New Economics Papers
on Law and Economics
Issue of 2013‒06‒16
nine papers chosen by
Jeong-Joon Lee, Towson University

  1. In Dubio Pro Reo. Behavioral explanations of pro-defendant bias in procedures By Antonio Nicita; Matteo Rizzolli
  2. Bargaining in the Shadow of Arbitration By R. Marselli; M. Vannini; BC. McCannon
  3. A Note on Marginal Deterrence: Evidence By C. Detotto; BC. McCannon; M. Vannini
  4. Confidence, Optimism and Litigation: A Litigation Model under Ambiguity By Nathalie Chappe; Raphaël Giraud
  5. The Sound of Silence: Anti-Defamation Law and Political Corruption By Gabriele Gratton
  6. Institutional Quality, Culture, and Norms of Cooperation: Evidence from a Behavioral Field Experiment By Alessandra Cassar; Giovanna d'Adda; Pauline Grosjean
  7. A free-market view on accidents and torts By Colombatto, Enrico
  8. Public and private enforcement of competition law: A differentiated approach By Hüschelrath, Kai; Peyer, Sebastian
  9. Do horizontal mergers induce entry? Evidence from the US airline industry By Bougette, Patrice; Hüschelrath, Kai; Müller, Kathrin

  1. By: Antonio Nicita (Department of Economics and Law, La Sapienza University of Rome.); Matteo Rizzolli (Free University of Bozen)
    Abstract: The standard model of optimal deterrence predicts that the probability of wrongful conviction of the innocent is, at the margin, as detrimental to deterrence as the probability of wrongful acquittal of guilty individuals. We extend the model in several directions: using expected utility as well as non-expected utility to consider the role of risk aversion, non-linear probability weighting and loss aversion. We also consider how relevant emotions such as guilt, shame and indignation play out. Several of these factors support the intuition that wrongful convictions of the innocent do have a larger detrimental impact on deterrence and thus the policy implications are reconciled with the widely shared maxim in dubio pro reo. We then draw some theoretical implications such as a novel justification for the different standards of proof in criminal vs civil law as well as other policy implications.
    Keywords: wrongful convictions, Type I errors, wrongful acquittals, Type II errors, evidence, optimal under-deterrence, behavioral economics, risk aversion, loss aversion, prospect theory, prelec function
    JEL: K14 K41 K42
    Date: 2013–06
  2. By: R. Marselli; M. Vannini; BC. McCannon
    Abstract: Arbitration, as an alternative to litigation for contract disputes, reduces costs and time. While it has frequently been thought of as a substitute to pretrial bargaining and litigation, in fact, parties may be able to reach a settlement privately while engaged in the arbitration process. Consequently, the institutional design of the arbitration may influence the bargaining. We develop a theoretical model of pre-arbitration bargaining that is able to identify the impact of the institutional features on its success. A detailed data set from arbitration proceedings in Italy is analyzed. The exogenous heterogeneity in the composition of the panel of arbitrators allows us to illustrate its effect on bargaining. We show that the number of arbitrators used interacts with their experience and independence to reduce uncertainty and facilitate settlement.
    Keywords: arbitration, italy, bargaining, contract dispute, settlement
    JEL: K41 C78
    Date: 2013
  3. By: C. Detotto; BC. McCannon; M. Vannini
    Abstract: Empirical evidence of the marginal deterrent effect is provided. Exploring a data set of kidnapping crimes in Sardinia between 1960 and 2012 changes in Italian policy regarding sanctions for kidnapping and their associated impact on murders is considered. Deaths associated with kidnappings increase in prevalence when the kidnapping sanction increased, causing a decrease the marginal sanction for murder. Death rates reversed when enhanced sanctions for murder were later introduced.
    Keywords: crime, kidnapping, marginal deterrence, murder, sardinia
    JEL: K42
    Date: 2013
  4. By: Nathalie Chappe (CRESE, Université de Franche-comté); Raphaël Giraud (LED, University Paris 8)
    Abstract: This paper introduces ambiguity into an otherwise standard litigation model. The aim is to take into account optimism and confidence on the plaintiff side. We examine the following questions : 1) How optimism and confidence affect the outcomes of the settlement stage? 2) How optimism and confidence affect the level of care? 3) As a result what are the public policy implications in terms of monitoring the level of confidence? We show that the equilibrium probability of settlement is increasing in the degree of optimism for every plaintiffs and increasing in the level of confidence for pessimistic plaintiffs, provided the sensitivity of plaintiffs to a rise in the settlement offer is high, and that the same holds for the level of care independently of the sensitivity of plaintiffs to rises in the settlement offer. Finally, assuming the objective of the government is to minimize the probability of litigation and assuming that it can only manipulate the level of confidence, we find that a clear recommendation is possible only in the case of a high sensitivity of plaintiffs to rises in the settlement offer: government intervention to raise public confidence in the judicial system is recommended only when plaintiffs are pessimistic about their chances of winning and in that case, as much as possible should be spent.
    Keywords: confidence, ambiguity, litigation, behavioral law and economics.
    JEL: K41 D81
    Date: 2013–05
  5. By: Gabriele Gratton (School of Economics, The University of New South Wales)
    Abstract: Voters use the press to keep politicians accountable. By endogenizing the response of the voters, this paper provides a theoretical foundation to disentangle the effects of media regulation on corruption and clarify under which circumstances regulation reduces or increases corruption. The analysis shows that libel laws can reduce political corruption only if the moral hazard problem dominates adverse selection and the punishment for the defamer is large enough to deter the publication of well-founded scandals. In this case, libel laws act as a substitute for an optimal re-election rule to which voters commit ex ante.
    Keywords: media and democracy; corruption; defamation; chilling effect.
    JEL: D7 K4
    Date: 2013–04
  6. By: Alessandra Cassar (University of San Francisco); Giovanna d'Adda (University opf Birmingham); Pauline Grosjean (School of Economics, the University of New South Wales)
    Abstract: We design an experiment to examine the causal effect of legal institutional quality on informal norms of cooperation, and study the interaction of institutions and culture in sustaining economic exchange. 346 subjects in Italy and Kosovo play a market game under different and randomly allocated institutional treatments, which generate different incentives to behave honestly, preceded and followed by a non-contractible and non-enforceable trust game. Significant increases in individual trust and trustworthiness follow exposure to ‘better’ institutions. A reduction by one percentage point in the probability of facing a dishonest partner in the market game, which is induced by the quality of legal institutions, increases trust by 7 to 11%, and trustworthiness by 13 to 19%. This suggests that moral norms of cooperative behavior can follow improvements in formal institutional quality. Cultural origin, initial trust and trustworthiness influence opportunistic behavior in markets, but only in the absence of strong formal institutions.
    Keywords: legal institutions, culture, trust, trustworthiness, markets, experimental methods
    JEL: K40 O17 Z10
    Date: 2013–10
  7. By: Colombatto, Enrico
    Abstract: This paper analyzes the role of uncertain costs and liability in the free market context and compares it with Calabresi’s approach. Contrary to the mainstream literature, the free-market view claims that property rights should not be tampered with, that the tort-feasor should always be held liable and that the presence of unknown costs (accidents) makes no difference. In particular, bad luck is not enough to justify a claim on society. It is observed that Calabresi reaches the same conclusions as far as non-accidental costs are concerned, but tends to diverge from the free-market position in the presence of accidents. These views are illustrated by examining the respondeat superior doctrine and their implications are further developed by considering the case for unlimited liability.
    Keywords: accidents, respondeat superior, unlimited liability, social responsibility
    JEL: K10 K13
    Date: 2013–06
  8. By: Hüschelrath, Kai; Peyer, Sebastian
    Abstract: We investigate the relationship between public and private enforcers introducing a more differentiated approach. In contrast to the existing literature, we take into account that the costs and benefits of detection and prosecution and, thus, the usefulness of each enforcement mode may change with a variation of the type of anticompetitive conduct. We define a set of parameters that determine the costs and benefits of both types to enforce the antitrust laws and discuss implications for European competition law and policy. --
    Keywords: Competition policy,public enforcement,private enforcement,European Union
    JEL: K21 L40
    Date: 2013
  9. By: Bougette, Patrice; Hüschelrath, Kai; Müller, Kathrin
    Abstract: Theoretical research has investigated the relevance of entry-inducing effects as countervailing factor to a merger-related increase in market power. We use route-level data for the America West Airlines - US Airways merger (2005) to investigate whether such an effect can be identified empirically. Our results show that both entry-inducing and entry-dissuading effects can be observed depending on the type of affected route and the carrier under investigation. --
    Keywords: Airline industry,merger,entry-inducing effects
    JEL: K21 L40
    Date: 2013

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