New Economics Papers
on Law and Economics
Issue of 2014‒05‒04
twelve papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Labor Market Institutions and Long-Term Effects of Youth Unemployment By Kawaguchi, Daiji; Murao, Tetsushi
  2. Legalizing Bribe Giving By Martin Dufwenberg; Giancarlo Spagnolo
  3. Rental Market Regulation in the European Union By Carlos Cuerpo; Peter Pontuch; Sona Kalantaryan
  4. Crime and the depenalization of cannabis possession: evidence By Adda, Jérôme; McConnell, Brendon; Rasul, Imran
  5. The Effects of Punishment of Crime in Colombia on Deterrence, Incapacitation, and Human Capital Formation By Arlen Guarín; Carlos Medina; Jorge Andrés Tamayo
  6. Does Eligibility for Tertiary Education Affect Crime Rates? Quasi-Experimental Evidence By Nordin , Martin
  7. Insurance Contracts and Derivatives that Substitute for Them: How and Where Should Their Systemic and Nonperformance Risks be Regulated? By Edward J. Kane
  8. Why has the literature on corporate governance and firm performance yielded mixed results? By Jimmy A. Saravia
  9. Dodd-Frank and the Great Debate: Regulation vs. Growth By R. Christopher Whalen
  11. Informal Interference in the Judiciary in New Democracies: A Comparison of Six African and Latin American Cases By Mariana Llanos; Cordula Tibi Weber; Charlotte Heyl; Alexander Stroh
  12. Absenteeism in Apprenticeships: What Role Do Works Councils Play? By Harald Pfeifer

  1. By: Kawaguchi, Daiji (Hitotsubashi University); Murao, Tetsushi (Kyushu University)
    Abstract: Graduating from a school during a time of adverse economic conditions has a persistent, harmful effect on workers' subsequent employment opportunities. An analysis of panel data from OECD countries during the 1960-2010 periods reveals that a worker who experiences a one-percentage-point higher unemployment rate while the worker is 16-24 years old has a 0.14 percentage-point higher unemployment rate at ages 25-29 and 0.03 percentage points higher at ages 30-34. The persistence of this negative effect is stronger in countries with stricter employment protection legislation. A composite index for labor market rigidity is constructed and the index is shown to have positive correlation with the persistence. Moderating macroeconomic fluctuations is more important in countries that have more persistent labor-market entry effects on subsequent outcomes.
    Keywords: persistence, unemployment, port of entry, cohort analysis, hysteresis
    JEL: E24 J64 J65 K31
    Date: 2014–04
  2. By: Martin Dufwenberg; Giancarlo Spagnolo
    Abstract: A model of ’harassment bribes,’ paid for services one is entitled to, is developed to analyze the proposal to legalize paying these bribes while increasing fines on accepting them. We explore performance as regards corruption deterrence and public service provision. Costs of verifying reports make the scheme more effective against larger bribes and where institutions’ quality is higher. A modified scheme, where immunity is conditional on reporting, addresses some key objections. The mechanism works better against more distortionary forms of corruption than harassment bribes, provided monetary rewards can compensate bribers for losing the object of the corrupt exchange. Results highlight strong complementarities with policies aimed at improving independence and accountability of law enforcers. JEL Classification Numbers: D73, K42, O17 Keywords: Bribes, Corruption, Immunity, Law enforcement, Leniency, Whistleblowers
    Date: 2014
  3. By: Carlos Cuerpo; Peter Pontuch; Sona Kalantaryan
    Abstract: The state of development of rental markets as a genuine alternative to home-ownership stands out as a particularly relevant institutional factor shaping the outcome of the housing market and playing a balancing role and alleviating house price pressures. This is especially the case when it proves to be an affordable platform for young and low-income households, providing them with a viable alternative to a hasty first step into the property ladder. In order to help policymakers develop a sizeable private rental market acting as an attenuating factor of housing prices volatility, it is important to depict the relevant dimensions of the rental market regulation and assess their likely impact on the aggregate housing market. Against this background, this paper first develops a two-dimensional indicator on rental market regulation, covering for rent controls and the tenant-landlord relationship. The resulting indices are put to the test by assessing their impact on housing prices. According to this analysis, an efficient, fair and swift judicial system appears as a necessary step towards unlocking rental markets full potential. Moreover, rent controls appear to have a significant destabilizing impact on the aggregate housing market, increasing the volatility of house prices when confronted with different shocks. Finally, qualitative aspects of the tenancy contract negotiation do not have a first-hand impact on housing market dynamics.
    JEL: C23 C38 R15 R28 R52
    Date: 2014–04
  4. By: Adda, Jérôme; McConnell, Brendon; Rasul, Imran
    Abstract: We evaluate the impact on crime of a localized policing experiment that depenalized the possession of small quantities of cannabis in the London borough of Lambeth. Such a policy can: (i) impact the demand for cannabis in Lambeth as users move there to purchase cannabis; (ii) enable the Lambeth police to reallocate effort towards other types of crime. We investigate whether the depenalization policy impacts the level and composition of crime, using administrative records on criminal offences by drug type, and for seven types of nondrug crime. We find that depenalization in Lambeth led to significant increases in cannabis possession offences that persisted well after the policy experiment ended. We find evidence that the policy caused the police to reallocate effort towards crimes related to the supply of Class-A drugs, as well as reallocating effort towards non-drug crime: there are significant reductions in five types of non-drug crime, and significant improvements in police effectiveness against such crimes as measured by arrest and clear-up rates. Despite the overall fall in crime attributable to the policy, we find the total welfare of local residents likely fell, as measured by house prices. These welfare losses are concentrated in Lambeth zip codes where the illicit drug market was most active. Finally, we shed light on what would be the impacts on crime of a citywide depenalization policy, by developing and calibrating a structural model of the market for cannabis and crime, accounting for the behavior of police and cannabis users. This highlights that many of the gains of the policy can be retained, and some of the deleterious consequences ameliorated, if all jurisdictions depenalized cannabis possession. These results provide new insights for the current policy debate on the regulation of illicit drug markets.
    Keywords: Cannabis, crime, depenalization, police behavior.
    JEL: H75 J18 K42
    Date: 2014
  5. By: Arlen Guarín; Carlos Medina; Jorge Andrés Tamayo
    Abstract: Based on individual data on the population of those arrested in Medellín, we assess whether the change in punishment at age 18, mandated by law, has a deterrent effect on arrests. No deterrent effect was found on index, violent or property crimes, but a deterrence effect was found on non-index crimes, specifically those related to drug consumption and trafficking. This implies an elasticity of arrests with respect to punishment that varies between -1.0 and -6.7 percent. The number of days that arrested individuals take to recidivate is 300, higher for index crimes if they are arrested right after, rather than before, reaching 18 years of age, in which case they are less likely to recidivate in any type of crime. The change in criminal penalties at 18 years of age does not explain future differences in human capital formation among the population that had been arrested immediately after versus immediately before reaching 18 years of age. There is no evidence that the longer length of time to recidivate on the part of individuals arrested for the first time immediately after reaching 18 implies future differences in human capital formation. This suggest that our estimated incapacitation effect would not be explained by the impossibility of the arrested population to recidivate due to their having been imprisoned, but rather by a specific deterrence effect resulting from the harsher experience while in prison of those arrested right after, rather than before, reaching 18.
    Keywords: Crime, Deterrence, Regression Discontinuity
    JEL: K42 H56 C21
    Date: 2013–07–18
  6. By: Nordin , Martin (Department of Economics, Lund University)
    Abstract: This paper estimates a tertiary eligibility effect on crime for Sweden. The idea is that investment in higher education is a way of escaping youth inactivity and idleness, and, since youth inactivity is known to trigger crime, the self-incapacitation effect of higher education decreases crime rates. However, to invest in higher education, the individual has to meet the tertiary eligibility requirements in upper-secondary school. Tertiary eligibility may therefore affect crime rates. Evidence of an exogenous grade inflation in the eligibility rate is used to identify the tertiary eligibility effect. With the introduction of a goal-related grading system, the share with tertiary eligibility increased by more than 6 percentage points. Accordingly, during the period with grade inflation in the eligibility rate, crime rates fell, but, when the period of grade inflation was ended, the effect of tertiary eligibility on crime disappeared as well. Hence, when youth have the opportunity to invest in higher education, and thus escape unemployment or inactivity, their propensity to commit crime decreases.
    Keywords: crime; education; tertiary eligibility
    JEL: J20 K14 K42
    Date: 2014–04–29
  7. By: Edward J. Kane
    Abstract: Traditionally, individual states have shared responsibility for regulating the US insurance industry. The Dodd-Frank Act changes this by tasking the Federal Reserve with regulating the systemic risks that particularly large insurance organizations might pose and assigning the regulation of swap-based substitutes for insurance and reinsurance products to the SEC and CFTC. This paper argues that prudential regulation of large insurance firms and weaknesses in federal swaps regulation could reduce the effectiveness of state-based systems for protecting policyholders and taxpayers from nonperformance in the insurance industry. Swap-based substitutes for traditional insurance and reinsurance contracts offer protection sellers a way to transfer responsibility for guarding against nonperformance into potentially less-effective hands. The CFTC and SEC lack the focus, expertise, experience, and resources to manage adequately the ways that swaps transactions can affect US taxpayers’ equity position in global safety nets, while regulators at the Fed refuse to recognize that conscientiously monitoring accounting capital at financial holding companies will not adequately protect taxpayers and policyholders until and unless it is accompanied by severe penalties for managers that willfully hide their firm's exposure to destructive tail risks.
    Keywords: Dodd-Frank Act, systemic risk, nonperformance risk, regulatory culture, financial reform
    JEL: E61 G21 G22 G28 K42
    Date: 2014–04
  8. By: Jimmy A. Saravia
    Abstract: This paper reviews the empirical literature on corporate governance and firm performance and finds that it has yielded mixed results. The paper argues that a primary reason for this situation is that the relevant theories have not been applied to the class of phenomena they were designed to explain. In particular, the literature that focuses on ownership structure and firm performance employs entrepreneurial agency theories of the firm but applies them to managerial firms where ownership is separated from control. This is evidenced by the fact that firms in which managerial ownership is close to zero percent are included in the samples. Conversely, empirical work centered on the relationship between board composition and firm performance (which relies on managerial agency theories of the firm) not only does not make sure that the firms in their samples are characterized by the separation of ownership and control, but it also ignores the alternative managerial agency theory concerning the agency costs of free cash flows. Additionally, the paper maintains that other approaches, such as that which studies the relationship between indices of anti-takeover provisions and firm performance, do not rely on any particular theory and for this reason are beset by problems of interpretation. The paper concludes with recommendations for avoiding the drawbacks and achieving future progress.
    Keywords: Corporate Governance, Firm Performance, Agency Theory, Firm lifecycle
    JEL: G31 G34
    Date: 2014–01–01
  9. By: R. Christopher Whalen
    Abstract: The history of regulation in America is as old as the republic itself. Since colonial times, Americans have struggled with the conflict between the desire for individual freedom and economic growth, and the need for rules and structure in a civil society. The evolution of the United States from a largely agrarian, libertarian society to one with strong industrial and consumer components that are regulated by the federal government has been greatly influenced by Progressive ideas, not only in financial services but in all aspects of economic life. The swing of public policy from periods of strict regulation to eras of greater permissiveness has enormous implications for economic growth. This paper examines the development of regulation in the US from the 19th century up to the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) in 2010, from both a political and economic perspective.
    Keywords: Dodd-Frank Act, Financial Regulation, Progressive, Louis Brandeis, Benedict v. Ratner, fraud
    JEL: G18 G20 G23 G28 K22 N12 N22 N24
    Date: 2014–02
  10. By: Jean-Michel Sahuta; Sandrine Boulerne; Medhi Mili; Frédéric Teulon
    Abstract: The relation between company longevity and its performance is undeniable; however the relationship between sustainability and performance remains the subject of multiple studies which seem to confirm a positive link. But what type of relationship exists between a firm’s longevity and sustainability? In this paper, we demonstrate that the adoption of corporate social responsibility (CSR) principles explains this link. Therefore, sustainable development policies can create a rampart wall which protects firms against crisis through its three pillars (environmental, social and economic) and thus limit the number of enterprises which go bankrupt. This rampart wall would be even more effective if the principles of sustainable development which companies adopt were guided by a suitable mix of soft law and hard law.
    Keywords: longevity, CSR, crisis, performance, sustainable development.
    Date: 2014–04–28
  11. By: Mariana Llanos (GIGA Institute of Latin American Studies); Cordula Tibi Weber (GIGA Institute of Latin American Studies); Charlotte Heyl (GIGA Institute of African Affairs); Alexander Stroh (GIGA Institute of African Affairs)
    Abstract: This paper assesses the extent to which elected power holders informally intervene in the judiciaries of new democracies, an acknowledged but under-researched topic in studies of judicial politics. The paper first develops an empirical strategy for the study of informal interference based on perceptions recorded in interviews, then applies the strategy to six third-wave democracies, three in Africa (Benin, Madagascar and Senegal) and three in Latin America (Argentina, Chile and Paraguay). It also examines how three conditioning factors affect the level of informal judicial interference: formal rules, previous democratic experience, and socioeconomic development. Our results show that countries with better performance in all these conditioning factors exhibit less informal interference than countries with poorer or mixed performance. The results stress the importance of systematically including informal politics in the study of judicial politics.
    Keywords: judicial politics, constitutional court, supreme court, Latin America, Franco-phone Africa, democratization, separation of powers, informal politics
    Date: 2014–04
  12. By: Harald Pfeifer (Federal Institute for Vocational Education and Training (BIBB) Bonn, Research Centre for Education and the Labour Market (ROA) Maastricht)
    Abstract: This paper examines the influence of works councils on apprenticesÕ absence from the workplace in Germany. The analysis draws on merged administrative and survey data, including information on the cumulated days apprentices are absent from work due to sickness. On average, apprentices are absent nine working days per year, whereas strong differences exist with respect to the training occupation and several firm characteristics. Regression results imply that the presence of a works council in a firm significantly reduces apprenticesÕ absence. This result supports the hypothesis that works councils effectively exercise their legally anchored ÔvoiceÕ function in the German apprenticeship system.
    Keywords: Absenteeism, Apprenticeship Training, Works Councils
    JEL: J24 J52 K31
    Date: 2014–04

This issue is ©2014 by Eve-Angeline Lambert. 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.
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