New Economics Papers
on Law and Economics
Issue of 2014‒07‒28
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Deterrence Works for Criminals By Menusch Khadjavi
  2. Investment Treaties and Shareholder Claims for Reflective Loss: Insights from Advanced Systems of Corporate Law By David Gaukrodger
  3. Beliefs and Precedent: The Dynamics of Access to Justice By Giorgio Rampa; Margherita Saraceno
  4. Crime Scars: Recessions and the Making of Career Criminals By Bell, Brian; Bindler, Anna; Machin, Stephen
  5. Investment Treaty Law, Sustainable Development and Responsible Business Conduct: A Fact Finding Survey By Kathryn Gordon; Joachim Pohl; Marie Bouchard
  6. A theory of compliance with minimum wage law By Asongu, Simplice; Jellal, Mohamed
  7. Legal Corruption, Politically Connected Corporate Governance and Firm Performance By Domadenik, Polona; Prašnikar, Janez; Svejnar, Jan
  8. Rationalizable Suicides: Evidence from Changes in Inmates' Expected Length of Sentence By Campaniello, Nadia; Diasakos, Theodoros; Mastrobuoni, Giovanni
  9. Investor-state disputes and the TTIP – is it a new challenge for corporate responsibility? By Waśniewski, Krzysztof
  10. The Public Procurement System: A Business Sector Perspective By Jelena Budak; Edo Rajh
  11. Does Money Buy Credit? Firm-Level Evidence on Bribery and Bank Debt By Zuzana Fungácová; Anna Kochanova; Laurent Weill

  1. By: Menusch Khadjavi
    Abstract: Criminal law and economics rests on the expectation that deterrence incentives can be employed to reduce crime. Prison survey evidence however suggests that a majority of criminals are biased and may not react to deterrence incentives. This study employs an extra-laboratory experiment in a German prison to test the effectiveness of deterrence. Subjects either face potential punishment when stealing, or they can steal without deterrence. We confirm Gary Becker’s deterrence hypothesis that deterrence works for criminals
    Keywords: Crime, Stealing, Deterrence, Prison, Extra-laboratory experiment, Artefactual field experiment
    JEL: C72 C91 C93 K42
    Date: 2014–07
  2. By: David Gaukrodger
    Abstract: Corporate law in advanced domestic legal systems on the one hand, and typical treaties for the protection of foreign investment on the other hand, treat claims for damages by company shareholders differently. Advanced domestic systems generally bar shareholders from claiming for reflective loss – loss that arises from injury to "their" company (such as a decline in the value of shares). The claim for the loss belongs to the injured company and not to its shareholders. In contrast, shareholder claims for reflective loss have been widely permitted under typical investment treaties over the last 10 years. Ongoing OECD-hosted inter-governmental dialogue on investment law is considering whether there are policy reasons justifying the different approaches to shareholder claims for reflective loss. This paper examines shareholder claims for reflective loss under investment treaties in light of comparative analysis of advanced systems of corporate law. The paper considers the impact of allowing shareholder claims for reflective loss on key characteristics of the business corporation. The paper also explores possible responses by different categories of investors to the availability of shareholder claims for reflective loss under investment treaties.
    Keywords: shareholders, creditors, foreign investment, international investment, shareholder rights, international arbitration, domestic impact of investment law, level playing field, investment treaties, international investment law, competitive neutrality, international economic law, comparative law, arbitrators, derivative action, derivative loss, reflective loss, company law, consistency, corporate law, shareholder claims, shareholder remedies, stockholder remedies, stockholders, treaty shopping, board of directors, agency costs, entity shielding, loan covenant, investment arbitration, judicial economy, separate legal personality, transferability of shares, international investment agreements, investor-state dispute settlement, access to justice, consistency of arbitral decisions, bilateral investment treaties, creditors’ rights, derivative injury, reflective injury, settlement, business corporations, limited liability
    JEL: F21 F23 F53 F55 G32 G34 G38 K23 K33 K41
    Date: 2014–07–23
  3. By: Giorgio Rampa (Department of Economics and Management, University of Pavia); Margherita Saraceno (ACLE University of Amsterdam, and DEMS, University of Milano-Bicocca)
    Abstract: The entire system of legal remedies rests on the decision of prospective plaintiffs to commence actions before a court. This study focuses on how both plaintiffs’ beliefs and legal precedent affect access to justice. In turn, actual accesses to the judiciary result in judicial decisions, and then in the establishment of further legal precedent that is able to affect the behaviour of new plaintiffs. This dynamic model shows that precedent works as a rectification tool with regard to biased beliefs. However, the strength of the rectification power significantly depends upon both the merit of the case and stickiness of subjective beliefs. The results highlight that although plaintiffs learn from precedent through a Bayesian process, access to justice does not always follow a desirable path. In fact, under some circumstances, meritorious causes of action hardly proceed through the court system, even as frivolous claims continue to flourish.
    Keywords: access to justice, Bayesian learning process, lock-in, precedent
    JEL: D83 K41 D81
    Date: 2014–07
  4. By: Bell, Brian (London School of Economics); Bindler, Anna (University College London); Machin, Stephen (University College London)
    Abstract: Recessions lead to short-term job loss, lower levels of happiness and decreasing income levels. There is growing evidence that workers who first join the labour market during economic downturns suffer from poor job matches that have a sustained detrimental effect on their wages and career progression. This paper uses a range of US and UK data to document a more disturbing long-run effect of recessions: young people who leave school in the midst of recessions are significantly more likely to lead a life of crime than those graduating into a buoyant labour market. These effects are long lasting and substantial.
    Keywords: crime, recessions, unemployment
    JEL: J64 K42
    Date: 2014–07
  5. By: Kathryn Gordon; Joachim Pohl; Marie Bouchard
    Abstract: Investment treaty law – which is scattered over 3 000 international investment agreements adopted over a period of 50 years – is a crucial but complex basis for regulating international investment flows. Investment treaties are often thought to be silent on investors’ responsibilities to host societies and on their contributions to sustainable development. The present paper establishes a factual and statistical basis for understanding the relationship between investment treaty law and governments’ ability to advance the sustainable development agenda and promote responsible business conduct. The paper presents survey results of 2 107 investment treaties and 1 113 treaty-based arbitration cases in order to shed light on how (if at all) labour, environmental, human rights and anti-corruption considerations are referred to in investment treaties and investor-state arbitration cases based on them.
    Keywords: corruption, investment treaties, environmental law, bribery, investor state arbitration, ISDS, labour law
    JEL: F23 F53 K11 K33
    Date: 2014–07–23
  6. By: Asongu, Simplice; Jellal, Mohamed
    Abstract: In this paper, we introduce firm heterogeneity in the context of a model of non-compliance with minimum wage legislation. The introduction of heterogeneity in the ease with which firms can be monitored for non compliance allows us to show that non-compliance will persist in sectors which are relatively difficult to monitor, despite the government implementing non stochastic monitoring. Moreover, we show that the incentive not to comply is an increasing function of the level of the minimum wage and increasing function of the gap between the minimum wage and the competitive wage rate.
    Keywords: Minimum wage legislation, Compliance , Incentives , Informal sector
    JEL: J3 K31 K42 L51 M54 O17
    Date: 2014–07–15
  7. By: Domadenik, Polona (University of Ljubljana); Prašnikar, Janez (University of Ljubljana); Svejnar, Jan (Columbia University)
    Abstract: In this paper we present and test a theory of how political corruption, found in many transition and emerging market economies, affects corporate governance and productive efficiency of firms. Our model predicts that underdeveloped democratic institutions that do not punish political corruption result in political connectedness of firms that in turn has a negative effect on performance. We test this prediction on an almost complete population of Slovenian joint stock companies with 100 or more employees. Using the supervisory board structure, together with balance sheet and income statement data for 2000-2010, we show that a higher share of politically connected supervisory board members leads to lower productivity.
    Keywords: corruption, corporate governance, productivity, politicians, state owned enterprises
    JEL: D2 D21 D73 G34 L32
    Date: 2014–07
  8. By: Campaniello, Nadia (University of Essex); Diasakos, Theodoros (University of St. Andrews); Mastrobuoni, Giovanni (University of Essex)
    Abstract: Is there a rational component in the decision to commit suicide? Economists have been trying to shed light on this question by studying whether suicide rates are related to contemporaneous conditions. This paper goes one step further: we test whether suicides are linked to forward-looking behavior. In Italy, collective sentence reductions (pardons) often lead to massive releases of prisoners. More importantly, they are usually preceded by prolonged parliamentary activity (legislative proposals, discussion, voting, etc.) that inmates seem to follow closely. We use the legislative proposals for collective pardons to measure changes in the inmates' expectations about the length of their sentences, and find that suicide rates tend to be significantly lower when par- dons are proposed in congress. This suggests that, amongst inmates in Italian prisons, the average decision to commit suicide responds to changes in current expectations about future conditions. At least partially, therefore, the decision seems rationalizable.
    Keywords: suicides, rationality, prisons, collective pardons
    JEL: I1 D1 K4
    Date: 2014–07
  9. By: Waśniewski, Krzysztof
    Abstract: In the broad context of responsible management, and corporate responsibility, the present paper studies the general issue of conflicts between private investors, and governments, with a particular focus on the investor-state dispute settlement through international arbitration. On the grounds of empirical research published by other scholars, particularly by Susan D. Franck, and Barbara Koremenos, the paper aims at explaining theoretically the underlying economic motives of the recent surge in the number of internationally arbitrated, investor-state disputes, and at predicting its future developments. Additionally, the theoretical findings are applied to evaluate some of the possible, institutional outcomes of the prospective Transatlantic Trade and Investment Partnership. The general conclusion is that not only isn’t the international arbitration of investor-state disputes a threat to democracy, but also said arbitration helps to redress past infringements to public sovereignty.
    Keywords: corporate responsibility; public sovereignty; institutions; investor-state disputes
    JEL: F5 H1 K0
    Date: 2014–07–14
  10. By: Jelena Budak (The Institute of Economics, Zagreb); Edo Rajh (The Institute of Economics, Zagreb)
    Abstract: This study empirically evaluates the public procurement system in Croatia, a transition country and a new EU member state. The research is based on empirical evidence collected by surveying a large sample of companies. It investigates how businesses as actors in the public procurement tenders evaluate the system and what their perceived and experienced views are on the various components of public procurement. The baseline model borrows from the literature by including companies’ characteristics in terms of company size and sector of business operations. Furthermore, it assumes that there are significant differences in attitudes and ratings among companies that have participated in public procurement as direct suppliers compared to companies that have been indirectly involved as subcontractors. The business opinion on the public procurement system procedures and regulations has been assessed as well, providing insights into the business perceptions on main public procurement principles: accountability, effectiveness, value for money, integrity and achieving the EU standards. Special attention has been dedicated to the assessment of corruption risks in public procurement. The evidence for Croatia reveals that in spite of the EU standards introduced there are still, at least from the point of view of companies, irregularities and lack of trust in the national public procurement system.
    Keywords: public procurement, survey, Croatia, business attitudes
    JEL: D22 H83 K20 L51
    Date: 2014–03
  11. By: Zuzana Fungácová (Bank of Finland); Anna Kochanova (Max Planck Institute for Research on Collective Goods); Laurent Weill (LaRGE Research Center, Université de Strasbourg)
    Abstract: This study examines how bribery influences bank debt ratios for a large sample of firms in 14 transition countries. We combine information on bribery practices from the BEEPS survey with firm-level accounting data from the Amadeus database. Bribery is measured by the frequency of extra unofficial payments to officials to “get things done”. We find that bribery is positively related to firms’ total bank debt ratios, which provides evidence that bribing bank officials facilitates firms’ access to bank loans. This impact varies with the maturity of the bank debt, as bribery contributes to higher short-term bank debt ratios but lower long-term bank debt ratios. Finally, we find that the institutional characteristics of the banking industry influence the relation between bribery and firms’ bank debt ratios. Higher levels of financial development constrain the positive effects of bribery, whereas larger market shares of state-owned banks have the opposite effect. The presence of foreign banks also affects the impact of bribery, although this effect depends on the maturity of firms’ bank debt.
    Keywords: bank lending, bribery, corruption, Eastern Europe
    JEL: G32 K4 P2
    Date: 2014

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