New Economics Papers
on Law and Economics
Issue of 2013‒11‒22
sixteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Act-based versus harm-based sanctions for environmental offenders. By Blondiau, Thomas; Rousseau, Sandra
  2. Anatomy of cartel contracts. By Hyytinen, Ari; Steen, Frode; Toivanen, Otto
  3. Economic Uncertainty, Parental Selection, and the Criminal Activity of the 'Children of the Wall' By Chevalier, Arnaud; Marie, Olivier
  4. Mafia in the ballot box By Giuseppe De Feo; Giacomo De Luca
  5. Exchange trading rules, surveillance and insider trading By Aitken, Michael; Cumming, Douglas; Zhan, Feng
  6. The Effect of Local Area Crime on Mental Health By Dustmann, Christian; Fasani, Francesco
  7. Fighting African corruption when existing corruption-control levels matter in a dynamic cultural setting By Asongu Simplice
  8. High frequency trading and end-of-day price dislocation By Aitken, Michael; Cumming, Douglas; Zhan, Feng
  9. The nature of corruption: An interdisciplinary perspective By Dimant, Eugen
  10. Does Education Promote Stable Property Rights? By Biniam E. Bedasso
  11. Institutional Change and Academic Patenting: French Universities and the Innovation Act of 1999. By Della Malva, Antonio; Lissoni, Francesco; Llerena, Patrick
  12. Patent Value and Citations: Creative Destruction or Strategic Disruption? By David S. Abrams; Ufuk Akcigit; Jillian Popadak
  13. Veiled Waters: Examining the Jones Act's Consumer Welfare Effect By Lewis, Justin
  14. Work in the Shadow: Some Facts By Friedrich Schneider
  15. Shadow Economies in highly developed OECD countries: What are the driving forces? By Andreas Buehn; Friedrich Schneider
  16. Creative accounting in the British Industrial Revolution: Cotton manufacturers and the ‘Ten Hours’ Movement. By Toms, Steven; Shepherd, Alice

  1. By: Blondiau, Thomas; Rousseau, Sandra
    Date: 2013–06
  2. By: Hyytinen, Ari; Steen, Frode; Toivanen, Otto
    Abstract: We study cartel contracts using data on 18 contract clauses of 109 legal Finnish manufacturing cartels whose legal status is reminiscent of e.g. the U.S Sugar Institute. One third of the clauses relate to raising profits; the others deal with instability through incentive compatibility, cartel organization, or external threats. Cartels use three main approaches to raise profits: Price, market allocation, and specialization. These appear to be substitutes. Choosing one has implications on how cartels deal with instability. Simplifying, we find that cartels economize on contract clauses, cartels in homogenous goods industries allocate markets, and small cartels avoid competition through specialization.
    Keywords: cartels; contracts; antitrust; competition policy; industry heterogeneity;
    Date: 2013–11
  3. By: Chevalier, Arnaud (Royal Holloway, University of London); Marie, Olivier (ROA, Maastricht University)
    Abstract: We explore the link between parental selection and criminality of children in a new context. After the collapse of the Berlin Wall in 1989, East Germany experienced a very large, but temporary, drop in birth rates mostly driven by economic uncertainty. We exploit this natural experiment in a differences-in-differences setup to first estimate that the children from these affected (smaller) cohorts are relatively much more likely to be criminally active. Using individual level data, we provide evidence that women who gave birth in at this period of uncertainty were negatively selected into fertility. Further investigation of the underlying mechanisms reveals that emotional attachment and intergenerational transmission of risk attitudes play important roles in the parental selection-crime of children relationship. Finally, results for siblings support a causal interpretation of our findings.
    Keywords: crime, parental selection, fertility decision, economic uncertainty, risk attitude
    JEL: J13 K42
    Date: 2013–11
  4. By: Giuseppe De Feo (: Department of Economics and Management, University of Pavia); Giacomo De Luca (University of York)
    Abstract: We study the impact of organized crime on electoral competition. Assuming that the mafia is able to bring votes to the supported party in exchange of money, we show that (i) the strongest party is willing to pay the highest price to secure mafia services; (ii) the volume of electoral trade with the mafia increases with political competition and with the efficiency of the mafia. Studying in detail parliamentary elections in Sicily for the period 1946- 1992, we document the significant support given by the Sicilian Mafia to the Christian Democratic party, starting at least from the 1970s. This is consistent with our theoretical predictions, as political competition became much tighter during the 1970s and the Sicilian mafia experienced an extensive centralization process towards the end of the 1960s, which increased substantially its control of the territory. We also provide evidence that in exchange for its electoral support the mafia got economic advantages for its activities in the construction industry.
    Keywords: electoral competition, mafia, Cosa Nostra, electoral fraud
    JEL: D72 K42 H42
    Date: 2013–11
  5. By: Aitken, Michael; Cumming, Douglas; Zhan, Feng
    Abstract: We examine the impact of stock exchange trading rules and surveillance on the frequency and severity of suspected insider trading cases in 22 stock exchanges around the world over the period January 2003 through June 2011. Using new indices for market manipulation, insider trading, and broker-agency conflict based on the specific provisions of the trading rules of each stock exchange, along with surveillance to detect non-compliance with such rules, we show that more detailed exchange trading rules and surveillance over time and across markets significantly reduce the number of cases, but increase the profits per case. --
    Keywords: Insider trading,Surveillance,Exchange Trading Rules,Law and Finance
    JEL: G12 G14 G18 K22
    Date: 2013
  6. By: Dustmann, Christian (University College London); Fasani, Francesco (Queen Mary, University of London)
    Abstract: This paper analyses the effect of local crime rates on the mental well-being of residents. Our identification strategy addresses the problem of sorting, and endogenous moving behaviour. We find that crime causes considerable mental distress of residents, and that these effects are mainly driven by property crime. However, individuals react also to violent crime, in particular in areas individuals may be exposed to when following their daily routines, such as travel to work. Local crime creates more distress for females, and is mainly related to depression and anxiety. The impact on mental well-being is large: We find that the increase in mental distress following a one standard deviation increase in local crime is about 2-4 times as large as that caused by a one standard deviation decrease in local employment, and about one seventh of the effect experienced by in the direct aftermath of the London Bombings of Jul 7th, 2005.
    Keywords: neighbourhood effects, mental wellbeing, fear of crime
    JEL: I18 K42 R23
    Date: 2013–11
  7. By: Asongu Simplice (Yaoundé/Cameroun)
    Abstract: Abstract Purpose – This paper assesses the determinants of corruption-control with freedom dynamics (economic, political, press and trade), government quality and a plethora of socio-economic factors in 46 African countries using updated data. Design/methodology/approach – A quantile regression approach is employed while controlling for the unobserved heterogeneity. Principal component analysis is also used to reduce the dimensions of highly correlated variables. Findings – With the legal origin fundamental characteristic, the following findings have been established. (1) While political freedom increases corruption-control (CC) in a bottom quantile of English common law countries, there is no such evidence in their French civil law counterparts. (2) Government quality consistently improves CC across all quantiles in English common law countries but fails to exert the same effect in middle quantiles of French civil law countries. (3) Economic freedom ameliorates CC only in common law countries with low existing CC levels (bottom quantiles). (4) We find no significant evidence of a positive ‘press freedom’-CC nexus and having the status of Low income English common law (French civil law) countries decreases (increases) CC. From a religious domination scenario, we also find the following. (1) Political and trade freedoms only reduce CC in Christian dominated countries while press freedom has a mitigation effect in both religious cultures (though more consistent across quantiles of Christian-oriented countries). (2) Government quality is more pro-CC in Christian than in Muslim-dominated countries. (3) While economic freedom has a scanty negative nexus with CC in Christian-oriented countries, the effect is positive in their Muslim-dominated counterparts. (4) Having a low-income status in countries with Christian common law tradition improves CC. Originality/value – We complement the literature on the fight against corruption in Africa by employing recently documented additional factors that should be considered in corruption studies.
    Keywords: Corruption; Freedom; Government quality; Quantile regression; Africa
    JEL: C10 H10 K10 O10 O55
    Date: 2013–09
  8. By: Aitken, Michael; Cumming, Douglas; Zhan, Feng
    Abstract: We show that the presence of high frequency trading (HFT) has significantly mitigated the frequency and severity of end-of-day price dislocation, counter to recent concerns expressed in the media. The effect of HFT is more pronounced on days when end of day price dislocation is more likely to be the result of market manipulation on days of option expiry dates and end of month. Moreover, the effect of HFT is more pronounced than the role of trading rules, surveillance, enforcement and legal conditions in curtailing the frequency and severity of end-ofday price dislocation. We show our findings are robust to different proxies of the start of HFT by trade size, cancellation of orders, and co-location. --
    Keywords: High frequency trading,End-of-day Price dislocation,Manipulation,Trading Rules,Surveillance,Law and Finance
    JEL: G12 G14 G18 K22
    Date: 2013
  9. By: Dimant, Eugen
    Abstract: Corruption has fierce impacts on economic and societal development and is subject to a vast range of institutional, jurisdictional, societal and economic conditions. Research indicates that corruption's predominantly negative effects have arisen to a massive trans-border threat while creating high obstacles to sustainable and prospective development, ultimately impairing everybody's life. This paper provides a comprehensive state-of-the-art survey of existing literature on corruption and its antecedents and effects. Consequently, we bridge the gap between existing theories of different fields of research including economics, psychology, and criminology in order to draw a conclusive picture of corruption on the micro-, meso- and macro-level. --
    Keywords: Bribery,corruption,development,interdisciplinarity,public economics,survey
    JEL: D73 H1 O17 K42
    Date: 2013
  10. By: Biniam E. Bedasso
    Abstract: This paper sets out to establish an empirical link between education and property rights. The analysis is based on a new index of property rights derived from a set of commonly used indicators. As expected, education has a generally positive impact on property rights. But the relationship is not linear. The effect also depends on level of income. More education might not always be good for property rights in lowincome countries. Instrumental variable estimation demonstrates that the schooling of the least educated 60 percent population is better identified to measure the impact of human capital on property rights than mean years of schooling. The dynamic panel estimation of the relationship reveals that it takes some time before an increase in the human capital of the least educated 60 percent population bears a positive impact on property right institutions. The independent influence of education on property rights is found to be stronger than that of income in most specifications.
    Keywords: Property rights, Education, composite index
    JEL: O10 P16
    Date: 2013
  11. By: Della Malva, Antonio; Lissoni, Francesco; Llerena, Patrick
    Date: 2013
  12. By: David S. Abrams; Ufuk Akcigit; Jillian Popadak
    Abstract: Prior work suggests that more valuable patents are cited more and this view has become standard in the empirical innovation literature. Using an NPE-derived dataset with patent-specific revenues we find that the relationship of citations to value in fact forms an inverted-U, with fewer citations at the high end of value than in the middle. Since the value of patents is concentrated in those at the high end, this is a challenge to both the empirical literature and the intuition behind it. We attempt to explain this relationship with a simple model of innovation, allowing for both productive and strategic patents. We find evidence of greater use of strategic patents where it would be most expected: among corporations, in fields of rapid development, in more recent patents and where divisional and continuation applications are employed. These findings have important implications for our basic understanding of growth, innovation, and intellectual property policy.
    JEL: K1 L2 O3
    Date: 2013–11
  13. By: Lewis, Justin
    Abstract: This paper analyzes how The Jones Act, a maritime law that effectively closes the United States’ coastal shipping routes to foreign firms, impacts the economic welfare of domestic ocean transport consumers. Though it has long been speculated that the Act is economically detrimental to the United States, and some efforts to examine this have been made in the past, the data needed to facilitate precise estimates was not available until very recently. Using an original framework, I apply this new data in generating a better understanding of how the Jones Act’s trade restrictions translate into economic consequences. Section 1 frames the Act within its broader political-economic context and describes the motivation behind my question along with my approach to answering it. Section 2 describes the maritime shipping industry and the Jones Act’s place within it, while Section 3 addresses related findings from past research and how they impel this study. Section 4 details my methodology (along with corresponding economic intuition) and presents the thesis’ finding: that consumers of the domestic maritime transport would be significantly better off (on the order of more than $578 million/year, in monetary terms) if the Jones Act’s restrictions were not in place. Section 5 discusses the potential implications of this result for other sectors of the economy as well as for the direction of future public policy.
    Keywords: Maritime Economics, Jones Act, Cabotage, Transport Regulation
    JEL: K23 L9
    Date: 2013
  14. By: Friedrich Schneider
    Abstract: In this paper the main focus lies on the shadow economy labor force in OECD, developing and transition countries. Besides informal employment in the rural and non-rural sector also other measures of informal employment like the share of women and men are shown. The most influential factors on the shadow economy labor force are tax policies and state regulation, which, if they rise, increase both. Furthermore the discussion of the recent micro studies underline that economic opportunities, the overall burden of the state (taxes and regulations), the general situation on the labor market, and unemployment are especially crucial for an understanding of the dynamics the shadow labour force.
    Keywords: Shadow economy work, undeclared work, shadow labor force, tax pressure, state regulation, labor market
    JEL: K42 H26 D78
    Date: 2013–08
  15. By: Andreas Buehn; Friedrich Schneider
    Abstract: The main focus of this paper lies on the “driving forces” of the development and size of the shadow economy in 39 highly developed OECD countries. The most influential factors on the shadow economy are tax policies and state regulation, which, if rising, increase the shadow economy, though other, economic factors like unemployment are important, too. Specifically, it is shown that the main driving forces of the size and development of the shadow economy are unemployment, self-employment and the tax burden, which impact the shadow economies in these 30 OECD countries to a different degree. Between 1999 and 2010 unemployment and self-employment have on average the largest relative impact (14.6%), followed by tax morale (14.5%), GDP growth (14.3%), business freedom (14.2%) and indirect taxes (14.1%).
    Keywords: Shadow economy, tax morale, tax pressure, state regulation, undeclared work
    JEL: K42 H26 D78
    Date: 2013–08
  16. By: Toms, Steven; Shepherd, Alice
    Abstract: The paper examines an early case of creative accounting, and how, during British industrialization, accounting was enlisted by the manufacturers’ interest to resist demands, led by the ‘Ten hours’ movement, for limiting the working day. In contrast to much of the prior literature, which argues that entrepreneurs made poor use of accounting techniques in the British industrial revolution, the paper shows that there was considerable sophistication in their application to specific purposes, including political lobbying and accounting for the accumulation of capital. To illustrate lobbying behaviour, the paper examines entrepreneurs’ use of accounting to resist the threat of regulation of working time in textile mills. It explains why accounting information became so important in the debate over factory legislation. In doing so, it shows that a significant element was the accounting evidence of one manufacturer in particular, Robert Hyde Greg, which had a strong impact on the outcome of the parliamentary process. The paper uses archival evidence to illustrate how accounting was used in Greg’s enterprise and the reality of its economic performance. The archival evidence of actual performance is then contrasted with the figures presented by Greg to the Factories Inquiry Commission, convened by the House of Commons in 1833-1834 to hear witnesses from the manufacturing interest. These sets of figures are compared and contrasted and discrepancies noted. Conclusions show that the discrepancies were substantial, motivated by Greg’s incentives to present a particular view of low profits, high fixed costs, and the threat of cheaper overseas competition. The figures appeared to lend some credibility to the apparent plight of manufacturers and to Nassau Senior’s flawed argument about all profit being earned in the ‘last hour’ of the working day. The consequence was a setback for the Ten Hours movement, leading to a further intensification of political struggles over working conditions in the 1840s.
    Keywords: Key words: British Industrial Revolution, Accounting, Child labour, Factory Reform, Lancashire cotton textiles, Greg, Quarry Bank Mill
    JEL: J21 J31 K31 L50 L67 M4 N13 O14 O15 O38
    Date: 2013–11–15

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