New Economics Papers
on Law and Economics
Issue of 2012‒12‒22
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Does custody law affect family behavior in and out of marriage? By René Böheim; Mario Francesconi; Martin Halla
  2. Audit Market Regulation and Supplier Concentration Around the World: Empirical Evidence By Benjamin Heß; Ulrike Stefani
  3. Explaining Constitutional Change: The Case of Judicial Independence By Bernd Hayo; Stefan Voigt
  4. Costly Litigation and Optimal Damages By A. Mitchell Polinsky; Steven Shavell
  5. Collusion through joint R&D: An empirical assessment By Duso, Tomaso; Röller, Lars-Hendrik; Seldeslachts, Jo

  1. By: René Böheim; Mario Francesconi; Martin Halla
    Abstract: We examine the effect of joint custody on marriage, divorce, fertility and female employment in Austria using individual-level administrative data, covering the entire population. We also use unique data obtained from court records to analyze the effect on post-divorce outcomes. Our estimates show that joint custody significantly reduces divorce and female employment rates, significantly increases marriage and marital birth rates, and leads to a substantial increase in the total money transfer received by mothers after divorce. We interpret these results as evidence against Becker-Coase bargains and in support of a mechanism driven by a resource redistribution that favors men giving them greater incentives to invest in marriage specific capital.
    Keywords: Divorce; Fertility; Bargaining; Intrahousehold Allocations; Austria
    JEL: J12 J13 J18 K36 N32 R2
    Date: 2012–12
  2. By: Benjamin Heß (Department of Economics, University of Konstanz, Germany); Ulrike Stefani (Department of Economics, University of Konstanz, Germany)
    Abstract: In the ongoing discussions on audit regulation, the key issues of auditor independence and a high level of audit market concentration have become apparent. However, there is the concern that regulations intended to improve auditor independence (i.e., restrictions regarding the joint supply of audit and non-audit services, audit firm rotation, joint audits, etc.) might further increase audit market concentration. We address this issue with an empirical analysis. Based on a cross-country study for the years 2001–2010, we investigate whether a country's audit regulation is connected to the combined market share of the four largest audit firms (Concentration Ratio, CR<sub>4</sub>), the inequality in the market share distribution (Hirschmann-Herfindahl-Index, HHI), and the number of audit firms per client active in that country's audit market (Auditor Client Ratio). Our final sample consists of 141,190 firm-year observations of listed companies with a total of 2,439 audit firms, taken from 29 countries. The results of our country-fixed-effects models indicate that regulators should take the connections between potentially conflicting goals into account: Whereas the existence of a proportionate liability system and the prohibition of the joint supply of audit and non-audit services significantly decrease supplier concentration, joint audits and the mandatory audit firm rotation significantly increase audit market concentration. Thus, this study points to the need to take into account clients' and audit firms' adaptive strategies to new regulations.
    Keywords: Audit regulation, audit market concentration, empirical study, cross-country-study
    JEL: K22 L11 L84 M42
    Date: 2012–12–03
  3. By: Bernd Hayo (University of Marburg); Stefan Voigt (University of Hamburg)
    Abstract: This paper studies the factors driving changes in judicial independence (JI) as incorporated in constitutions. Two indicators of constitutionally safeguarded JI are constructed. Variations in these indicators are identified based on changes in the constitutions of as many as 100 countries that occurred between 1950 and 2005. Four groups of factors are conjectured to be relevant for explaining these changes. We find only weak evidence for the insurance theory of judicial independence but strong evidence that the characteristics of individual leaders — such as how they acquired or lost power — play an important role in explaining changes in constitutionally safeguarded JI. This paper contributes not only to the literature on JI but also to the theory of endogenous constitutions.
    Keywords: Imjudicial independence, constitutional change, endogenous constitutions, relevance of leaders.
    JEL: H11 K10 P48
    Date: 2012
  4. By: A. Mitchell Polinsky (Stanford Law School); Steven Shavell (Harvard Law School)
    Abstract: A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the influence of litigation costs on the optimal level of damages, assuming that litigation costs rise with the level of damages.
    JEL: K13 K41
    Date: 2012–12
  5. By: Duso, Tomaso; Röller, Lars-Hendrik; Seldeslachts, Jo
    Abstract: This paper tests whether upstream R&D cooperation leads to downstream collusion. We consider an oligopolistic setting where firms enter in research joint ventures (RJVs) to lower production costs or coordinate on collusion in the product market. We show that a sufficient condition for identifying collusive behavior is a decline in the market share of RJV-participating firms, which is also necessary and sufficient for a decrease in consumer welfare. Using information from the U.S. National Cooperation Research Act, we estimate a market share equation correcting for the endogeneity of RJV participation and R&D expenditures. We find robust evidence that large networks between direct competitors - created through firms being members in several RJVs at the same time - are conducive to collusive outcomes in the product market which reduce consumer welfare. By contrast, RJVs among non-competitors are efficiency enhancing. --
    Keywords: Research Joint Ventures,Innovation,Collusion,NCRA
    JEL: K21 L24 L44 D22 O32
    Date: 2012

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.