nep-law New Economics Papers
on Law and Economics
Issue of 2014‒11‒07
fifteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Settlement and Trial: Selected Analyses of the Bargaining Environment By Andrew F. Daughety; Reinganum F. Reinganum
  2. Investment Treaties and Shareholder Claims: Analysis of Treaty Practice By David Gaukrodger
  3. Documenting Legal Dissonance: Legal Pluralism in Papua New Guinea By Shaun Larcom; Timothy Swanson
  4. Decision Errors, Legal Uncertainty and Welfare: a General Treatment By Yannis Katsoulacos; David Ulph
  5. Behavioral Economics of Crime Rates and Punishment Levels By Saori Chiba; Kaiwen Leong
  6. An analysis of how 2002 judicial reorganisation has impacted on the performance of the First Instance Courts (Preture) in Ticino By Roberto Ippoliti; Massimiliano Vatiero
  7. Rewarding Judicial Independance: Evidence from the Italian Constitutional court By Nadia FIORINO; Nicolas GAVOILLE; Fabio PADOVANO
  8. The evolution of gender legislation in Italy and Europe By Monica Marcucci; Maria Iride Vangelisti
  9. Rules of Evidence and Liability in Contract Litigation: The Efficiency of the General Dynamics Rule By Vlad Radoias; Simon J. Wilkie; Michael A. Williams
  10. Optimal Cartel Prices in Two-Sided Markets Access By Federico Boffa; Lapo Filistrucchi
  11. In School and Out of Trouble? Investigating the Effects of Furloughing Public School Teachers on Juvenile Crime in Hawaii By Randall Q. Akee; Timothy J. Halliday; Sally Kwak
  12. Financial Regulation in Estonia By Egert Juuse; Rainer Kattel
  13. The good, the bad and the ugly: The socio-economic impact of drug cartels and their violence in Mexico By Roxana Gutierrez-Romero; Monica Oviedo Leon
  14. When do firms invest in corporate social responsibility? A real option framework By Cassimon, Danny; Engelen, Peter-Jan; Van Liedekerke, Luc
  15. Open Access vs. Restricted Access with Two Variable Factors: On the Redistributive Effects of a Property Regime Change By Ronan Congar; Louis Hotte

  1. By: Andrew F. Daughety (Vanderbilt University); Reinganum F. Reinganum (Vanderbilt University)
    Abstract: This Handbook chapter provides a brief review of selected settlement bargaining models in some areas where new work is developing and where additional work is likely to yield yet further important results. This work has focused on what might be thought of as the environment of the settlement negotiation process, where bargaining failure generally results in trial, and our survey will use that perspective to organize the work discussed
    Keywords: Settlement, bargaining
    JEL: K4 C7
    Date: 2014–07–08
  2. By: David Gaukrodger
    Abstract: Advanced systems of domestic corporate law generally apply a “no reflective loss” principle to shareholder claims. Shareholder claims are permitted for direct injury to shareholder rights (such as voting rights). But shareholders generally cannot bring claims for reflective loss incurred as a result of injury to "their" company (such as loss in value of shares). Only the directly-injured company can claim. In contrast, shareholder claims for reflective loss have consistently been permitted under typical bilateral investment treaties (BITs) in recent years. This paper analyses investment treaty provisions relating to shareholder claims. It addresses (i) treaty regimes for shareholder recovery and company recovery of damages, including their consequences for investor protection and government liability; (ii) the interaction of reflective loss claims with treaty provisions that seek to limit multiple claims; and (iii) treaty provisions applicable to government objections to shareholder claims for reflective loss.
    Keywords: shareholders, creditors, foreign investment, international investment law, shareholder rights, international economic law, comparative law, arbitrators, international arbitration, company law, consistency, corporate law, shareholder claims, shareholder remedies, stockholder remedies, domestic impact of investment law, level playing field, investment treaties, stockholders, treaty shopping, derivative action, derivative loss, reflective loss, agency costs, international investment, investment arbitration, judicial economy, separate legal personality, concurrent claims, overlapping claims, related claims, competitive neutrality, 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
    JEL: F21 F23 F53 F55 G32 G34 G38 K23 K33 K41
    Date: 2014–10–10
  3. By: Shaun Larcom; Timothy Swanson (Centre for International Environmental Studies, The Graduate Institute)
    Abstract: We examine the case of payback killings and similar retributive sanctions in the context of a transplant regime such as that existing in Papua New Guinea. This is a post-colonial regime with multiple overlaid legal systems, with significant negative interaction existing between the different regimes. We explain how multiple regimes can co-exist in the context of negative externalities. To explain such an outcome, we provide a simple model for considering the interaction between legal regimes within a single jurisdiction. We demonstrate that, even when the fundamental relationship between such regimes is to behave as substitutes for one another, the existence of negative externalities between the enforcement technologies can result in the withdrawal of enforcement efforts. We term this phenomenon legal dissonance – the situation in which legal regimes interact negatively in their production technologies. This model is then applied to the post-colonial state of Papua New Guinea where we use survey data to identify significant negative production externalities in the enforcement of informal law. We suggest that disorder may be the outcome of too much law.
    Keywords: legal pluralism, social norms, enforcement externalities
    JEL: O17 P48 K42 L51
    Date: 2014–09–29
  4. By: Yannis Katsoulacos (Athens University of Economics and Business); David Ulph (University of St Andrews)
    Abstract: This paper provides a general treatment of the implications for welfare of legal uncertainty. We distinguish legal uncertainty from decision errors: though the former can be influenced by the latter, the latter are neither necessary nor sufficient for the existence of legal uncertainty. We show that an increase in decision errors will always reduce welfare. However, for any given level of decision errors, information structures involving more legal uncertainty can improve welfare. This holds always, even when there is complete legal uncertainty, when sanctions on socially harmful actions are set at their optimal level. This transforms radically one’s perception about the “costs” of legal uncertainty. We also provide general proofs for two results, previously established under restrictive assumptions. The first is that Effects-Based enforcement procedures may welfare dominate Per Se (or object-based) procedures and will always do so when sanctions are optimally set. The second is that optimal sanctions may well be higher under enforcement procedures involving more legal uncertainty.
    Keywords: optimal law enforcement, optimal penalties, legal uncertainty, decision errors
    JEL: K4 L4 K21 K23
    Date: 2014–02–01
  5. By: Saori Chiba; Kaiwen Leong
    Abstract: Empirical studies have shown, paradoxically, that increasing the probability of apprehension can correlate with an increase in the total number of criminal actions. To examine this phenomenon, this paper develops a theory of "personal rules" based on the tradeoff between oneÕs self-image of criminal productivity and the temptation Ð salience of the present Ð of taking the easy way out by committing a crime. This theory analyzes transformation of lapses into precedents that undermine future self-restraint. The foundation for this transformation is imperfect recall of oneÕs own criminal productivity within certain defined parameters, which leads people to draw inaccurate inferences from their past actions. Rationalization may lead to overestimation of the expected utility of committing a crime when the opportunity presents itself.
    Keywords: Crime, Imperfect Recall,Willpower.
    JEL: D03 D81 K42
    Date: 2014–10
  6. By: Roberto Ippoliti (Scuola Nazione dell'Amministrazione, Presidenza del Consiglio dei Ministri, Italia); Massimiliano Vatiero (Cattedra "Brenno Galli" in Analisi Economica del Diritto, Università della Svizzera italiana, Svizzera)
    Abstract: With data from 2001 to 2010 of the First Instance Courts of the Canton of Ticino, Switzerland, this paper examines the impact of Legge sull’istituzione della Pretura penale e della funzione di sostituto Procuratore pubblico (2002), which meant to improve Cantonal court performance by decreasing penal workload. Our results suggest that such law has posed non-positive effects on judicial length and courts’ performance. This work may furnish moreover some intuition about the expected impact of Legge sull’organizzazione giudiziaria (2006), which has adapted cantonal judicial system to new Swiss Civil Procedure Code, as well policy proposals for the cantonal programme known as Giustizia 2018.
    Keywords: Judicial efficiency, Court performance, civil justice, Ticino
    JEL: K41 M11
    Date: 2014–09
  7. By: Nadia FIORINO (Dipartimento di Sistemi e Istituzioni per l’Economia, Università degli Studi dell’Aquila, Italy); Nicolas GAVOILLE (CREM-CNRS and Condorcet Center, University of Rennes 1, France); Fabio PADOVANO (CREM-CNRS and Condorcet Center, University of Rennes 1, France, Department of Political Sciences, University Roma Tre, Italy)
    Abstract: We use data about the Italian Constitutional Court (1956-2005) to verify an implication of the “revisionist” explanations of judicial independence with respect to judicial appointments, namely that elected politicians reward more independent justices with appointments after the Court tenure. The empirical strategy is two-step. First, we estimate a logit fixed-effect model to evaluate the personal degree of independence for each Italian justice reporter. This “judge-effect” is based on the proneness of a judge to declare the constitutional illegitimacy of a law controlling for the environmental conditional phenomena. Second, we verify to what extent this degree of independence affects the probability of obtaining a politically controlled occupation after the end of the mandate at the Court. Our results, obtained by a variety of estimators to check their robustness, strongly support the revisionist view.
    Keywords: Judicial independence, revisionist view, post Court political appointments
    JEL: D72 H1
    Date: 2014–06
  8. By: Monica Marcucci (Bank of Italy); Maria Iride Vangelisti (Bank of Italy)
    Abstract: The work describes the evolution of the Italian legislation on equal opportunities and compares the current legal framework with those in other European jurisdictions and the gender policies of the European Community. The aim is to identify the regulatory initiatives taken elsewhere that could help improve the condition of women in Italy. The study suggests that the existing gaps in gender equality among countries are mainly related to rule enforcement, which in turn reflects the extent to which gender issues are lent importance in the society’s dominant value system. This highlights the need for appropriate mechanisms to ensure the effective implementation of the “gender mainstreaming” principle (statistics, gender budgeting, ombudspeople, media and education programs). As to more specific gender policies, ad hoc measures are needed to promote a cultural shift in the division of tasks among men and women (e.g. reforms of parental leave), including measures that affect existing equilibria, so as to remedy the traditional exclusion of women from decision-making processes (e.g. gender quotas).
    Keywords: gender law, gender equality.
    JEL: J16 K39
    Date: 2013–06
  9. By: Vlad Radoias (Department of Economics, Towson University); Simon J. Wilkie (Department of Economics, University of Sourthern California); Michael A. Williams (Competition Economics)
    Abstract: We study the effects of different rules of evidence and liability in con- tract litigation. When a contracting firm fails to perform, it may blame the buyer for withholding private information. We show that the evidentiary and liability rules used by the Supreme Court in General Dynamics v. U.S. lead to a more efficient outcome than either a strict liability rule or an evidentiary rule requiring the disclosure of the buyer's private information for use by the contractor in litigation.
    Keywords: Procurement auctions, state-secrets privilege, superior knowledge, private information.
    JEL: D44 D82 H56 H57
    Date: 2014–10
  10. By: Federico Boffa (Free University of Bolzano, Faculty of Economics and Management, Piazzetta dell’Università 1, I-39031 Brunico, Italy); Lapo Filistrucchi (University of Florence, Department of Economics and Management, Via delle Pandette 9, I - 50127 Firenze, Italy)
    Abstract: We study optimal cartel prices in a two-sided market. We present a simple model showing that prices above the two-sided monopoly price may prevail on one side of a two-sided market as a means to enhance the sustainability of the cartel. We prove that in such a case a higher benefit from the network effect may compensate customers on that side of the market for the higher prices they are charged. We then provide both sufficient and necessary conditions for these results to hold in more complex models of two-sided markets. Our analysis extends to cartels in two-sided markets a result previously known for cartels selling complementary products, despite the fact that products in a two-sided market are not complements for customers, since customers typically buy only one of the two products (e.g. in the case of newspapers, advertisers buy advertising slots while readers buy content) and products on each side are substitutes (e.g. newspapers publishers compete for readers and for advertisers).
    Keywords: two-sided markets, indirect network effects, collusion, cartel, platform, TV, newspapers, media
    JEL: L12 L41 L81 L82 L86
    Date: 2014–10
  11. By: Randall Q. Akee (UCLA, Luskin School of Public Affairs); Timothy J. Halliday (UHERO, University of Hawaii at Manoa); Sally Kwak (U.S. Congress, Joint Committee on Taxation)
    Abstract: Due to the large social costs of juvenile crime, policymakers have long been concerned about its causes. In the 2009-10 school year, the State of Hawaii responded to fiscal strains by furloughing all school teachers employed by the Department of Education and canceling class for seventeen instructional days. We examine the effects of this unusually short school year to draw conclusions about the relationship between time in school and juvenile arrests on Oahu. We calculate marginal effects from a negative binomial model and find that time off from school is associated with significantly fewer juvenile assault and drug-related arrests, although there are no changes in other types of crimes, such as burglaries. During the shortened school year, we calculate that there were twenty fewer assault arrests and fourteen fewer drug-related arrests of juveniles on Oahu. The declines in arrests for assaults were the most pronounced in poorer regions of the island whereas the declines in drug-related arrests were higher in relatively more prosperous regions.
    Keywords: Education, Crime, Inequality
    JEL: J08 I24
    Date: 2011–04
  12. By: Egert Juuse; Rainer Kattel (Tallinn University of Technology)
    Abstract: Regulation of the banking industry in Estonia is theoretically significant in many respects. There is no clear straightforward model that would explain the evolution of the banking legislation, as all theoretical concepts are applicable for understanding the dynamics at certain periods in the regulatory development trajectory. This is witnessed in the interplay of domestic features and external factors. Both the need to build up the institutional framework for private finance and address re-occurring crises anchored the banking regulation and supervision to the EU and other international principles and practices. Estonia has been “accused” of meticulous punctuality in applying the EU regulations, in some cases directly copying from external legal sources, and setting even stricter requirements than the EU would dictate. This, however, has created a paradox of exemplary compliance with the EU standards in terms of its extensiveness, but meager effectiveness in addressing real-life developments. The paper shows the pragmatic approach to establishing regulatory and supervisory framework in the 1990s in the context of crises, internationalization of banking, and also EU accession aspirations, while 2000s mark gradual outsourcing of oversight and embedded formalism in terms of deepening reliance on external normative standards with insignificant economic substance, given the local circumstances.
    Keywords: Financial regulation, financial supervision, banking, transition economies, financial fragility, Europeanization, Estonia
    JEL: G28
    Date: 2014–09–01
  13. By: Roxana Gutierrez-Romero (Departament d’Economia Aplicada, Universitat Autonama de Barcelona); Monica Oviedo Leon (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: This paper assesses the impact that drug cartels and their associated violence have had on development in Mexico. For this purpose, we monitor official and media reports to identify where cartels have operated with and without drug related homicides. Using the difference-in-difference kernel matching method, we find that on the one hand, inequality declined to a large extent in areas where cartels were active without incidents of drug related homicides. On the other, poverty increased in areas that had both the lowest and the highest rates of drug related homicides. Two reasons could explain this increase in poverty. In the most violent areas the number of employers and remunerations declined in key industries, such as manufacturing. In the least violent areas poverty increased possibly due to people migrating from the more violent places.
    Keywords: Drug Cartels; Violence; Poverty; Inequality; Education; Migration; Kernel matching
    JEL: K49 O16 O17 R59 C26
    Date: 2014–10
  14. By: Cassimon, Danny; Engelen, Peter-Jan; Van Liedekerke, Luc
    Abstract: In this paper, the process for firms to decide whether or not to invest in corporate social responsibility is treated from a real option perspective. We extend the Husted (2005) framework with an important extra parameter that allows us to understand the timing of CSR investment and explain why some companies drag their feet over CSR investments. Our model explicitly allows for the impact of the opportunity cost of delaying the CSR investment decision, providing firms with tools to determine the optimal moment of exercising the CSR investment option. We illustrate our timing model through a case study and analyze governmental support strategies for CSR from a real options perspective.
    Keywords: real options; CSR; stakeholder management; reputational risk; optimal timing
    JEL: D81 G13 G31 M14 K42
    Date: 2014–10
  15. By: Ronan Congar; Louis Hotte
    Abstract: CWe consider the factor payment effects of a transition from open access to restricted access in the resource sector in the long-run, i.e., when both labor and capital are mobile between sectors. We show that the transition benefits (harms) the factor that is initially used more (less) intensively in the manufacturing sector relative to the resource sector. Our analysis introduces a dual approach used to compare equilibria between property regime types.
    Keywords: Property Rights, Natural Resources, Mobile Capital, Factor Payments, Income Distribution, Dual Approach.
    JEL: D02 D23 D33 K11 Q2 N5 O13
    Date: 2014

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