. This is related only in part to the costs and inefficacy of formal enforcement mechanisms. Both firms and farmers prefer to operate outside the prescribed legal-institutional structure whenever these structures are perceived to undermine the handshake ethic. The findings indicate that state policies that presume legal institutional development to be necessary and sufficient for promoting agribusiness interaction with farmers might be misplaced if not merely ineffective.
    Keywords: contract farming, private enforcement, moral economy, legal institutions, agriculture
    JEL: K49 L14
    Date: 2012–09
  4. By: Charles Angelucci; Martijn A. Han; ;
    Abstract: This paper investigates the design of a leniency policy to fight corporate crime. We explicitly take into account the agency problem within the firm. We model this through a three-tier hierarchy: authority, shareholder, and manager. The manager may breach the law and report evidence to the authority. The shareholder writes the manager’s incentive scheme, monitors him, and possibly reports evidence to the authority. Finally, the authority designs a sanctioning/leniency policy that deters corporate crime at the lowest possible cost. The authority designs its policy trying to both (i) exacerbate agency problems within non-compliant firms and (ii) alleviate agency problems within compliant firms. We find that depending on the authority’s ability to punish the manager, the authority may wish to instigate a “within-firm race to the courthouse”. We also provide comparative statics, carry a welfare analysis and discuss policy implications.
    Keywords: corporate crime, white-collar crime, leniency, compliance, antitrust
    JEL: K21 K42 L40
    Date: 2012–10
  5. By: Chris Doyle; Martijn A. Han; ;
    Abstract: Retailers may enjoy stable cartel rents in their output market through the formation of a buyer group in their input market. A buyer group allows retailers to credibly commit to increased input prices, which serve to reduce combined final output to the monopoly level; increased input costs are then refunded from suppliers to retailers through slotting allowances or rebates. The stability of such an “implied cartel” depends on the retailers’ incentives to secretly source from a supplier outside of the buyer group arrangement at lower input prices. Cheating is limited if retailers sign exclusive dealing or minimum purchase provisions. We discuss the relevancy of our findings for antitrust policy.
    Keywords: buyer groups, collusion, exclusive dealing, minimum purchase clauses, rebates
    JEL: K21 L13 L41 L42
    Date: 2012–10
  6. By: Zurimendi, Aitor; Ciarreta Antuñano, Aitor; Espinosa Alejos, María Paz
    Abstract: The European Commission Report on Competition in Professional Services found that recommended prices by professional bodies have a significant negative effect on competition since they may facilitate the coordination of prices between service providers and/or mislead consumers about reasonable price levels. Professional associations argue, first, that a fee schedule may help their members to properly calculate the cost of services avoiding excessive charges and reducing consumers’ searching costs and, second, that recommended prices are very useful for cost appraisal if a litigant is condemned to pay the legal expenses of the opposing party. Thus, recommended fee schedules could be justified to some extent if they represented the cost of providing the services. We test this hypothesis using crossâ€section data on a subset of recommended prices by 52 Spanish bar associations and cost data on their territorial jurisdictions. Our empirical results indicate that prices recommended by bar associations are unrelated to the cost of legal services and therefore we conclude that recommended prices have merely an anticompetitive effect.
    Keywords: professional associations, recommended prices, anticompetitive conduct
    JEL: K21
    Date: 2012

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