nep-law New Economics Papers
on Law and Economics
Issue of 2014‒11‒12
fifteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Comparing All-Or-Nothing and Proportionate Damages: A Rent Seeking Approach By Jef De Mot; Thomas J. Miceli
  2. Trust, Leniency and Deterrence By Bigoni, Maria; Fridolfsson, Sven-Olof; Le Coq, Chloé; Spagnolo, Giancarlo
  3. Precaution with endogenous litigation choices By Ian A. MacKenzie
  4. Public Policies in Investment Intensive Industries By Giovanni Immordino; Michele Polo
  5. Heterogeneous Penalties and Private Information By Marvao, Catarina
  6. uling Elites' Rotation and Asset Ownership: Implications for Property Rights By Leonid Polishchuk; Georgiy Syunyaev
  7. National Regulations on Local Public Administration By Apostolache, Mihai
  8. On the intergenerational nature of criminal behavior By Bethencourt, Carlos; Kunze, Lars
  9. Empirical Analysis of the Assessment of Innovation Effects in U.S. Merger Cases By Wolfgang Kerber; Benjamin Kern; Ralf Dewenter
  10. Drug Dealing In Bucaramanga: Case Study In A Drug Producing Country By Muñoz-Herrera, Manuel; Palacio, Luis Alejandro
  11. The Economics of Severance Pay By Pietro Garibaldi
  12. Competition Policy and Intellectual Property: Insights from Developed Country Experience By Scherer, F. M.; Watal, Jayashree
  13. The Efficacy of Private Voluntary Certification Schemes: A Governance Costs Approach By Thomas Dietz; Jennie Auffenberg
  14. The Effects of Smoothing of the Renewal Fees on Patent Option Value(in Japanese) By Setsuo Yamada
  15. Loss & Damage: a Critical Discourse Analysis By Elisa

  1. By: Jef De Mot (University of Ghent); Thomas J. Miceli (University of Connecticut)
    Abstract: This paper compares the all-or-nothing and proportionate damage rules for allocating damages in tort cases under evidentiary uncertainty. The focus is on how the two rules affect litigation expenditures by plaintiffs and defendants. The results of simulation experiments show that the expected judgment at trial is higher under the all-or-nothing rule for cases where the defendant did not take adequate care, but the judgment is higher under the proportionate rule when the defendant took more than adequate care. As for litigation expenditures, assuming equal costs of litigation, overall expenditures are higher under the all-or-nothing rule, except for very weak and very strong cases.
    Keywords: All-or-nothing rule, proportionate damages, litigation costs, rent-seeking
    JEL: K13 K41
    Date: 2014–10
  2. By: Bigoni, Maria (University of Bologna); Fridolfsson, Sven-Olof (The Swedish Competition authority (Konkurrensverket), Research Institute of Industrial Economics (IFN)); Le Coq, Chloé (Stockholm School of Economics, SITE); Spagnolo, Giancarlo (Tor Vergata University, Stockholm School of Economics, SITE, and CEPR)
    Abstract: This paper presents results from a laboratory experiment studying the channels through which dierent law enforcement strategies deter cartel formation. With leniency policies oering immunity to the rst reporting party, a high ne is the main determinant of deterrence, having a strong eect even when the probability of exogenous detection is zero. Deterrence appears to be mainly driven by `distrust'; here, the fear of partners deviating and reporting. Absent leniency, the probability of detection and the expected ne matter more, and low nes are exploited to punish defections. The results appear relevant to several other forms of crimes that share cartels' strategic features, including corruption and nancial fraud.
    Keywords: Antitrust; Betrayal; Cartels; Collusion; Distrust; Fines; Leniency; Whistleblowers
    JEL: C92 D03 K21 K42 L41
    Date: 2014–09–18
  3. By: Ian A. MacKenzie (School of Economics, The University of Queensland)
    Abstract: A central question in tort liability is how to induce a socially optimal level of precaution. In most analysis it is common to assume that litigation is either costless or the costs are exogenously fixed. Yet, in reality, litigation costs are large and litigants have the ability to choose their own level of litigation expenditure. In this paper we advance the theory of tort liability by investigating the incentive to invest in precaution when litigation efforts are endogenously chosen by parties. We outline a two-stage game where, in stage one, the injurer invests in a level of precaution. In stage two—if harm has been realized—the victim can sue for damages and go to trial. Parties then choose their level of litigation effort in order to win the trial. We model the court’s decision over liability as a stochastic ‘lottery’ contest, where the probability of being successful at trial depends on relative litigation efforts and inherent legal presumptions. We allow the level of precaution to compliment the injurer’s generation of evidence at trial. We show how the equilibrium litigation efforts are chosen and how this determines the equilibrium level of precaution. We compare both strict liability and negligence rules and also solve for the optimal damages to minimize social losses.
    Keywords: tort law,litigation,strict liability,negligence
    JEL: D72 K13 K41
    Date: 2014–11–04
  4. By: Giovanni Immordino; Michele Polo
    Abstract: In this paper we review some recent work on public intervention in economic environments where firms undertake investments in research or in physical assets, and then select appropriate business practices to extract profits from the outcomes of the investment process. Public policies may take different forms: the release of an authorization; the setting of fines and damages for liability; or the choice of legal standards in antitrust law enforcement. The business practices are privately profitable but may be welfare enhancing or socially harmful. When expectations are optimistic, public policies face a trade-off between ex-ante effects on investment, that suggest hands off, and ex-post control of practices when harmful, that requires intervention. Our general result suggests that public policies should be softer when innovation is an important source of welfare improvements.
    Keywords: Regulation, Antitrust, Legal Standards
    JEL: D73 K21 K42 L51
    Date: 2013
  5. By: Marvao, Catarina (Stockholm Institute of Transition Economics)
    Abstract: The theoretical framework of the adequacy or otherwise of fine reductions under the EU and US Leniency Programmes has been explored widely. However, the characteristics of the reporting cartel members remain unexplained. This is the first paper to develop a model where heterogeneous cartel members have private information on the probability of conviction. It is shown that firms which receive higher fines are more likely to report the cartel. To validate this result and analyze the sources of fine heterogeneity, data for EU and US cartels are used. Being the first reporter is shown to be correlated with recidivism, leadership and other fine reductions. Some characteristics of the cartels where reporting occurred are also unveiled. Identifying the characteristics of the reporting firms is vital to dissolve and dissuade cartels and the wider policy implications of these findings are discussed in the paper.
    Keywords: Cartels; competition policy; Leniency Programme; private information; self-reporting
    JEL: D43 K21 K42 L13 L40 L51
    Date: 2014–10–06
  6. By: Leonid Polishchuk (Department of Economics and Laboratory for Applied Analysis of Institutions and Social Capital, NRU Higher School of Economics, Moscow, Russia); Georgiy Syunyaev
    Abstract: We provide a theory and empirical evidence indicating that the rotation of ruling elites in conjunction with elites’ asset ownership could improve property rights protection in non-democracies. The mechanism that upholds property rights is based on elites’ concern about the security of their own asset ownership in the event they lose power. Such incentives provide a solution to the credible commitment problem in maintaining secure property rights when institutional restrictions on expropriation are weak or absent.
    Keywords: Endogenous property rights, credible commitment, “stationary bandit”
    JEL: K11 O17 P14
    Date: 2014–07
  7. By: Apostolache, Mihai
    Abstract: The local public administration, like any other field of activity, knows a certain regulation determined by the specificity of this field and by its importance within the global social system. The norms governing local public administration are included in the fundamental act, as well as other legal acts inferior to the Constitution, that are meant to develop the rules as principles from the Constitution. Given its importance and complexity, local public administration has a vast regulation centered upon the Law of local public administration, a normative act that is compatible with the European regulations on the matter.
    Keywords: local public administration, principles, regulation, national, constitution, law
    JEL: H7 H73 K0 K00 M0 M00
    Date: 2014–10–20
  8. By: Bethencourt, Carlos; Kunze, Lars
    Abstract: Empirical evidence suggests that family background and parental criminality are strong predictors of an individuals’ criminal behavior. The aim of this paper is to account for this intergenerational nature of criminal behavior within a simple theoretical model. Drawing on the literature of cultural transmission, we model the dynamics of moral norms of good conduct (honest behavior). Individuals’ criminal behavior and morality are strategic complementarities that reinforce each other. We establish the existence of multiple steady states and provide conditions on the socialization process under which both types - honest and dishonest - survive in the long run even though parents commit crime but at the same time agree that honesty is desirable. Our model provides a novel explanation of why crime is highly concentrated in specific areas and also why crime rates tend to be persistent over time. An empirical application reveals that our model can account for the differential reductions in property crime rates across US federal states since the 1980s.
    Keywords: crime, cultural transmission
    JEL: D91 H26 Z13
    Date: 2014–09–04
  9. By: Wolfgang Kerber (University of Marburg); Benjamin Kern (University of Marburg); Ralf Dewenter (HSU Hamburg)
    Abstract: In this empirical study all mergers that have been challenged by the U.S. antitrust agencies FTC and DOJ between 1995 and 2008 were analyzed in regard to the question to what extent and how the agencies assessed the innovation effects of mergers. Theoretical background is the still open question how negative effects of mergers on innovation should be taken into account in merger policy. Although we can show in our study that in one third of all challenged mergers also innovation concerns were raised, the results also point to a still existing large degree of uneasiness and inconsistencies of the agencies in regard to the assessment of innovation effects. A particularly interesting result is that - despite the wide-spread rejection of the "innovation market approach" in the antitrust debate - the agencies used more an innovationspecific assessment approach that includes also innovation in the market definition than the pure traditional product market concept. Additionally, we also found significant differences between the assessment approaches of the FTC and the DOJ.
    Keywords: innovation, merger policy, US antitrust, innovation market
    JEL: K21 L12 L41 O31
    Date: 2014
  10. By: Muñoz-Herrera, Manuel; Palacio, Luis Alejandro
    Abstract: We present a case study of the market of drug dealing in the context of a drug producing country. A main characteristic of a drug producing country is that illegal drugs are more accessible and have dramatically lower prices in the street market compared to countries that do not produce drugs. We locate our study to the city of Bucaramanga, Colombia; the country with the largest production of cocaine in the world. We make use of two sources of primary information (i) direct interviews to drug dealers, and (ii) media analysis of the local newspaper. Our main finding is that individual dealers exchange drugs, without any incentives to integrate and take control of the distribution in the city. That is, the low prices of drugs reduce profit and deter dealers to fight for monopoly, leading to a decentralized market of multiple uni-personal firms who use no violence.
    Keywords: Crime, Law, Colombia, Violence, Market
    JEL: D4 K42
    Date: 2014–09–12
  11. By: Pietro Garibaldi
    Abstract: All OECD countries have either legally mandated severance pay or compensations imposed by industry-level bargaining in case of employer initiated job separations. According to the extensive liter- ature on Employment Protection Legislation (EPL), such transfers are either ineffective or less efficient than unemployment benefits in providing insurance against labor market risk. In this paper we show that mandatory severance is optimal in presence of wage deferrals when there is moral hazard of workers, shirkers can get away with it and adverse selection prevents employers to commit not to fire a non-shirker. Our model also accounts for two neglected features of EPL. The first is the discretion of judges in inter- preting the law, which relates not only to the decision as to whether the dismissal is deemed fair or unfair, but also to the nature, economic vs. disciplinary, of the layoff. The second feature is that compensation for dismissal is generally increasing with tenure. We provide new cross-country comparable measures of these two features of EPL. The model also explains why severance is generally higher in countries with less efficient judicial systems and why small firms are typically exempted from the strictest EPL provisions.
    Date: 2014
  12. By: Scherer, F. M. (Harvard University); Watal, Jayashree (World Trade Organization)
    Abstract: This paper, written for a World Trade Organization compendium, investigates the possibilities open to developing nations for controlling the abuse of intellectual property rights, and in particular patents, under Articles 31 and 40 of the Uruguay Round TRIPS (trade-related aspects of intellectual property) treaty. Article 40 authorizes nations to use their competition policy laws to combat abuses of intellectual property rights, among other things, by invoking the compulsory licensing provisions of Article 31. This paper reviews historically the experience of competition policy authorities in dealing with patent and other intellectual property abuses in the United States, the European Community, Japan, Canada, South Africa, and other jurisdictions and reviews the known consequences of compulsory licensing orders inter alia for companies' continuing efforts to advance technology. Currently controversial fields such as pharmaceuticals and information technology are accorded special attention.
    Date: 2014–02
  13. By: Thomas Dietz (University of Muenster - Institute of Political Science & ZenTra); Jennie Auffenberg (University of Bremen - Institute for Commercial Law & ZenTra)
    Abstract: What are the conditions under which private, voluntary certification programs like the Rainforest Alliance or Fairtrade can successfully promote environmental and social standards? We propose that the efficacy of a certification program depends on three variables: its sustainability standards, enforcement mechanisms and its market proliferation. The stricter the standards, the better the enforcement systems and the bigger the market share, the higher will be the factual impact of a particular certification program. We develop an index to systematically compare the strengths of norms and enforcement systems across a selection of important certification schemes in the global coffee industry and collect data about their market shares. We use a qualitative comparative analysis (QCA) to analyze these data. Our results show: certification schemes with strict standards and enforcement systems possess only insignificant market shares. Certification schemes with more significant market shares have either loose standards and/or ineffective enforcement systems. We develop a governance costs approach to explain these findings. Stricter standards and enforcement systems lead to an increase of production costs. The extents to which these costs can be shifted to the market are limited. Certification schemes therefore have incentives to reduce these costs in order to increase their market shares. The results confirm that the capacity of voluntary governance schemes is systematically restricted.
    Keywords: corporate social responsibility, sustainability, global value chains, transnational regulation, qualitative comparative analysis
    JEL: J50 K33 L51 M14 Q20
    Date: 2014–10
  14. By: Setsuo Yamada
    Abstract: This paper aims to construct a patent option model suitable for the Japanese patent system, and then to explore empirically the economic effects caused by the significant revision of the Japanese patent maintenance fees in 1998. The revision of patent law in 1998 fundamentally changed the fee schedule so that payments peaked in ten to twelve year after patent registration, followed by a level off, which resulted in major fee reductions. This was a very bold change in the patent fee structure compared to historical structures of patent fee maintenance in Japan and other major countries. The leveling-off of patent maintenance fees was aimed to reduce cost burden on patent owners and to give incentives to their R&D activities. In addition, it served to contain the special patent account's rising surplus. The simulation results based on the patent option model show that the introduction of the leveling-off maintenance fees enables the patent to hold the patent term longer, while minimizing the influence on the patent option value. However, it is confirmed to have a relatively substantial effect on reducing patent fee revenues.
    Date: 2013–01
  15. By: Elisa (Fondazione Eni Enrico Mattei (FEEM) and Euro-Mediterranean Center on Climate Change, Venice, Italy)
    Abstract: The years-long negotiations on an international mechanism for loss and damage (L&D) associated with climate change impacts got to a milestone during the nineteenth session of the UNFCCC Conference of the Parties (COP-19), held in Warsaw in November 2013. The COP established the Warsaw international mechanism, aiming to address L&D associated with the adverse effects of climate change, including extreme events and slow onset events, in vulnerable developing countries (Decision 2/CP.19). The paper performs a Critical Discourse Analysis (CDA) of COP decision 2/CP.19 in order to evaluate its content and reflect on how the mechanism will be implemented. The analysis builds on Fairclough’s (1992) three-dimensional model for CDA, and makes use of a wide range of materials including previous COP decisions, High Level Segment statements and Parties submissions to COP 19, press releases and other relevant documents. The analysis highlights the lack of a common understanding and representation of L&D by developed and developing countries, with this fact ultimately hampering the possibility to define actual tools to address the issue within the mechanism The difficulty to come to a shared meaning on L&D is due to its connection to other controversial discourses under the UNFCCC: those of attribution, liability and compensation.
    JEL: F13 F18 F51 K33 Q37
    Date: 2014–10

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