nep-law New Economics Papers
on Law and Economics
Issue of 2015‒01‒26
fourteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Legal Uncertainty – a Selective Deterrent By Matthias Lang
  2. Optimal deterrence of illegal behavior under imperfect corporate governance By Argenton, C.; van Damme, E.E.C.
  3. Registered cartels in Austria: Coding protocol By Fink, Nikolaus; Schmidt-Dengler, Philipp; Stahl, Konrad O.; Zulehner, Christine
  4. Are Patent Fees Effective at Weeding Out Low-Quality Patents? By Gaétan de Rassenfosse; Adam B. Jaffe
  5. Group Lending and Endogenous Social Sanctions By Jean-Marie Baland; Rohini Somanathan; Zaki Wahhaj
  6. Investment Treaties over Time - Treaty Practice and Interpretation in a Changing World By Kathryn Gordon; Joachim Pohl
  7. Intellectual property rights hinder sequential innovation: experimental evidence By Brueggemann, J.; Crosetto, P.; Meub, L.; Bizer, K.
  8. Desistance from crime. How much can be explained by life course transitions? By Torbjørn Skardhamar; Kjersti N. Aase
  9. The Swedish industrial relations transformation during the 1970s – abolishing neutrality and affecting the deep structure By Malm Lindberg, Henrik
  10. Prison Crowding, Recidivism, and Early Release in Early Rhode Island By Howard Bodenhorn
  11. Cracking Down on Bribery By Banuri, Sheheryar; Eckel, Catherine
  12. Minimum quality standards and non-compliance By Birg, Laura; Voßwinkel, Jan S.
  13. Contracts and Cooperation: The Relative Failure of the Irish Dairy Industry in the Late Nineteenth Century Reconsidered By Ingrid Henriksen; Paul Sharp; Eoin McLaughlin
  14. The Effectiveness of Government Intervention to Promote Elderly Employment: Evidence from Elderly Employment Stabilization Law By Ayako Kondo; Hitoshi Shigeoka

  1. By: Matthias Lang (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: I show that legal uncertainty, i.e., uncertainty about the legality of a specific action, has positive welfare effects. Legal uncertainty works as a screening device provided that the threshold of legality is uncertain. The uncertainty discourages controversial actions, while it encourages socially beneficial actions. Legal uncertainty is a selective deterrent, because the uncertainty changes the probability of being convicted in opposite directions. Hence, in designing optimal rules there is no reason to avoid legal uncertainty at all costs. For example, the positive effect of legal uncertainty influences the balance between per-se rules and rules of reason in competition law.
    Keywords: Regulation, asymmetric information, Deterrence, Enforcement, Legal Uncertainty, Rules of Reason
    JEL: K2 D8 K4 L5
    Date: 2014–11
  2. By: Argenton, C. (Tilburg University, Center For Economic Research); van Damme, E.E.C. (Tilburg University, Center For Economic Research)
    Abstract: We study the optimal design of liability schemes (at the corporate or individual level) when the objective is to deter socially harmful corporate behavior without discouraging productivity enhancements. We assume that firms face agency problems between shareholders and managers (moral hazard) and that unlimited sanctions on individuals are not available. We show that pure corporate liability rules can induce the first-best outcome only if firms can condition compensation on detection and the enforcement system is good enough. In other circumstances, unless individual sanctions can be very high, optimal mechanisms typically impose both corporate and individual liability.
    Keywords: illegal behavior; deterrence; agency problems; moral hazard; corporate liability; corporate crime
    JEL: D82 K21 L49
    Date: 2014
  3. By: Fink, Nikolaus; Schmidt-Dengler, Philipp; Stahl, Konrad O.; Zulehner, Christine
    Abstract: In the period following WW II. until the country accessed the European Union, cartels were legalized in Austria, upon registration with the Austrian Cartel Court. We obtained access to the registration data, and scanned them all towards a microeconomic analysis of contracting behavior between firms competing, in principle, in their respective markets. In this paper, we give a detailed account of our procedure of coding the data from the scanned documents.
    Keywords: Collusion,legal cartels,contracts
    JEL: L41 L43
    Date: 2014
  4. By: Gaétan de Rassenfosse (École polytechnique fédérale de Lausanne); Adam B. Jaffe (Motu Economic and Public Policy Research)
    Abstract: The paper investigates whether patent fees are an effective mechanism to deter the filing of low-quality patent applications. The study analyses the effect of the Patent Law Amendment Act of 1982, which resulted in a substantial increase in patenting fees at the U.S. Patent and Trademark Office, on patent quality. Results from a series of difference-in-differences regressions suggest that the increase in fees led to a weeding out of low-quality patents. About 16–17 per cent of patents in the lowest quality decile were filtered out. The figure reaches 24–30 per cent for patents in the lowest quality quintile. However, the fee elasticity of quality decreased with the size of the patent portfolio held by applicants. The study has strong policy implications in the current context of concerns about declines in patent quality and the financial vulnerability of patent offices.
    Keywords: Patents; Patent fees; Patent quality; Innovation; Invention
    JEL: K2 O31 O34 O38
    Date: 2015–01
  5. By: Jean-Marie Baland; Rohini Somanathan; Zaki Wahhaj
    Abstract: In recent years, microfinance institutions have expanded into group lending with individual liability, leaving out the joint liability clause which was an important feature in earlier lending contracts. Recent experimental evidence indicates that group lending may yield benefits, specifically lowering default rates, even in the absence of joint liability. In this paper, we develop a theoretical model where the public nature of group meetings means that borrowers have incentives to repay a group loan to safeguard their reputation. We show that the introduction of group loans with individual liability will cause sorting between joint liability and individual liability group loans. Specifically, borrowers who attach more importance to their reputation will select into individual liability loans, causing default rates and interest rates to rise for joint liability loans. The introduction of group loans with individual liability can even make joint liability loans infeasible in equilibrium.
    Keywords: Microfinance; Group Lending; Joint Liability; Social Sanctions; Reputation
    JEL: G21 O12 O16 D8
    Date: 2014–12
  6. By: Kathryn Gordon; Joachim Pohl
    Abstract: Investment treaty law reflects a permanent tension between stability and flexibility. Stability nurtures predictability, while flexibility helps legal systems stay in alignment with changing circumstances and evolving needs. This paper establishes an inventory of the mechanisms in investment treaty law that provide flexibility and surveys relevant treaty practice.<P> The paper: analyses the drivers of change in investment treaty law; provides an inventory of countries’ options – and limits – to alter their positioning vis-à-vis investment treaty law through ‘exit’ and ‘voice’; and analyses treaty provisions on, and States’ use of, flexibility in investment treaty law.<P> The paper finds that most treaties provide for little or no mechanism for countries to influence the use and interpretation of investment treaty law. The paper further finds that treaty provisions for ‘exit’ are likewise geared to provide stability rather than flexibility. Analysis of State practice presented in the paper shows that States rarely make use of the mechanisms available to them to influence treaty use and interpretation and that ‘exit’ from the system has likewise been rare so far.
    Keywords: investment protection, international investment law, investment treaties, international investment agreements
    JEL: F21 F53 K33 N40 P45
    Date: 2015–01–16
  7. By: Brueggemann, J.; Crosetto, P.; Meub, L.; Bizer, K.
    Abstract: In this paper we contribute to the discussion on whether intellectual property rights foster or hinder innovation by means of a laboratory experiment. We introduce a novel Scrabble-like creativity task that captures most essentialities of a sequential innovation process. We use this task to investigate the effects of intellectual property allowing subjects to assign license fees to their innovations. We find intellectual property to have an adverse effect on welfare as innovations become less frequent and less sophisticated. Communication among innovators is not able to prevent this detrimental effect. Introducing intellectual property results in more basic innovations and subjects fail to exploit the most valuable sequential innovation paths. Subjects act more self-reliant and non-optimally in order to avoid paying license fees. Our results suggest that granting intellectual property rights hinders innovations, especially for sectors characterized by a strong sequentiality in innovation processes.
    JEL: C91 D89 K39
    Date: 2015
  8. By: Torbjørn Skardhamar; Kjersti N. Aase (Statistics Norway)
    Abstract: Objectives: Previous studies have argued that marriage, parenthood and employment are important factors that lead to desistance from crime. However, the effects of these events only apply to those experiencing them and do not necessarily explain why the majority of desisters stop offending. In this research note, we discuss how large a proportion of desisters experience these transitions. Methods: We describe changes in the lives of those who have stopped offending. We use data from a total population sample of all registered male offenders in Norway who committed at least five crimes in the past five years, and none thereafter (N=4963 persons). We report relevant life events from five years before until five years after the last recorded crime. Results: Of those who terminated their criminal career, 10 percent got married, 22 percent had a child, and 31 percent increased the number of months they were employed. In total, 47 percent experienced at least one of these events. Conclusions: While marriage, parenthood and employment are central to life course criminology, the majority of those who terminate a criminal career do so for other reasons.
    Keywords: crime; desistance; family; employment; life-course
    JEL: K00
    Date: 2014–11
  9. By: Malm Lindberg, Henrik (The Ratio institute)
    Abstract: Industrial Relations systems are essentially a nexus of contracts between different actors: Government, employer’s organizations and unions first and foremost. The Swedish labour market model was based on the concept of Government neutrality ie: non-partisanship and non-intervention from the early 20th century. Did the interventionist state during the 1970s change the fundamentals of the Swedish model? I argue that it did. The argument is based on an empirical investigation that comes from the concept “Frontier of Control”. If we take five dimensions: Occupational safety, Determination in work-place issues, Employment and dismissals, Strikes and industrial conflicts and lastly Determination in company issues, the power relations changed fundamentally in the 1970s with the labour law legislation and was ultimately part of a paradigmatic change in Swedish IR.
    Keywords: Industrial Relations; labour law legislation; Government neutrality; political radicalization
    JEL: J53 J58 K31 N34
    Date: 2014–12–31
  10. By: Howard Bodenhorn
    Abstract: Prison overcrowding is a perennial problem and several states are under court order to reduce crowding. The long-term solution to crowding has been more prisons. The short-term solution is early release. Early release programs can be effective when they balance the savings of reduced prison costs against the costs of recidivism by released convicts. This paper uses historical data to investigate how prison officials altered their early release policies in the face of prison crowding and rising real per prisoner detention costs. The empirical evidence is consistent with the hypothesis that prison officials make use of information about the risks of recidivism revealed at trial and during incarceration to make informed decisions about whom to release and when.
    JEL: K14 N00
    Date: 2015–01
  11. By: Banuri, Sheheryar; Eckel, Catherine
    Abstract: Do crackdowns on bribery impact corrupt behavior in the long run? In this paper we observe the long-run impact of a short-term punishment institution (i.e., a crackdown) on bribery behavior in a lab setting. We conduct lab experiments in two countries with cultures that differ in corruption norms, and which experience very different levels of bribery: the US and Pakistan. Bribery is implemented in the laboratory as a repeated three-player sequential game, consisting of a firm, a government official and a citizen. The design contains three phases: pre-crackdown, crackdown, and post-crackdown. Results show that post-crackdown behavior is not significantly different from the pre-crackdown behavior in either country. We conclude that short-term crackdowns may impact behavior in the short run, depending on the strength of the existing corruption norms in the country. More importantly, in our setting crackdowns are completely ineffective in the long run, as corrupt behavior rebounds to pre-crackdown levels.
    Keywords: Bribery, Corruption, Experiments, Punishment, Culture
    JEL: C91 D73 K42 Z13
    Date: 2015
  12. By: Birg, Laura; Voßwinkel, Jan S.
    Abstract: This paper studies the effect of non-compliance with a minimum quality standard on prices, quality, and welfare in a vertical differentiation model. Non-compliance with a minimum quality standard by a low-quality firm reduces quality levels of both firms, increases the price for the high-quality product, decreases the price for the low-quality product, and shifts demand from the low-quality to the high-quality firm. Under non-compliance, an increase in the standard increases the quality difference, increases the price difference, and shifts demand from the high-quality to the low-quality firm. Stricter government enforcement decreases the quality level of the low-quality firm, increases the price of the high-quality product and shifts demand from the low-quality firm to the high-quality firm. Non-compliance of the low quality firm increases profits for both firms, reduces consumer surplus and increases or decreases welfare depending on the market size, the effect of quality levels of the externality, the detection probability, and the minimum quality level.
    Keywords: minimum quality standard,non-compliance,enforcement
    JEL: K42 L13 L50
    Date: 2015
  13. By: Ingrid Henriksen (University of Southern Denmark); Paul Sharp (University of Southern Denmark); Eoin McLaughlin (School of Geography and Sustainable Development, University of St. Andrews)
    Abstract: Why did the establishment of cooperative creameries in late nineteenth century Ireland fail to halt the relative decline of her dairy industry compared to other emerging producers? This paper compares the Irish experience with that of the market leader, Denmark, and shows how each adopted the cooperative organisational form, but highlights that an important difference was institutional: specifically regarding the enforcement of vertically binding contracts, which are considered to be of vital importance for the successful operation of cooperatives. We argue that this failure, combined with a strong proprietary sector which was opposed to cooperation, reinforced the already difficult conditions for dairying in Ireland due to poor social capital.
    Keywords: Contracts, cooperation, dairying, Ireland
    JEL: K12 L31 N43 N53 Q13
    Date: 2015–01
  14. By: Ayako Kondo; Hitoshi Shigeoka
    Abstract: Since the pension eligibility age started to rise in 2001, there had been a gap between the eligibility age for full pension benefits and the prevailing retirement age in Japan. To fill the gap, the government of Japan revised the Elderly Employment Stabilization Law (EESL): starting from 2006, employers are legally obliged to introduce a system to continue employment up to the pension eligibility age. This paper examines the effect of this legal enforcement on elderly men¡¯s labor supply and employment status, by comparing the affected cohorts and cohorts a few years older than them. We find that the EESL revision actually increases the employment rate of men in the affected cohorts in their early 60s, and the effect is larger for employees of the large firms. Also, the increase in elderly workers who stay in the same employer does not replace elderly workers who switch employers, suggesting that the revised EESL does not hinder elderly worker¡¯s mobility.
    Date: 2013–10

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