New Economics Papers
on Law and Economics
Issue of 2014‒08‒09
sixteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Focusing Law Enforcement When Offenders Can Choose Location By Tim Friehe; Thomas J. Miceli
  2. On patent strength, litigation costs, and patent disputes under alternative damage rules By Bertrand Chopard; Thomas Cortade; Eric Langlais
  3. Crime in Colombia: More law enforcement or more justice? By Catalina Gómez; Hermilson Velásquez; Andrés Julián Rendón; Santiago Bohórquez
  4. The Effect of Local Area Crime on Mental Health By Christian Dustmann; Francesco Fasani
  5. Unorthodoxy in legislation: The Hungarian experience By Deák, Dániel
  6. The Storm Before the Calm? Adverse Effects of Tackling Organised Crime By Long, Iain W.
  7. The Principles of International Law: Interpretivism and its Judicial Consequences By Gianluigi Palombella
  8. Unemployment, Crime and Social Insurance By Long, Iain W.; Polito, Vito
  9. Women on Company Boards – An Example of Positive Action in Europe By Michal Gondek
  10. Protecting Democracy and the Rule of Law in the European Union: The Hungarian Challenge By Bojan Bugaric
  11. History of American Corporate Governance: Law, Institutions, and Politics By Eric Hilt
  12. Do Constitutions Matter? The Effects of Constitutional Environmental Rights Provisions on Environmental Outcomes By Christopher Jeffords; Lanse Minkler
  13. Differential Effects of Law, Culture and Political Risk on Fees, Performance and Risk-taking Behavior of Mutual Fund Managers By Mehri, Meryem
  14. Affirmative Action Bans and Black Admission Outcomes: Selection-Corrected Estimates from UC Law Schools By Danny Yagan
  15. Myths of Political Independence, or How Not to Solve the Corruption Problem: Lessons for Vietnam By Martin Painter
  16. The Geography of Financial Misconduct By Christopher A. Parsons; Johan Sulaeman; Sheridan Titman

  1. By: Tim Friehe (University of Bonn); Thomas J. Miceli (University of Connecticut)
    Abstract: This paper explores the advantages of focusing law enforcement on some locations when offenders can choose locations. The substitutability of different crimes from the offender's perspective is established as the key variable determining whether asymmetric enforcement is socially desirable. When it is easy for offenders to substitute crimes, focused law enforcement can be preferable only when the act imposes more harm in one location than in another (e.g., speeding in a residential or industrial area).
    Keywords: crime, deterrence, focused enforcement, allocation of police
    JEL: K42
    Date: 2014–07
  2. By: Bertrand Chopard; Thomas Cortade; Eric Langlais
    Abstract: This paper analyzes the effects of two damage rules (Lost Profi…t vs Unjust Enrichment) mainly used by Courts in patent litigations. In our model, the Infringer either is a mere imitator of the Patentee or introduces incremental innovations, and litigation costs are private information such that a pretrial settlement may be better for both litigants. We show that the Unjust Enrichment rule yields less trials than the Lost Pro…fit one. But regarding three main objectives, Patentee's protection, incentives to invest in R&D, and social welfare maximization,we …find that no rule is better than the other generally speaking. Our model also allows to emphasize how the combination between the size of litigation costs, the negotiation gains and the IPR strength, shapes the incentives to enforce as well infringe a IPR, although in a way specifi…c to each rule.
    Keywords: intellectual property, probabilistic patents, patent litigations, incremental innovations, pretrial negotiations, legal costs, imperfect competition.
    JEL: L1 L4 D8 K2 K4
    Date: 2014
  3. By: Catalina Gómez; Hermilson Velásquez; Andrés Julián Rendón; Santiago Bohórquez
    Abstract: This study considers the effect that judicial and police efficiency exercised on crime in 25 of the 33 political-administrative divisions in Colombia during the period 2000- 2011. Specifically, the study seeks to determine whether the reduction of crime was the result of increases in the cost of crime as a result of the strengthening of the country’s security forces, especially the National Police, or instead was due to the greater efficiency of the penal system resulting from a structural change stemming from Act 906 of 2004. To view this we propose a model of dynamic panel data that not only includes the individual and temporal effects of the variables of interest, but also allows us to understand the inertia in criminal behavior. The results indicate an inverse relationship between the number of crimes and the greater efficiency of the police and judicial action, which is consistent with the evidence reported in other international work. Robustness checks confirmed the validity of the findings.
    Keywords: Crime economy, data panel, police, judicial system, efficiency
    JEL: D61 H83 I38 K14 K42
    Date: 2014–02–01
  4. By: Christian Dustmann (University College London); Francesco Fasani (Queen Mary University)
    Abstract: This paper analyses the effect of local crime rates on residents’ mental health. Using longitudinal information on individuals’ mental well-being, we address the problem of sorting and endogenous moving behaviour. We find that crime causes considerable mental distress for residents, mainly driven by property crime. Effects are stronger for females, and mainly related to depression and anxiety. The distress caused by one standard deviation increase in local crime is 2-4 times larger than that caused by a one standard deviation decrease in local employment, and about one seventh of the short-term impact of the 7 July 2005 London Bombings.
    Keywords: neighbourhoodeffects,mentalwellbeing,fearofcrime
    JEL: I18 K42 R23
    Date: 2014–07
  5. By: Deák, Dániel
    Abstract: This paper deals with legal unorthodoxy. The main idea is to study the so-called unorthodox taxes Hungary has adopted in recent years. The study of unorthodox taxes will be preceded by a more general discussion of how law is made under unorthodoxy, and what are the special features of unorthodox legal policy. Unorthodoxy challenges equality before the law and is critical towards mass democracies. It also raises doubts on the operability of the rule of law, relying on personal skills, or loyalty, rather than on impersonal mechanisms arising from checks and balances as developed by the division of political power. Besides, for lack of legal suppositions, legislation suffers from casuistry and regulatory capture.
    Keywords: unorthodox economic and legal policies, populism, special industry levies, quality of legislation, rule of law, legal certainty, substantive and procedural justice, review of constitutional provisions
    JEL: K20
    Date: 2014
  6. By: Long, Iain W. (Cardiff Business School)
    Abstract: Policies targeted at high-crime neighbourhoods may have unintended consequences in the presence of organised crime. Whilst they reduce the incentive to commit crime at the margin, those who still choose to join the criminal organisation are hardened criminals. Large organisations take advantage of this, substituting away from membership size towards increased individual criminal activity. Aggregate crime may rise. However, as more would-be recruits move into the formal labour market, falling revenue causes a reversal of this effect. Thereafter, the policy reduces both size and individual activity simultaneously.
    Keywords: Organised crime; crime policy; occupational choice
    JEL: D82 J24 J28 K42 L21
    Date: 2014–07
  7. By: Gianluigi Palombella
    Abstract: Principles are part of international law as much as of other legal orders. Nonetheless, beyond principles referred to the functioning of IL, or the sector related discipline in discrete fields, those fundamental principles identifying the raison d’etre, purpose and value of the legal international order, as a whole, remain much disputed, to say the least. In addressing such a problem, one that deeply affects interpretation and legal adjudication, this article acknowledges the limits and weakness of legal positivism in making sense of the inter- and supra-national legal order(s). It appraises also the novel from the late Ronald Dworkin, concerning IL, and its consequence for interpretivism in the international environment, so different from State political communities and their ‘integrity’. Finally, some recent cases before international Courts shall be considered, that expose difficulties stemming from traditional legal positivist strictures, and explain how judicial reasoning actually profits from asking further questions of principles. All the more so, if the issues at stake happen to be covered by two or more diverging legal regimes, that would, per sé, lead to opposite outcomes.
    Date: 2014–06–09
  8. By: Long, Iain W. (Cardiff Business School); Polito, Vito (Cardiff Business School)
    Abstract: We study an individual's incentive to search for a job in the presence of random criminal opportunities. These opportunities extenuate moral hazard, as the individual sometimes commits crime rather than searching. Even when he searches, he applies less effort. We then revisit the design of optimal unemployment insurance in this environment. If the individual is more likely to remain unemployed and unpunished when he commits crime than when he searches for a job (as suggested by empirical studies), declining unemployment benefits reduce the payoff from crime relative to that from searching. Compared to the canonical models of optimal unemployment insurance, this provides a further incentive to reduce benefits over time.
    Keywords: Unemployment insurance; Moral hazard; Crime; Recursive contracts
    JEL: C61 D82 H55 J65 K42
    Date: 2014–07
  9. By: Michal Gondek
    Abstract: In the last decade there has been a rising pressure in Europe to increase the number of women in the boards of large companies. Starting with Norway in 2003, several countries adopted legislation for this purpose. Building on this evolution, in November 2012 the European Commission presented a draft Directive applicable to big companies listed on the stock exchange. After describing these developments, the paper examines the case law of EU Court of Justice on positive action for women in employment. On that basis, it is suggested that the Court could accept the Commission’s proposal as compatible with the principle of equality. Finally, the paper puts the measures in favour of women in company boards, as an example of positive action, in the context of other national measures in favour of women and in favour of other groups - such as persons with disabilities and ethnic minorities.
    Keywords: European law; economic law; fundamental/human rights; gender policy; harmonisation; non-discrimination; preliminary rulings
    Date: 2014–07–25
  10. By: Bojan Bugaric
    Abstract: After the fall of the Berlin Wall and the collapse of communist regimes, many Central and East European countries successfully managed a ‘return to Europe’. For many observers, the ‘return to Europe’ signaled the ultimate victory of democracy and rule of law over the legacy of totalitarianism in these countries. In contrast to this optimistic view, history is not over and the rising illiberalism in Hungary as well as in some other CEE countries represents a major challenge to liberal democracy. All those who expected that a decade of ‘EU accession’ for CEE legal regimes would lead to an irreversible break with the totalitarian past were simply naive. They forgot that institutions of liberal democracy cannot be created overnight. It is not only that developing liberal democracy requires more time; it also depends on continuous support and endorsement by the people. The rise of illiberal authoritarianism in Hungary is reminiscent of the dramatic events in Europe’s most horrible century. Even if the existence of the EU makes the danger of rising illiberalism less dramatic, there are still reasons to be worried about the authoritarian illiberal attacks on liberal democracy. As the Hungarian case shows, the EU has quite limited powers to effectively prevent the slide to authoritarianism. The irony is that conditionality, so powerful before the CEE countries joined the EU, loses much of its teeth once countries become member states of the EU. Yet, the discussion of the EU instruments to contain such slides into illiberalism has also shown that they are not totally unimportant and that they can be further improved. As I tried to argue, safeguarding democracy and the rule of law in the EU requires serious improvements in the legal toolkit currently available to deal with the slide to authoritarianism in Hungary. Ultimately, EU political actors must respect the limits of the EU political constitution and not attempt to go too far in their otherwise noble aim of protecting democracy in the EU.
    Keywords: rule of law; Hungary; European law; transition processes
    Date: 2014–07–15
  11. By: Eric Hilt
    Abstract: This paper presents an overview of the history of corporate governance in the United States, emphasizing the period before the advent of federal securities laws and the Securities and Exchange Commission (SEC). Recent research has overturned many widely accepted beliefs about corporate governance during this period. In particular, the evolution of American corporate governance has not followed a simple, linear trajectory, beginning with small, well-governed firms and ending with large, poorly governed ones. Over time, economic and institutional changes have given rise to successive generations of corporations with their own governance problems and their own mechanisms to address those problems. When existing governance mechanisms failed, the United States experienced corporate governance crises—episodes that shattered investors’ faith in corporate management and the legal institutions intended to protect their rights. The resolutions of these crises have sometimes been found in legal innovations, and in other cases, in institutional or market-based solutions.
    JEL: G3 N21 N81
    Date: 2014–07
  12. By: Christopher Jeffords (Indiana University of Pennsylvania); Lanse Minkler (University of Connecticut)
    Abstract: We use a novel data set within an instrumental variables framework to test whether the presence and legal strength of constitutional environmental rights are related to environmental outcomes. The outcome variables include Yale’s Environmental Performance Index and some of its components. The analysis accounts for the possibility that a country which takes steps to protect the environment might also be more likely to constitutionalize environmental rights. Controls include: (1) gross domestic product per capita (2) whether the country is a party to the International Covenant on Economic, Social, and Cultural Rights; (3) rule of law; (4) population density; and (5) exogenous geographic effects. The inclusion of income means that our study is directly related to the Environmental Kuznets Curve literature. We find that constitutions do indeed matter for positive environmental outcomes, which suggests that we should not only pay attention to the incentives confronting polluters and resource users, but also to the incentives and constraints confronting those policymakers who initiate, monitor, and enforce environmental policies.
    Keywords: Constitutional Law, Environment, Environmental Kuznets Curve, Environmental Rights
    JEL: K10 K32 O13 Q50 Q56
    Date: 2014–07
  13. By: Mehri, Meryem
    Abstract: This paper considers an international sample of conventional and Islamic mutual funds to assess whether law, culture, and political risk affect the performance and risk-taking behavior of mutual funds. Overall, the results show strongly that legal conditions, culture, and political risk have robust differential effects on performance and risk-taking behavior of Islamic and conventional funds. We find that Islamic and conventional funds in developing countries with lower legal conditions, higher corruption and political risk have higher performance. Likewise, in such conditions, both of Islamic and conventional funds have lower return volatility and systematic risk. Overall, Hoefsted culture's values affect significantly the performance and risk-taking behavior of fund managers with robust differential effects between Islamic and conventional funds. The components of country legality and political risk Index have significant differential effects between Islamic and conventional funds. Overall, the data show the fund manager characteristics (experience, qualifications, etc) and specific fund features matter for the performance and risk-taking behavior of fund managers.
    Keywords: Risque; Sociétés d'investissement; Risque politique; Contrats incitatifs; Performance; Risk; Managerial Compensation; Incentive Contracts; Mutual funds; Law and finance; Political risk;
    JEL: K29 G23 G24
    Date: 2014–06
  14. By: Danny Yagan
    Abstract: The consequences of banning affirmative action depend on schools' ability and willingness to avoid it. This paper uses rich application-level data to estimate the effect of the 1996 University of California affirmative action ban---the first and largest ban---on black admission advantages at UC law schools. Controlling for selective attrition from applicant pools, I find that the ban reduced the black admission rate from 61% to 31%. This implies that affirmative action ban avoidance is far from complete and suggests that affirmative action at law schools passes the constitutional test of not being easily replaced by non-racial alternatives. I further find that the affirmative action ban far from eliminated cross-sectional black admission advantages, which remained as high as 63 percentage points for applicants at the margin of being accepted or rejected. This suggests that UC schools were technologically able to sustain substantially higher black admission rates after the ban but were either unwilling or legally unable to do so.
    JEL: I0 J0 K0
    Date: 2014–07
  15. By: Martin Painter
    Abstract: Corruption is widely identified as a critical problem for developing economies and is also viewed as a priority issue by international organisations and donors. Governments such as Vietnam place anti-corruption high on their policy agenda. However, external observers regularly criticise them for not meeting their targets. The problem with the critique is that it mostly places the blame on implementation failures when the issue is as much a design failure. Templates for anti-corruption success in fact misread the practical lessons. One element of the standard template, the need for an ‘independent’ anti-corruption enforcement system, misreads the meaning and empirical reality of ‘independence’. Evidence is presented from Singapore, Hong Kong and Indonesia to show that their anti-corruption agencies are ‘independent’ more in the sense that they are powerful, rather than in the sense that they are apolitical. The lesson for Vietnam is that misleading design principles such as ‘political independence’ are a distraction from the task of strengthening the anti-corruption law enforcement system.
    Keywords: corruption; Vietnam; good governance; political independence; anti-corruption reform
  16. By: Christopher A. Parsons; Johan Sulaeman; Sheridan Titman
    Abstract: We find that a firm’s tendency to engage in financial misconduct increases with the misconduct rates of neighboring firms. This appears to be caused by peer effects, rather than exogenous shocks like regional variation in enforcement. Effects are stronger among firms of comparable size, and among CEOs of similar age. Moreover, local waves of financial misconduct correspond with local waves of non-financial corruption, such as political fraud.
    JEL: G0 K42 M41 R0
    Date: 2014–07

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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