nep-law New Economics Papers
on Law and Economics
Issue of 2015‒02‒22
twelve papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Short- and Long-Run Effects of Private Law Enforcement: Evidence from University Police By Heaton, Paul; Hunt, Priscillia E; MacDonald, John; Saunders, Jessica
  2. Competitive Pressure and Corporate Crime By Baumann, Florian; Friehe, Tim
  3. ‘To Have and Have Not’: Are Rich Litigious Plaintiffs Favored in Court? By B. Zorina Khan
  4. The Role of Lawyer-Legislators in Shaping the Law: Evidence from Voting Behavior on Tort Reforms By Matter, Ulrich; Stutzer, Alois
  5. Deception Choice and Audit Design - The Importance of Being Earnest By Lohse, Tim; Konrad, Kai A.; Qari, Salmai
  6. Fiscal federalism and tax enforcement By Bönke, Timm; Jochimsen, Beate; Schröder, Carsten
  7. Competition and consumer protection in the cyberspace marketplace By Klein, Joseph A.; Rao, P. M.
  8. Vive la deference? Rethinking the balance between administrative and judicial discretion By Ronald A. Cass
  9. The Economic Effect of Corruption in Italy: A Regional Panel Analysis By Lisciandra, Maurizio; Millemaci, Emanuele
  10. Political Dimensions of Investment Arbitration: ISDS and the TTIP Negotiations By Thomas Dietz; Marius Dotzauer
  11. Bundling incentives in markets with product complementarities: The case of triple-play By Macieira, João; Pereira, Pedro; Vareda, João
  12. Stock Market Returns, Corporate Governance and Capital Market Equilibrium By Parigi, Bruno; Pelizzon, Loriana; von Thadden, Ernst-Ludwig

  1. By: Heaton, Paul (RAND); Hunt, Priscillia E (RAND); MacDonald, John (University of Pennsylvania); Saunders, Jessica (RAND)
    Abstract: Over a million people in the United States are employed in private security and law enforcement, yet very little is known about the effects of private police on crime. The current study examines the relationship between a privately-funded university police force and crime in a large U.S. city. Following an expansion of the jurisdictional boundary of the private police force, we see no short-term change in crime. However, using a geographic regression discontinuity approach, we find large impacts of private police on public safety, with violent crime in particular decreasing. These contradictory results appear to be a consequence of delayed effect of private police on crime.
    Keywords: law enforcement, privately provided public good, crime
    JEL: K42 H41
    Date: 2015–01
  2. By: Baumann, Florian; Friehe, Tim
    Abstract: This paper explores the relationship between the intensity of competition in product markets and firms' incentives to lower their production costs by illegal means. Our framework combines a Salop circle with a crime model la Becker, allowing us to differentiate between several measures for the intensity of competition. We establish that more firms in the industry (i.e., lower entry costs) reduce the crime rate. Furthermore, whether more intense competition due to the increased substitutability of products raises or lowers the prevalence of criminal behavior can be clearly linked to the impact of such behavior on firms' production costs. Finally, we find that stricter law enforcement may entice more firms to enter the market, despite the higher expected sanction in the event of wrongdoing.
    JEL: K14 L13 D43
    Date: 2014
  3. By: B. Zorina Khan
    Abstract: A long-standing debate centers on the role of the “Haves” and the “Have Nots” in litigation. It is often suggested that wealthier plaintiffs are more likely to be repeat players, who tend to prevail in disputes before the courts. Do wealthy repeat players indeed capture courts and succeed in shaping legal rules regardless of the intent of policy makers? This paper employs a unique historical data set that allows a direct test of these hypotheses, including information on the wealth of participants in civil district courts, their occupations, and the total number of lawsuits filed by each litigant over a long period. The results show that repeat players indeed tended to be wealthier, in occupations that likely benefited from creating a reputation for uncooperative litigation strategies. However, outcomes in court were independent of wealth, and related more to the type of case. Far from being under the sway of the “Haves,” early courts functioned as an effective enforcement mechanism for extensive markets in debt, that likely promoted economic growth during this period.
    JEL: K10 K41 N11 O43
    Date: 2015–02
  4. By: Matter, Ulrich; Stutzer, Alois
    Abstract: Attorneys elected to the US House of Representatives and to US state legislatures are systematically less likely to vote in favor of tort reforms that restrict tort litigation, but more likely to support bills that extend tort law. This finding is based on the analysis of 54 votes at the federal and state level between 1995 and 2012. It holds when controlling for legislators ideology and is particularly strong for term-limited lawyer-legislators. The empirical regularity is consistent with the hypothesis that lawyer- legislators, at least in part, pursue their private interests when voting on tort issues. Our results highlight the relevance of legislators identities and individual professional interests for economic policy making.
    JEL: D72 K13 C81
    Date: 2014
  5. By: Lohse, Tim; Konrad, Kai A.; Qari, Salmai
    Abstract: We study deception choices and deception detection in a tax compliance experiment. We find large systematic differences in individual deception abilities. Tax payers are conscious about their own deception abilities. The empirical outcomes are in line with a theory suggesting that tax payers make their choices whether to underreport or report truthfully on the basis of their own deception ability. Tax payers with high deception ability are more likely to underreport. This selection effect is stronger if the fines for underreporting are higher. These results provide an (additional) reason why random audits are superior to audits based on discretionary choice.
    JEL: H31 K42 C91
    Date: 2014
  6. By: Bönke, Timm; Jochimsen, Beate; Schröder, Carsten
    Abstract: In many federations, fiscal equalization schemes soften fiscal imbalances across the member states. Such schemes usually imply that a member state internalizes only a small fraction of the additional tax revenue from an expansion of the state-specific tax base, while the remainder of the additional tax revenue is redistributed horizontally or vertically. We address the question as to which extent state-level authorities in such a federation under-exploit their tax bases. By means of a stylized model we show that the state authorities in such a federation have incentives to align the effective tax rates of the state residents to the internalized marginal return from a stricter enforcement of the tax law. We empirically test the model using two approaches. In a state-level approach, we explore whether the state-specific internalized marginal returns matter for the states investments in tax enforcement. In a micro-econometric approach, using OLS regressions and natural-experiments, we explore whether internalized marginal returns matter for the effectiveness of the states tax enforcement activities, captured by the tax deductions granted to tax units. All our estimates support the results from our theoretical model.
    JEL: H21 H77 C21
    Date: 2014
  7. By: Klein, Joseph A.; Rao, P. M.
    Abstract: This paper will examine legal and marketing implications of certain Internet technological developments impacting competition and consumer protection in cyberspace. The paper will explore to what extent antitrust and consumer protection laws are adequate to deal with the challenges to a competitive marketplace and consumer privacy posed by the development of cyberspace technologies and markets, for example, Internet search engines, social networks and wearable devices. The paper concludes that legal tools for protecting a competitive cyberspace marketplace are fairly robust, while the legal tools to protect consumers from being tracked and profiled by marketers and from the potential intrusions of individual privacy made possible by even more advanced Internet connected sensor and related data-based technologies are still a work in progress. At the same time, the extent of further government regulation in this area must be carefully balanced so as not to unduly restrict data dependent innovation.
    Date: 2014
  8. By: Ronald A. Cass
    Abstract: America's constitutional structure relies on checks and balances to prevent a concentration of excessive discretionary power in the hands of any indi- vidual governmental official or body, promoting effective government while protecting individual liberty and state sovereignty. Federal courts have been sensitive to threats to upend this balance of power where one branch of the federal government intrudes on powers assigned to another but less so to changes that increase federal power overall―including, notably, un- checked discretionary power of administrative officials. An elastic com- merce clause and ineffective non-delegation doctrine leave judicial review of administrative action for consistency with statutorily assigned tasks as an especially important safeguard. The Chevron doctrine, however, as it has often been deployed, grants deference to a large number of administrative actions on a fictive supposition that Congress intentionally conferred dis- cretionary authority for those actions. Although the doctrine is defended, reasonably, as constraining a different sort of discretionary government au- thority―resting in the hands of judges rather than administrators―Chev- ron deference has reduced the effectiveness of review as a limitation on ad- ministrative power. This article looks at the changes in constitutional limits on official power, the function of the Chevron doctrine, and potential alter- natives as a check on discretionary administrative power, concluding that a stronger requirement of actual grants of discretion is more legally defensi- ble and more consistent with the rule of law.
    Date: 2015–02
  9. By: Lisciandra, Maurizio; Millemaci, Emanuele
    Abstract: This paper provides a within-country analysis of the impact of corruption on economic growth using a panel of Italian regions from 1968 to 2011 through a robust measure of corruption. This measure is averaged over 5-year periods to reduce short-run fluctuations and to reduce probable delayed effects, which are typical for latent phenomena such as corruption. The results show a significant negative impact of corruption on long-term growth in all specifications, both on average and for each Italian region. As a consequence, a zero-level of corruption is growth maximizing. This effect is non-linear such that the negative impact of corruption on growth becomes less intense as corruption increases.
    Keywords: corruption; economic growth; cross-regional analysis; dynamic panel data
    JEL: D73 K4 O10 R11
    Date: 2015–02
  10. By: Thomas Dietz (University of Muenster - Institute of Political Science & ZenTra); Marius Dotzauer (University of Muenster - Institute of Political Science)
    Abstract: The aim of this paper is to explore the political dimensions of investment arbitration. What drives the structures and rules of this institution of private-transnational dispute settlement? To define political dimensions and develop the basis of a political explanation of investment arbitration, we reconstruct the conflict about investor-state dispute settlement (ISDS) in the negotiations on the Transatlantic Trade and Investment Partnership (TTIP). We argue that the competing interests of different actors shape the design of the institution. Investment arbitration has become politicized. On a horizontal dimension, interest groups argue about the risks and benefits of arbitration. On a vertical dimension, government authorities struggle to balance national sovereignty and global interests. We indicate a political process, defined by the configuration of the horizontal and the vertical dimension, which drives the emergence and development of investment arbitration.
    Keywords: Arbitration, investor-state dispute settlement, TTIP, politicization, distributional conflicts
    JEL: F13 F15 F21 K33 P16
    Date: 2015–02
  11. By: Macieira, João; Pereira, Pedro; Vareda, João
    Abstract: We analyze …firms incentives to bundle and tie in the telecommunications industry. As a fi…rst step, we develop a discrete-choice demand model where fi…rms sell products that may combine several services in bundles, and consumers choose assortments of different types of products available from various vendors. Our approach extends standard discrete-choice demand models of differentiated product to allow for both flexible substitution patterns and to map demand for each choice alternative onto the demand for each service or bundle that a fi…rm may sell. We exploit these properties to examine bundling behavior when fi…rms choose: (i) prices, and (ii) which products to sell. Using consumer-level data and survey data from the Portuguese telecommunications industry, we estimate our demand model and identify fi…rm incentives to bundle and tie in this industry. We use the model to perform several policy related conterfactuals and evaluate their impact on prices and product provision.
    Keywords: Bundles,Discrete-Choice Model,Equilibrium Simulation,Differentiated Product,Consumer Level Data
    JEL: D43 K21 L44 L96
    Date: 2014
  12. By: Parigi, Bruno; Pelizzon, Loriana; von Thadden, Ernst-Ludwig
    Abstract: This paper analyzes why corporate governance matters for stock returns if the stock market prices the underlying managerial agency problem correctly. Our theory assumes that strict corporate governance prevents managers from diverting cash flows, but reduces incentives for managerial effort. In capital market equilibrium, this trade-off has implications for the firm's earnings, stock returns, and managerial ownership, because governance impacts the firm's risk-return structure. In particular, the strictness of corporate governance is negatively related to earnings and positively to ß;. Various empirical tests with U.S. data using the governance index of Gompers, Ishii, and Metrick (2003) yield results consistent with these predictions.
    Keywords: beta; CAPM; cash flow; Corporate governance; stock returns
    JEL: G32 G38 K22
    Date: 2015–02

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