New Economics Papers
on Law and Economics
Issue of 2014‒04‒11
seventeen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Transaction-Specific Investments and Organizational Choice: A Coase-to-Coase Theory By Thomas J. Miceli
  2. Opportunism in Sequential Investment Settings: On Holdups and Holdouts By Thomas J. Miceli; Kathleen Segerson
  3. History of Law and Economics By Martin Gelter; Kristoffel Grechenig
  4. Private or Public Law Enforcement? The Case of Digital Piracy Policies with Non-monitored Illegal Behaviors By Éric Darmon; Thomas Le Texier
  5. Welfare Effects of Endogenous Copyright Enforcement - the Case of Digital Goods By Markus Pasche
  6. Legal Systems Integrity In Philosophy By Mikhail Antonov
  7. Comparing Patent Litigation Across Europe: A First Look By Stuart Graham; Nicolas van Zeebroeck
  8. The Wild West is Wild: The Homicide Resource Curse By Mathieu Couttenier; Pauline Grosjean; Marc Sangnier
  9. Regulation of Network Sectors in the EU: A Federalist Perspective By Wolfgang Kerber; Julia Wendel
  10. Compatibility, Intellectual Property, Innovation and Efficiency in Durable Goods Markets with Network Effects By Athanasopoulos, Thanos
  11. Unearthing T. Rex: The Law and Economics of Paleontological Finds By Paul Hallwood; Thomas J. Miceli
  12. Rights and Capabilities: Reading the Philippines Magna Carta of Women from the Perspective of the Capabilities Approach By Marina Durano
  13. Regional Differences in Perceived Corruption among Ukrainian Firms By Denisova-Schmidt, Elena; Huber, Martin
  14. Fiscal Equalization, Tax Salience, and Tax Competition By Martin Altemeyer-Bartscher
  15. Costs and benefits of a bicycle helmet law for Germany By Gernot Sieg
  16. Communicating Judicial Retirement By AÌlvaro Bustos; Tonja Jacobi
  17. "Channels of Peer Effects and Guilt Aversion in Crime: Experimental and Empirical Evidence from Bangladesh" By Masahiro Shoji

  1. By: Thomas J. Miceli (University of Connecticut)
    Abstract: This paper examines markets, firms, and the law as alternative institutional arrangements for organizing transactions that involve transaction-specific investments and uncertain performance. The analysis is the logical extension of Coase’s seminal analysis of the market-firm boundary on one hand, and the market-law boundary on the other. It thus combines insights from the literature on industrial organization and law and economics. The result is a unified framework that reveals the relative advantages and disadvantages, within a fairly simple economic setting, of market exchange, court ordering (contracts), and internal governance (agency).
    Keywords: Asset specificity, contracts, firms, holdup problem, market exchange
    JEL: D23 K12 L14 L22
    Date: 2014–03
  2. By: Thomas J. Miceli (University of Connecticut); Kathleen Segerson (University of Connecticut)
    Abstract: The holdup and holdout problems arise in different contexts, but they share certain fundamental similarities that have not generally been recognized. In particular, both involve activities requiring an up-front, non-salvageable investment, and both require the investor to purchase an input, the price of which is determined by bargaining after the initial investment has been made. The effect of the up-front investment is to reduce the investor’s bargaining power with the seller of the input. The anticipation of the outcome of this bargaining creates a disincentive for the investor to undertake the project in the first place, causing some efficient projects to be foregone. Remedies for the two problems, though outwardly different, share features that reflect the common source of their inefficiency.
    Keywords: Holdup problem, holdout problem, non-salvageable investments, eminent domain, contracts, vertical integration
    JEL: D23 K11 L14 L23
    Date: 2014–04
  3. By: Martin Gelter (Fordham University School of Law); Kristoffel Grechenig (Max Planck Institute for Research on Collective Goods & Amsterdam Center for Law & Economics (ACLE))
    Abstract: The roots of law & economics lie in late 19th century continental Europe. However, this early movement did not persist, having been cut off in the 1930s. After World War II, modern law & economics was (re-)invented in the United States and subsequently grew into a major field of research at U.S. law schools. In continental Europe, law & economics was re-imported as a discipline within economics, driven by economists interested in legal issues rather than by legal scholars. Hence, the European discourse was more strongly influenced by formal analysis, using mathematical models. Today, research in the U.S., Europe, and in other countries around the world, including Latin America and Asia, uses formal, empirical, and intuitive methods. New subfields, such as behavioral law & economics and experimental law & economics, have grown in the U.S. and in Europe during the past two decades.
    Date: 2014–04
  4. By: Éric Darmon (CREM UMR CNRS 6211, University of Rennes 1, France); Thomas Le Texier (CREM UMR CNRS 6211, University of Rennes 1, France)
    Abstract: In the case of digital piracy should rights be publicly or privately enforced? The emergence of large-scale anti-piracy laws and the existence of non-monitored illegal channels raise important issues for the design of digital anti-piracy policies. In this paper, we study the impact of these two enforcement settings (public vs. private) in the presence of an illegal non-monitored outside option for users. Taking account of market outcomes, we show that in both cases, the optimal strategies of the legal seller and the monitoring authority leads to rejection of the outside option out while accommodating to the presence of illegal monitored channels. Compared to private enforcement, public enforcement generates higher monitoring levels and lower price levels. Public enforcement also generates greater (legal) welfare. However, we identify potential con ict of interests between the legal seller and the social planner when the eciency of non monitored networks is low. We provide some insights into the role of supply side anti-piracy policies.
    Keywords: copyright infringement, law enforcement, digital piracy, illegal file-sharing, illegal behavior deterrence
    JEL: D23 D78 K42
    Date: 2014–03
  5. By: Markus Pasche (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
    Abstract: In case of digital goods such like music, intellectual property rights are typically not exerted by the creators (artists) but by intermediaries. Their profits, and therefore also the income of the artists, are endangered by copyright infringements (piracy). It is well known from static welfare analysis that to some extent piracy reduces the deadweight loss by limiting monopoly power and could therefore increase welfare. This paper contributes to the discussion by including the costs of law enforcement into the welfare analysis. Most models in the literature assume that law is enforced by governmental activities. In contrast, this paper considers that law enforcement is exerted by agents (e.g. lawyer chancellories, provider of screening technologies) which are also seen as intermediaries. The enforcement effort is therefore endogenously determined. It is shown that this will lead to suboptimal welfare outcomes. A social planner has to regulate punishment and enforcement effort to a moderate level. A more rigorous fight against piracy could only be justified by negative dynamic welfare effects due to a loss of creativity. However, there is no empirical evidence for that.
    Keywords: digital goods, music, piracy, copyright, intermediation, law en- forcement, welfare
    JEL: D60 L12 K11 K42
    Date: 2014–03–31
  6. By: Mikhail Antonov (National Research University Higher School of Economics)
    Abstract: This paper aims to analyse the philosophical premises on which the idea of unity of law (identity of legal system) is based. In the history of legal philosophy this idea found its main arguments in the presumption of totality of legal regulation. Such totality translated the philosophical tenets of holism according to which law is not limited to the positive-law rules and institutes. Law refers to the supreme values priming over the legal instruments human beings and collectives create for regulation of their mutual behaviour. This argument implies that there are highest values (that of justice, good…) under which all the social relations can be subsumed and which finally give the binding force to positive law. The author argues that this line of thought is based on philosophical objectivism and naturalism, and can easily lead to primacy of the social over the individual. To substantiate the idea of systemacity of law, one can turn to the modern debates about logic of social cohesion and construct a legal system identity as a purely intellectual hypothesis necessary for thinking about law. This integrity can be described as a unity of discourse, or as a unity of societal practices. This reconstruction of integrity of law can be extended by appealing to the basic ideas of normative philosophy of law (from Hart and Kelsen to Raz and Dworkin) and is reconcilable with the conception of normative systems of Bulygin–Alchourron.
    Keywords: normativity, social control, legal system, positivity of law, unity of law, identity of legal system
    JEL: K10
    Date: 2014
  7. By: Stuart Graham; Nicolas van Zeebroeck
    Abstract: Although patent litigation has become increasingly global, with litigants earning billion-dollar verdicts and seeking judgments in many different jurisdictions around the world, scholarship has been almost completely silent on how such litigation develops outside the United States. This void in understanding is particularly glaring in Europe, where U.S. and other litigants are increasingly drawn, and to which policy makers interested in harmonizing the U.S. patent system look in vain for answers. Courts, litigants, commentators and policy makers speculate about how litigation and judicial outcomes differ, but have no factual basis for comparing or understanding what really transpires. With a view to settling this uncertainty and allowing for the emergence of a more robust body of scholarship, this Article sets forth the results of an empirical study of a database including nearly 9,000 patent suits from seven of the largest and most judicially-active countries in the European Union during 2000 to 2010. In the process, it shows that the incidence of litigation and the bases of judicial outcomes diverge radically across the different countries and varying patented technologies in Europe. Accordingly, the Article for the first time provides an empirically grounded, factual basis for examining stubborn questions relevant to those needing clarity about the legal environment in Europe, and to comparatively study the United States’ system. The results unveiled in this Article are profound, bringing clarity to a legal environment that has been heretofore shrouded in shadow. The results shows that the frequency of patents reaching a judgment in litigation varies widely across European countries, in ways that belie the simple differences associated with the quantity of domestic stocks of enforceable patents. By demonstrating that disputes are much more frequent in some countries (e.g. the Netherlands and France) compared to others, the Article uncovers that practitioners’ estimates – the sole previous source – are incorrect. In showing how litigation varies widely across technologies, this Article provides critical insights on the likelihood of different kinds of patents reaching a judgment in diverse European courts. It also offers surprising evidence on how litigants’ raising patent validity and infringement claims differs from one European court to another, and that outcomes too are starkly different. The main policy implications of the Article are derived from the patterns reported concerning patent litigation across technologies and countries. The findings highlight both the fragmentation and variation within the European patent system, and the fundamentally different dynamics that will continue to shape patent enforcement across technology sectors and industries. The patterns also underline the variation in predictability, and differences in legal certainty, that innovators, patent holders, and their technology competitors experience in the fragmented European system. These cross-country differences highlight institutional variation among the jurisdictions, which in turn drives the costs and incentives to use the courts, helping to provide critical evidence as Europe implements a move to a continent-wide Unitary Patent and Unitary Patent Court in 2015. Moreover, the Article’s teaching is relevant to current U.S. policy debates about reforms intended to address perceived problems in patent litigation, since several of the changes proposed in Congress closely resemble rules already in place in the several European jurisdictions, about which this Article presents important trends and outcomes.
    JEL: O34 K41 L24 O52
    Date: 2014
  8. By: Mathieu Couttenier (University of Lausanne.); Pauline Grosjean (School of Economics, Australian School of Business, the University of New South Wales); Marc Sangnier (Aix-Marseille University, Aix-Marseille School of Economics, CNRS & EHESS.)
    Abstract: We uncover interpersonal violence as a dimension and a mechanism of the re- source curse. We rely on a historical natural experiment in the United States, in which mineral discoveries occurred at various stages of governmental territorial ex- pansion. “Early” mineral discoveries, before full-fledged rule of law is in place in a county, are associated with higher levels of interpersonal violence, both historically and today. The persistence of this homicide resource curse is partly explained by the low quality of (subsequent) judicial institutions. The specificity of our results to violent crime also suggests that a private order of property rights did emerge on the frontier, but that it was enforced through high levels of interpersonal violence. The results are robust to state-specific effects, to comparing only neighboring counties, and to comparing only discoveries within short time intervals of one another.
    Keywords: Homicide, Institutions, Resource curse, United States
    JEL: K42 N51 Z13
    Date: 2014–03
  9. By: Wolfgang Kerber (University of Marburg); Julia Wendel (University of Marburg)
    Abstract: The vertical allocation of regulatory powers within the European two-level system of network sector regulation is analysed from the perspective of the economic theory of legal federalism. The analysis shows that sophisticated combinations of harmonised European rules along with sufficient scope for decentralised decisions of national regulators seem to be optimal. Especially interesting is that networks of regulatory authorities (as BEREC in telecommunications) can play an important role in regard to balancing the advantages and disadvantages of (de)centralisation. Whereas in regard to telecommunication a further shifting of regulatory powers to the EU level cannot be recommended, both in energy and railway markets it might still be necessary to strengthen the regulatory power of the EU.
    Keywords: EU sector regulation, legal federalism, regulatory networks, telecommunication
    JEL: K23 H77 F15
    Date: 2014
  10. By: Athanasopoulos, Thanos (Department of Economics, University of Warwick)
    Abstract: This paper analyses firms’ behaviour towards compatibility and the relation of these decisions with their incentives to invest into improving their durable, network goods. By using a sequential game where the dominant firm plays first, we give its competitor the ability to build on innovations previously introduced by the market leader. Recognizing the intertemporal linkage in forward looking customers’purchasing choices, we find that in anticipation of a relatively large quality improvement by the rival, strategic pricing leads the dominant firm to support compatibility even if it could exclude its rivals by using a patent for its invention. Furthermore, not only doesn’t interoperability de-facto maximise social welfare but we also identify no market failure when network effects are not particularly strong. Key words: Firms ; Pricing ; Compatibility ; Innovation ; Technological Change ; Intellectual Property Rights ; Antitrust Law ; Competition ; Externalities ; Product Durability ; Welfare JEL classification: D43 ; L13 ; D71 ; D62 ; L15 ; L4 ; K21 ; L51 ; O34 ; O31
    Date: 2014
  11. By: Paul Hallwood (University of Connecticut); Thomas J. Miceli (University of Connecticut)
    Abstract: This paper assesses the economic characteristics of the balance that federal law aims to achieve between the interests of paleontologists and amateur and commercial collectors of fossils on US federal lands. The objective function is taken to be the maximization of the social value of these resources. Allowing ‘open access’ to amateurs and commercial collectors would maximize search activity. However, as a fossil’s scientific value is not necessarily their priority, they may under-invest in the recovery of such information. We trace how US federal law has tried to strike a balance between search activity and scientific recovery. We also comment favorably on the developing trend of promoting professional (paleontologist)-amateur partnerships in both search and recovery.
    Keywords: Fossils, scientific value, search and recovery, paleontology
    JEL: D83 H41 I23 K11 O32
    Date: 2014–04
  12. By: Marina Durano (School of Economics, University of the Philippines Diliman)
    Abstract: The Magna Carta of Women (R.A. 7910) is the Philippines comprehensive women’s human rights law. The Magna Carta of Women is found to be consistent with Rawlsian notions of justice, particularly when it undertakes inequality evaluation in primary goods. Identity-based inequality evaluation is also present in the Magna Carta of Women as implied in its definition of discrimination and marginalization. With the state as the primary duty bearer, the Magna Carta of Women gives prominence to an instrumental view of agency since participation is mediated through state mechanisms and institutions. The Magna Carta of Women fails to acknowledge the contributions of care work and the implications of the gendered division of labor. The capabilities approach highlights the challenges attached to these observations. Where human rights are viewed as ethical demands, the MCW succeeds in giving attention to aspects of women’s lives that require state support.
    Keywords: gender equality, law and economics, human rights, capabilities
    JEL: K3 J16 K00 D63 I31
    Date: 2014–04
  13. By: Denisova-Schmidt, Elena; Huber, Martin
    Abstract: This paper investigates regional differences in the perception of corruption and informal practices among Ukrainian firms. Using two different data sets from Ukraine we show that perceived corruption differs significantly across regions, even when taking into account the size, industry, workforce composition, and other characteristics of the firms based on propensity score matching. In particular, perceived corruption is highest in the eastern areas and lowest in the western region, which points to distinct business practices that may be rooted in the different political, cultural, and historical development of Ukrainian regions.
    Keywords: Corruption, Informal Practices, Regionalism, Ukraine
    JEL: C21 D73 K42 O17 P2
    Date: 2014–04
  14. By: Martin Altemeyer-Bartscher
    Abstract: Jurisdictions that engage in inter-regional tax competition usually try to attenuate competitive pressures by substituting salient tax instruments with hidden ones. On this effect, we investigate the efficiency consequences of inter-regional tax competition and fiscal equalization in a federal system when taxpayers fail to optimally react on shrouded attributes of local tax policy. If the statuary tax rate is a relatively salient instrument and taxpayers pay low attention to the quality and the frequency of tax enforcement, the underlying substitution of tax instruments with the aim of reducing the perceived tax price may suppress the under-exploitation of tax bases that is typically triggered by fiscal equalization.
    Keywords: fiscal equalization, tax salience, tax competition, fiscal federalism, tax-cut-cum-base-broadening policy
    JEL: H77 H22 H30
    Date: 2014–03
  15. By: Gernot Sieg (Institute of Transport Economics, Muenster)
    Abstract: This study presents a cost-benefit analysis of a law requiring cyclists to wear a helmet when riding a bicycle in Germany. The cost benefit-analysis takes into account the benefit of increased security when cyclists wear a helmet or use a transport mode that is less risky than cycling. The analysis also considers the cost of purchasing helmets, reduced fitness when cycling is replaced by a motorized transport mode, the discomfort of wearing helmets and environmental externalities. The benefits of a helmet law are estimated at about 0.714 of the costs. A bicycle helmet law for Germany is found to be a waste of resources.
    Keywords: bicycle helmets, cost-benefit analysis, helmet law
    JEL: K32 L91 R41
    Date: 2014–03
  16. By: AÌlvaro Bustos; Tonja Jacobi
    Abstract: Even justices who have already decided to retire may not wish to make that information public immediately. Strategically shaping perceptions of their own retirement possibilities can maximize justices’ chances of leaving behind a Court with an ideology aligned with their own ideologies. An obvious mechanism to achieve this is to influence the President and the Senate to choose an ideologically compatible replacement. More specifically, a retiring justice can manipulate his perceived probability of retirement in a way that exploits the fact that case votes of relatively new members of the Court shape how their own ideologies are perceived; influencing the expression of preferences of newer justices can in turn induce the President and the Senate to fill the vacancy with a nominee whose ideology is preferred by the retiring justice. We show that "strong messages" (indicating a high probability of retirement) are more likely when relatively new members of the Court engage in untruthful voting and the ideologies of the retiring justice and the new members are aligned. In contrast, "weak messages" (indicating a low probability of retirement) are more likely when the relatively new members of the Court vote sincerely or, if they do vote untruthfully, the ideologies of the retiring justice and the new members are not aligned.
    JEL: K10 K30 K40
    Date: 2014
  17. By: Masahiro Shoji (Faculty of Economics, Seijo University)
    Abstract:    This study empirically disentangles the channels of peer effects in crime through an experiment conducted in rural Bangladesh. The first part of this study assumes that individuals exhibit guilt aversion, which predicts the peer effects via guilt sensitivity and belief. By incorporating peer effects in a take-away game, the criminal player is informed about the victim player's belief only in the treatment group, so that the peer effects in the treatment group are driven only through guilt sensitivity. The experime ntal results suggest that peer effects affect and bring about changes in belief. The second part elicits guilt sensitivity to test guilt aversion. I find robust supporting evidence for my results, and reject the alternatives such as pure altruism and trustw orthiness. Finally, external validity is also confirmed: the criminal behaviour of subjects in the experiment is correlated with their attitude towards illegal activities in the real wo rld, and individuals are less likely to suffer from property crime in villages with a higher guilt sensitivity neighbourhood.
    Date: 2014–02

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