New Economics Papers
on Law and Economics
Issue of 2013‒10‒11
ten papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Competitive pressure and corporate crime By Baumann, Florian; Friehe, Tim
  2. The fight against cartels: a transatlantic perspective By Emilie Dargaud; Andrea Mantovani; Carlo Reggiani
  3. Arbitrating and mediating disputes : benchmarking arbitration and mediation regimes for commercial disputes related to foreign direct investment By Pouget, Sophie
  4. The ECJ Judgment on the Extensions of the ETS to Aviation: An Economist’s Discontent By Horn, Henrik
  5. Patent litigation in Europe By Cremers, Katrin; Ernicke, Max; Gaessler, Fabian; Harhoff, Dietmar; Helmers, Christian; McDonagh, Luke; Schliessler, Paula; Van Zeebroeck, Nicolas
  6. A Partner in Crime: Assortative Matching and Bias in the Crime Market By Gavrilova, Evelina
  7. The effectiveness of transnational non-state governance: The role of domestic regulations and compliance assessment in practice By Malets, Olga
  8. Effects of different cartel policies: Evidence from the German power-cable industry By Normann, Hans-Theo; Tan, Elaine S.
  9. They Played the Merger Game: A Retrospective Analysis in the UK Videogames Market By L. Aguzzoni; E. Argentesi; P. Buccirossi; L. Ciari; T. Duso; M. Tognoni; C. Vitale
  10. Bounded Leviathan: or why North and Weingast are only right on the right half By Irigoin, Maria Alejandra; Grafe, Regina

  1. By: Baumann, Florian; Friehe, Tim
    Abstract: This paper explores the relationship between the intensity of competition in product markets and firms' incentives to lower their production costs by illegal means. Our framework combines a Salop circle with a crime model à la Becker, allowing us to differentiate between several measures for the intensity of competition. We establish that more firms in the industry (i.e., lower entry costs) reduce the crime rate. Furthermore, whether more intense competition due to the increased substitutability of products raises or lowers the prevalence of criminal behavior can be clearly linked to the impact of such behavior on firms' production costs. Finally, we find that stricter law enforcement may entice more firms to enter the market, despite the higher expected sanction in the event of wrongdoing. --
    Keywords: product market competition,crime,deterrence,market entry
    JEL: K14 K23 L13
    Date: 2013
  2. By: Emilie Dargaud (University of Lyon & CNRS & GATE); Andrea Mantovani (University of Bologna & IEB); Carlo Reggiani (University of Manchester)
    Abstract: The fight against cartels is a priority for antitrust authorities on both sides of the Atlantic. What differs between the EU and the US is not the basic toolkit for achieving deterrence, but to whom it is targeted. In the EU, pecuniary sanctions against the firm are the only instruments available to the Commission, while in the US criminal sanctions are also widely employed. The aim of this paper is to compare two different types of fines levied on managerial firms when they collude. We consider a profit based fine as opposed to a delegation based fine, with the latter targeting the manager in a more direct way. Under the assumption of revenue equivalence, we find that the delegation based fine, although distortive, is more effective in deterring cartels than the profit based one. When evaluating social welfare, a trade-off between deterrence and output distortion can arise. However, if the antitrust authority focuses on consumer surplus, then the delegation based fine is to be preferred.
    Keywords: Cartel policy, managerial firms, collusion
    JEL: K21 L44 K42 L21
    Date: 2013
  3. By: Pouget, Sophie
    Abstract: An effective commercial arbitration regime matters for foreign investors. It gives parties the autonomy to create a dispute resolution system tailored to increasingly complex disputes. Foreign investors view arbitration as a way to mitigate risks by providing legal certainty on enforcement rights, due process, and access to justice. The Arbitrating and Mediating Disputes indicators assess the legal and institutional framework for commercial arbitration, mediation, and conciliation regimes in 100 economies. All surveyed economies recognize arbitration as a tool for resolving commercial disputes and only nine economies have not acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In the Arbitrating and Mediating Disputes indicators, High Income OECD and Eastern Europe and Central Asia are the regions that reformed their laws on alternative dispute resolution the most between 2011 and 2012. The data also show that, globally, arbitration proceedings take 326 days on average, while recognition and enforcement proceedings of foreign arbitral awards take 557 days on average. The Arbitration and Mediating Disputes indicators are significantly correlated with perception data on the importance of alternative dispute resolution, as well as other measures such as total foreign direct investment inflows and inflows per capita, the Doing Business 2013 Enforcing Contracts data, the World Bank Group's Governance Indicators, the World Economic Forum's Global Competitiveness Indicators, and the Multilateral Investment Guarantee Agency's World Investment and Political Risk data. The paper concludes by identifying several opportunities for improvement, such as greater flexibility for domestic arbitration regimes, faster arbitration proceedings, and better domestic court capabilities.
    Keywords: Arbitration,Contract Law,Debt Markets,Post Conflict Reconstruction,Trade Law
    Date: 2013–10–01
  4. By: Horn, Henrik (Research Institute of Industrial Economics (IFN))
    Abstract: Few EU decisions have caused more international outcry than the extension of the EU Emissions Trading System (ETS) to apply to aviation. The directive was legally challenged by US airlines before a UK court, which referred the case to the European Court of Justice (ECJ) for a preliminary ruling concerning the compatibility of the directive with international law. This paper discusses the argumentation by the ECJ and the Advocate General from an economic perspective. Such an analysis is warranted in light of the fact that the contested measure is an economic regulation, the international laws that are invoked have clear economic objectives, and the ECJ judgment and the opinion by the Advocate General at least partly rely on economic concepts and mechanisms. An economic analysis also seems warranted from a legal point of view since the quality of the judgment and of the opinion presumably depend on the soundness of their economic reasoning. It is found that the argumentation by the legal authorities is highly questionable in important parts, when viewed from an economic perspective.
    Keywords: EJC decision on aviation; ETS; Border carbon adjustment
    JEL: K31 K32 L93
    Date: 2013–09–30
  5. By: Cremers, Katrin; Ernicke, Max; Gaessler, Fabian; Harhoff, Dietmar; Helmers, Christian; McDonagh, Luke; Schliessler, Paula; Van Zeebroeck, Nicolas
    Abstract: We compare patent litigation cases across four European jurisdictions - Germany, France, the Netherlands, and the UK - covering cases filed during the period 2000-2008. For our analysis, we assemble a new dataset that contains detailed information at the case, litigant, and patent level for patent cases filed at the major courts in the four jurisdictions. We find substantial differences across jurisdictions in terms of case loads. Courts in Germany hear by far the largest number of cases in absolute terms, but also when taking country size into account. We also find important between-country differences in terms of outcomes, the share of cases that is appealed, as well as the characteristics of litigants and litigated patents. A considerable number of patents are litigated in multiple jurisdictions, but the majority of patents are subject to litigation only in one of the four jurisdictions. --
    Keywords: Patent litigation,Europe
    JEL: O34 K11 K41
    Date: 2013
  6. By: Gavrilova, Evelina
    Abstract: In this paper I analyze partnership formation within the property crime market in the United States. I develop a static matching model, in which a criminal forms a partnership with a counterpart with the same probability of success. Using individual arrest data from the National Incident Based Reporting System, I pinpoint matches where the underlying ability of two partners differ. This difference in ability is correlated to observable characteristics, making the case for discrimination. By comparing the regression results to success means for the same demographic groups, I find patterns consistent with discrimination. Beside the patterns of gender and racial segregation, I find that in white-black matches, blacks outperform whites, consistent with success means. In male-female matches the female's success realization is higher than the male's, contrary to the difference in success means, where males on average outperform females, hinting at a distaste premium.
    Keywords: Assortative Matching, Bias, Crime, Discrimination, Organized Crime
    JEL: C78 J16 J71 K42
    Date: 2013–10–01
  7. By: Malets, Olga
    Abstract: The paper examines how a domestic institutional environment and third-party compliance assessment shape the effects and effectiveness of certification and labeling. Certification represents a form of transnational non-state market-driven governance of the environmental and social performance of firms. Based on an extensive qualitative analysis, this paper explores two factors that influence the forest certification program of the Forest Stewardship Council. First, the institutional setup and the implementation and enforcement of domestic law can restrict the effectiveness of certification if certification requirements contradict or significantly exceed national law or the institutional environment presents significant challenges to certification. Second, I show that third-party auditing, auditors, and certifiers play a crucial role in this challenging institutional environment. I adopt a dynamic approach to the analysis of these elements, focusing on how domestic law and institutions and transnational standards interact over time. Contrary to existing literature, which emphasizes certification and auditing methods and procedures, it is not only how the assessment system is set up but the ways it is applied in practice that shape the implementation of voluntary certification standards and induce certified forestry operations to modify their practices. -- Wirkung und Effektivität von Zertifizierung und Kennzeichnung sind mit dem nationalen institutionellen Umfeld und der externen Bewertung von Compliance verknüpft. Zertifizierung ist eine Form transnationaler, nicht marktgesteuerter Governance der Nachhaltigkeit und Sozialverträglichkeit von Wirtschaftsunternehmen. Auf der Basis einer umfangreichen Qualitätsanalyse untersucht diese Studie zwei Faktoren, die das Waldzertifizierungsprogramm des Forest Stewardship Council beeinflussen. Zum einen können die institutionellen Voraussetzungen sowie Implementierung und Anwendung nationaler Gesetzgebung die Effektivität der Zertifizierung einschränken, wenn ihre Anforderungen den nationalen gesetzlichen Bestimmungen zuwiderlaufen, sie überschreiten oder das institutionelle Umfeld die Zertifizierung erschwert. Zum anderen spielen externes Audit, Auditoren und Zertifizierer eine wichtige Rolle in diesem komplexen institutionellen Umfeld. Mit einer dynamischen Herangehensweise wird analysiert, wie nationale Gesetzgebung, Institutionen und transnationale Standards über längere Zeiträume interagieren. Im Gegensatz zur vorliegenden Literatur, die Zertifizierung, Audit-Methoden und Prozeduren bestätigt, kommt die Autorin zu dem Schluss, dass nicht nur der Aufbau des Zertifizierungssystems, sondern die Art und Weise seiner Anwendung in der Praxis eine Wirkung auf die Implementierung freiwilliger Zertifizierungsstandards und die Einführung zertifizierter Vorgänge in Waldbetrieben haben können.
    Date: 2013
  8. By: Normann, Hans-Theo; Tan, Elaine S.
    Abstract: We analyze the effects of cartel policies on firm behavior using data from the German power-cable cartel. Antitrust authorities affected the cartel under two different legal regimes: penalizing the cartel in some years, and exempting it for ten years from the general cartel prohibition. While penalties did not reduce prices or profits, making collusion legal raised profits by at least 16% each year, compared to the time when the illegal cartel was not prosecuted. The threat of penalties was sufficient to reduce profit from collusion. The intended efficiency gains from rationalization, which was the justification for legalizing the cartel, did not materialize. --
    Date: 2013
  9. By: L. Aguzzoni; E. Argentesi; P. Buccirossi; L. Ciari; T. Duso; M. Tognoni; C. Vitale
    Abstract: We study the effect of a merger in a dynamic high-technology industry–the videogame market– which is characterized by frequent introduction of new products. To assess the impact of the merger between two large specialist retailers in the UK, we perform a difference-in-differences analysis comparing the price evolution of the merging parties to that of their 7 major competitors on an original sample of 196 videogames belonging to six different consoles. The results of our econometric analyses suggest that there has been a reduction in the general level of prices of both new and pre-owned games after the merger. This decline has been more marked for the merging parties, which suggests that the merger between Game and Gamestation did not lead to a substantial lessening of competition; rather it is consistent with the existence of efficiency gains.
    JEL: K21 L24 L44 D22 O32
    Date: 2013–10
  10. By: Irigoin, Maria Alejandra; Grafe, Regina
    Abstract: The great merit of North’s and Weingast’s insight into the importance of a ruler’s credible commitment to protecting property rights is that it is both parsimonious and it lends itself beautifully to generalizations. It has e.g. inspired the economic literature on the importance of legal origins” (LaPorta et al., 1998, 2008), which seemed to vindicate the notion that post-Glorious Revolution English institutions were particularly conducive to economic growth. More recently economists have acknowledged that growth in fact depends on state capacity. This encompasses not only investor protection (legal capacity) but also the ability of the state to finance itself, fiscal capacity. (Besley and Persson, 2009, 2010) show that the protection of private property rights and that of public property rights to taxation are linked and most likely co-evolutionary. However, the precise relation between the two is anything but clear. This paper argues that North’s and Weingast’s models one-sided focus on state coercion that threatened subject’ property rights has obscured the relation between coercion used in revenue collection and total revenue role of fiscal capacity. We suggest a very simple model to show that this relationship between state fiscal capacity and legal capacity is not linear, especially in the phase of nation state building. Before 1800 states faced one of two very different central challenges. 1) States that already exhibited high levels of coercion had to try to keep in check the ruler’s potential for predation as North and Weingast argued. 2) States that used very low levels of coercion faced a coordination problem instead of a predation issue. The case of Spain provides empirical evidence for the existence of states where an increase in coercion would have improved fiscal capacity, but high levels of legal capacity paradoxically prevented the ruler from adopting this path. Finally, we use financial market developments to show the serious welfare implications that resulted from such a lack of coordination and integration.
    JEL: N0 D72 K0
    Date: 2012

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