nep-law New Economics Papers
on Law and Economics
Issue of 2014‒08‒20
ten papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Social Norms and the Enforcement of Laws By Daron Acemoglu; Matthew O. Jackson
  2. Fight Cartels or Control Mergers? On the Optimal Allocation of enforcement Efforts within Competition Policy By Andreea Cosnita; Jean-Philippe Tropeano
  3. Optimal Leniency Programs when Firms Have Cumulative and Asymmetric Evidence By Marc Blatter; Winand Emons; Silvio Sticher
  4. Does the Link between Unemployment and Crime Depend on the Crime Level? A Quantile Regression Approach By Entorf, Horst; Sieger, Philip
  5. School Starting Age and Crime By Rasmus Landersø; Helena Skyt Nielsen; Marianne Simonsen
  6. Global Investment Decisions and Patent Protection: Evidence from German Multinationals By Nabokin, Tatjana
  7. The Blind Spot of Corporate Social Responsibility: Changing the legal framework of the firm By Kevin Levillain; Blanche Segrestin
  8. Remix Rights and Negotiations Over the Use of Copy-Protected Works By Joshua S. Gans
  9. Corporate income tax, legal form of organization, and employment By Chen, Daphne; Qi, Shi; Schlagenhauf, Don E.
  10. Interpreting the Pari Passu Clause in Sovereign Bond Contracts: It's All Hebrew (and Aramaic) to Me By Wright, Mark L. J.

  1. By: Daron Acemoglu; Matthew O. Jackson
    Abstract: We examine the interplay between social norms and the enforcement of laws. Agents choose a behavior (e.g., tax evasion, production of low-quality products, corruption, substance abuse, etc.) and then are randomly matched with another agent. An agent's payoff decreases with the mismatch between her behavior and her partner's, as well as average behavior in society. A law is an upper bound (cap) on behavior and a law-breaker, when detected, pays a fine and has her behavior forced down to the level of the law. Law-breaking depends on social norms because detection relies, at least in part, on private cooperation and whistle-blowing. Law-abiding agents have an incentive to whistle-blow because this reduces the mismatch with their partner's behavior as well as the overall negative externality. When laws are in conflict with norms so that many agents are breaking the law, each agent anticipates little whistle-blowing and is more likely to also break the law. Tighter laws (banning more behaviors) have counteracting effects, reducing behavior among law-abiding individuals but inducing more law-breaking. Greater fines for law breaking and better public enforcement reduce the number of law-breakers and behavior among law-abiding agents, but increase levels of law breaking among law-breakers (who effectively choose their behavior targeting other high-behavior law-breakers). Within a dynamic version of the model, we show that laws that are in strong conflict with prevailing social norms may backfire, while gradual tightening of laws can be more effective by changing social norms.
    JEL: C72 C73 P16 Z1
    Date: 2014–08
  2. By: Andreea Cosnita (EconomiX - CNRS : UMR7166 - Université Paris X - Paris Ouest Nanterre La Défense); Jean-Philippe Tropeano (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)
    Abstract: This paper deals with the optimal enforcement of competition law between merger and anti-cartel policies. We examine the interaction between these two branches of antitrust, given the budget constraint of the public agency, and taking into account the ensuing incentives for firms in terms of choice between cartels and mergers. To the extent that a tougher anti-cartel action triggers more mergers and vice-versa, we show that the two antitrust branches are complementary. However, if the merger's coordinated effect is taken into account, then for a sufficiently large such effect the agency may optimally have to refrain from controlling mergers and instead spend all resources on fighting cartels.
    Date: 2013–06–01
  3. By: Marc Blatter; Winand Emons; Silvio Sticher
    Abstract: An antitrust authority deters collusion using fines and a leniency program. Unlike in most of the earlier literature, our firms have imperfect cumulative evidence of the collusion. That is, cartel conviction is not automatic if one firm reports: reporting makes conviction only more likely, the more so, the more firms report. Furthermore, the evidence is distributed asymmetrically among firms. Asymmetry of the evidence can increase the cost of deterrence if the high-evidence firm chooses to remain silent. Minimum-evidence standards may counteract this effect. Under a marker system only one firm reports; this may increase the cost of deterrence.
    Keywords: antitrust; cartels; deterrence; leniency; evidence
    JEL: D43 K21 K42 L40
    Date: 2014–07
  4. By: Entorf, Horst (Goethe University Frankfurt); Sieger, Philip (Goethe University Frankfurt)
    Abstract: Two alternative hypotheses – referred to as opportunity- and stigma-based behavior – suggest that the relationship between unemployment and crime also depends on preexisting local crime levels. In order to analyze conjectured nonlinearities between both variables, we are using quantile regressions applied to German county panel data. While both conventional OLS and quantile regressions confirm the positive link between unemployment and crime for property crimes, results for assault differ with respect to the method of estimation. Whereas conventional mean regressions do not show any significant effect (which would confirm the usual result found for violent crimes in the literature), quantile regression uncovers that size and importance of the relationship are conditional on the crime rate: The partial effect is significantly positive for moderately low and median quantiles of local assault rates.
    Keywords: unemployment, crime, quantile regression, market of offences
    JEL: C21 E24 C33
    Date: 2014–07
  5. By: Rasmus Landersø (Rockwool Foundation Research Unit & Department of Business and Economics, Aarhus University); Helena Skyt Nielsen (Department of Business and Economics, Aarhus University); Marianne Simonsen (Department of Business and Economics, Aarhus University)
    Abstract: This paper investigates the effects of school starting age on crime while relying on variation in school starting age induced by administrative rules; we exploit that Danish children typically start first grade in the calendar year they turn seven, which gives rise to a discontinuity in childrens’ school starting age. Analyses are carried out using register-based Danish data. We find that higher age at school start lowers the propensity to commit crime, but that this reduction is caused by incapacitation while human capital accumulation is unaffected. Importantly, we also find that the individuals who benefit most from being old-for-grade are those with high latent abilities whereas those with low latent ability seem to be unaffected by being old-for-grade in school.
    Date: 2013–09
  6. By: Nabokin, Tatjana
    Abstract: This paper investigates the role of patent protection in the global investment decisions of multinational firms. Using comprehensive firm-level panel data of German multinationals, we investigate how changes in a host country’s patent protection influence the extensive and intensive margin of foreign direct investment (FDI) decisions. We isolate the effect of patent protection by estimating a difference-in-difference type approach and controlling for an extensive set of fixed effects. At the extensive margin, we find that strengthening patent protection increases the probability of locating a foreign affiliate, whereby the effect is stronger for firms that highly depend on patent protection. The effect depends further on a host country’s initial legal and economic development. Given that a parent has established a foreign affiliate, no systematic effects of patent protection are found for the decision on how much to invest in the affiliate at the intensive margin. With regard to the ownership structure, we find that multinationals take into account the risk of intellectual property infringements and increase the ownership share held in the foreign affiliate after strengthening patent protection.
    Keywords: Intellectual property rights; patent protection; foreign direct investment; multinationals
    JEL: O34 F23
    Date: 2014–08
  7. By: Kevin Levillain (CGS - Centre de Gestion Scientifique - MINES ParisTech - École nationale supérieure des mines de Paris); Blanche Segrestin (CGS - Centre de Gestion Scientifique - MINES ParisTech - École nationale supérieure des mines de Paris)
    Abstract: CSR research is generally based on the assumption that responsible behaviour is compatible with the legal framework of the firm and its standard strategic approaches. Could this hypothesis be misleading? This paper exhibits some recent practical innovations in the USA that have had to move away from the CSR research framework to provide a more constructive approach to social and environmental impacts. The new legal provisions in question revise the legal framework of firms and their corporate purposes. Such innovations suggest that management science research should study how to improve interactions between the well-acknowledged 'strategic attention' and often overlooked legal contracts, with a view to imagining new forms of collective action.
    Date: 2014–06
  8. By: Joshua S. Gans
    Abstract: This paper examines an environment where original content can be remixed by follow-on creators. The modelling innovation is to assume that original content creators and remixers can negotiate over the ‘amount’ of original content that is used by the follow-on creator in the shadow of various rights regimes. The following results are demonstrated. First, traditional copyright protection where the original content creators can block any use of their content provides more incentives for content creators and also more remixing than no copyright protection. This is because that regime incentivises original content creators to consider the value of remixing and permit it in negotiations. Second, fair use can improve on traditional copyright protection in some instances by mitigating potential hold-up of follow-on creators by original content providers. Finally, remix rights can significantly avoid the need for any negotiations over use by granting those rights to follow-on innovators in return for a set compensation regime. However, while these rights are sometimes optimal when the returns to remixing are relatively low, standard copyright protection can afford more opportunities to engage in remixing when remixing returns are relatively high.
    JEL: O34
    Date: 2014–08
  9. By: Chen, Daphne (Florida State University); Qi, Shi (Florida State University); Schlagenhauf, Don E. (Florida State University)
    Abstract: We adopt a dynamic stochastic occupational choice model with heterogeneous agents and evaluate the impact of a potential reduction in the corporate income tax on employment. We show that a reduction in corporate income tax leads to moderate job creation. In the extreme case, the elimination of the corporate income tax would reduce the non-employed population by 5.4 percent. In the model, a reduction in the corporate income tax creates jobs through two channels, one from new entry firms and one from existing firms changing their form of legal organization. In particular, the latter accounts for 85.7 percent of the new jobs created.
    Keywords: Corporate Income Taxes; Employment; Firm heterogeneity; Entrepreneurs
    JEL: C54 E10 E69 H25 H32
    Date: 2014–04–03
  10. By: Wright, Mark L. J. (Federal Reserve Bank of Chicago)
    Abstract: In this comment, we take a helicopter tour of the history of notions of “equality” and “justice” in sovereign debt restructuring in particular, and in the division of property more generally, and show that these concerns have existed for centuries, if not millennia. We argue that the issue at stake in the interpretation of the pari passu clause is not so much the treatment of holders of identical claims—it is now customary to treat them identically—but whether the holders of different claims should be treated differently. We show that exists a customary “principle of differentiation” that allows creditors with claims that differ in specific ways to be treated preferentially. One of these specific differences concerns debts that have been reduced in value during a previous debt restructuring or default, and based on this principle we conclude that the New York court has, if not completely misinterpreted the meaning of the pari passu clause, then at least misapplied it.
    Keywords: Sovereign debt restructuring; pari passu; Argentina; inter-creditor equity
    JEL: D63 F34 K12
    Date: 2014–05

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