nep-law New Economics Papers
on Law and Economics
Issue of 2015‒03‒22
sixteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Institutions of Roman Markets By Benito Arruñada
  2. The Role of Lawyer-Legislators in Shaping the Law: Evidence from Voting Behavior on Tort Reforms By Matter, Ulrich; Stutzer, Alois
  3. What Clients Want; Choices between Lawyers' Offerings By Flóra Felsö; Sander Onderstal; Jo Seldeslachts
  4. First-Day Criminal Recidivism By Martín Rossi; Ignacio Munyo
  5. "Ain't No Rest for the Wicked": Population, Crime, and the 2013 Government Shutdown By Gil, Ricard; Macis, Mario
  6. The Role of Constitutions on Poverty: A Cross-National Investigation By Minkler, Lanse; Prakash, Nishith
  7. Tacit Collusion – The Neglected Experimental Evidence By Christoph Engel
  8. Customary International Law and Public Goods By Niels Petersen
  9. Court-ship, Kinship and Business: A Study on the Interaction between the Formal and the Informal Institutions and Its Effect on Entrepreneurship By Chakraborty, Tanika; Mukherjee, Anirban; Saha, Sarani
  10. The fiscal effects of work-related tax expenditures in Europe By Salvador Barrios; Serena Fatica; Diego Martinez; Gilles Mourre
  11. 'High' Achievers? Cannabis Access and Academic Performance By Marie, Olivier; Zölitz, Ulf
  12. Let Young People Join The Legislative Process. A Twitter Based Experiment On Internships By Barbieri Paolo Nicola; F. Fazio; G. Gamberini
  13. Is There a Market for Peerages? Can Donations Buy You a British Peerage? A Study in the Link Between Party Political Funding and Peerage Nominations, 2005-14 By Andrew Mell; Simon Radford; Seth Alexander Thevoz
  14. On the Design of Criminal Trials: The Benefits of a Three-Verdict System By Ron Siegel; Bruno Strulovici
  15. Are We Playing the Same Game? The Economic Effects of Constitutions Depend on the Degree of Institutionalization By Mariano Tommasi; Germán Caruso; Carlos Scartascini
  16. A Century of Environmental Legislation By Louis P. Cain; Brooks A. Kaiser

  1. By: Benito Arruñada
    Abstract: I analyze the basis of the market economy in classical Rome, from the perspective of personal-versus-impersonal exchange and focusing on the role of the state in providing market-enabling institutions. I start by reviewing the central conflict in all exchanges between those holding and those acquiring property rights, and how solving it requires reducing information asymmetry without endangering the security of property. Relying on a model of the social choice of institutions, I identify the demand and supply factors driving the institutional choices made by the Romans, and examine the economic circumstances that influenced these factors in the classical period of Roman law. Comparing the predictions of the model with the main solutions used by Roman law in the areas of property, business exchange and the enforcement of personal obligations allows me to propose alternative interpretations for some salient institutions that have been subject to controversy in the literature, and to conclude with an overall positive assessment of the market-enabling role of the Roman state.
    Keywords: property rights, enforcement, transaction costs, registries, Roman law, impersonal exchange, personal exchange, New Institutional Economics, Law and Economics
    JEL: D1 D23 G38 K11 K12 K14 K22 K36 L22 N13 O17 P48
    Date: 2015–03
  2. By: Matter, Ulrich (University of Basel); Stutzer, Alois (University of Basel)
    Abstract: Attorneys elected to the US Congress 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 than legislators with a different professional background. This finding is based on the analysis of 64 roll call votes at the federal and state level between 1995 and 2014. 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.
    Keywords: lawyers, legislatures, rent-seeking, tort law, tort reform, voting behavior
    JEL: D72 K13
    Date: 2015–02
  3. By: Flóra Felsö; Sander Onderstal; Jo Seldeslachts
    Abstract: We analyze a client's choice of contract in auctions where Dutch law firms compete for cases. The distinguishing feature is that lawyers may submit bids with any fee arrangement they prefer: an hourly rate, a fixed fee or a \mixed fee," which is a time-capped fixed fee plus an hourly rate for any additional hours should the case take longer than expected. This format of selling legal services is unusual in that it both forces lawyers to compete directly against each other and allows clients to easily compare these different offers. We estimate a choice model for clients and find robust evidence that hourly rate bids are a client's least-preferred choice. Our findings tentatively contradict lawyers' often made argument that hourly rates are in a client's best interest.
    Keywords: Lawyers' fee arrangements, clients' choices, discrete choice models
    JEL: C25 D43 K10 K40
    Date: 2015
  4. By: Martín Rossi (Department of Economics, Universidad de San Andres); Ignacio Munyo (Universidad de Montevideo, IEEM)
    Abstract: We report that on any given day the number of inmates released from incarceration significantly affects the number of offenses committed this day, and we name this as first-day recidivism. Our estimates of this novel approach to study early recidivism are robust to a variety of alternative model specifications. We then show that first-day recidivism can be eliminated by an increase in the gratuity provided to prisoners at the time of their release. A simple cost-benefit analysis shows that increasing the gratuity at release is a very efficient policy.
    Keywords: Recidivism; property crime; liquidity constraints
    JEL: K42
    Date: 2014–06
  5. By: Gil, Ricard (Johns Hopkins University); Macis, Mario (Johns Hopkins University)
    Abstract: The vast majority of the empirical literature on crime has focused on the effects of "supply-side" shocks such as the severity of laws and enforcement. In this paper we analyze the effects of a large and unexpected "demand-side" shock: the drop in daytime population in Washington, DC caused by the government shutdown of October 1-16, 2013. We derive implications from a simple theoretical model where criminals choose effort and allocate it across different criminal activities. We test these implications using the city of Baltimore as the comparison group, and employing difference-in-differences methods. Consistent with the model's predictions (and inconsistent with alternative explanations), we find a 3% decline in crime in DC during the shutdown period, with the net effect resulting from a 9% decline during the day hours, and a 5% increase in crime during the evening and night hours, indicating reallocation of criminals' effort induced by the shutdown.
    Keywords: crime, population, labor supply
    JEL: K42 J22
    Date: 2015–02
  6. By: Minkler, Lanse (University of Connecticut); Prakash, Nishith (University of Connecticut)
    Abstract: In this paper we use novel historical data on economics and social rights from the constitutions of 201 countries and an instrument variable strategy to answer two important questions. First, do economic and social rights provisions in constitutions reduce poverty? Second, does the strength of constitutional language of the economic and social rights matter? Constitutional provisions can be framed either more weakly as directive principles or more strongly as enforceable law. We find three important results. First, we do not find an association between constitutional rights generally framed and poverty. Second, we do not find an association between economic and social rights framed as directive principles and poverty. Third, we do find a strong negative association between economic and social rights framed as enforceable law and poverty. When we use legal origins as our IV, we find evidence that this result is causal. Our results survive a variety of robustness checks. The policy implication is that constitutional provisions framed as enforceable law provide effective meta-rules with incentives for policymakers to initiate, fund, monitor and enforce poverty reduction policies.
    Keywords: economic and social rights, constitutions, enforceable law, directive principles, poverty, instrumental variables, legal origin
    JEL: I24 I32 I38 O1 O38
    Date: 2015–02
  7. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Both in the US and in Europe, antitrust authorities prohibit merger not only if the merged entity, in and of itself, is no longer sufficiently controlled by competition. The authorities also intervene if, post merger, the market structure has changed such that "tacit collusion" or "coordinated effects" become disturbingly more likely. It seems that antitrust neglects the fact that, for more than 50 years, economists have been doing experiments on this very question. Almost any conceivable determinant of higher or lower collusion has been tested. This paper standardises the evidence by way of a meta-study, and relates experimental findings as closely as possible to antitrust doctrine.
    JEL: D43 K21 L13 L41 C91 D22
    Date: 2015–01
  8. By: Niels Petersen (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The paper examines the potential of customary international law to protect global public goods. In particular, it focuses on the question whether customary law can contribute to the mitigation of climate change. The analysis proceeds in the three steps. First, it will have a closer look at the concept of public goods and common pool resources in economic theory and experimental economics. On this basis, the second section examines the formation of customary international law. The analysis shows that sustaining cooperation in multilateral settings through customary law is difficult. With regard to the mitigation of climate change, it is unlikely that states will coordinate on an equilibrium that will lead to a reduction of greenhouse gas emissions. The section then examines two further ways of identifying customary international law through moral interpretation and judicial lawmaking. However, the potential of these two avenues to protect global public goods effectively is rather limited. The final section analyzes the protection of global public goods through the initially unilateral extension of authority. One problem of global public goods is that states have shared authority over them. A solution might be to divide authority by extending the jurisdiction of the nation states. I will draw from an example concerning the protection of common pool resources, the protection of fish stocks, and analyze whether this example contains any lessons for the mitigation of climate change.
    JEL: K33
    Date: 2015–02
  9. By: Chakraborty, Tanika (Indian Institute of Technology Kanpur); Mukherjee, Anirban (University of Calcutta); Saha, Sarani (Indian Institute of Technology Kanpur)
    Abstract: In this paper we theoretically and empirically examine how the interaction between the formal court system and the informal loan network affects a household's decision to start a business. We find that when the formal court system is weak, expansion of informal credit network leads to the proliferation of business. However, with a sufficiently strong court system, expansion of credit network has a negative effect on business prospects. This result is explained by the contradictions between formal laws and norms used by informal networks. Our result remains robust after controlling for a variety of household and district level characteristics.
    Keywords: informal network, court, formal institution, entrepreneurship
    JEL: K12 L26 O17
    Date: 2015–02
  10. By: Salvador Barrios; Serena Fatica; Diego Martinez; Gilles Mourre
    Abstract: Work-related tax incentives can have a significant effect on how much, if at all, certain individuals decide to work. This paper examines the fiscal impacts and associated welfare costs of reforms to such tax relief measures in five European countries, France, Spain, the United Kingdom, Hungary and Slovakia. It finds that at least a quarter of the extra tax revenue raised by lowering work-related tax incentives tends to get lost, as individuals react by working less or withdrawing altogether. The revenue gain is particularly limited following the removal of tax incentives targeting the very lowest earners, which may even lead to revenue losses in some cases. Reducing work-related tax reliefs also has significant negative welfare effects.
    JEL: H24 H31 J20
    Date: 2015–02
  11. By: Marie, Olivier (Maastricht University); Zölitz, Ulf (IZA)
    Abstract: This paper investigates how legal cannabis access affects student performance. Identification comes from an exceptional policy introduced in the city of Maastricht which discriminated legal access based on individuals' nationality. We apply a difference-in-difference approach using administrative panel data on over 54,000 course grades of local students enrolled at Maastricht University before and during the partial cannabis prohibition. We find that the academic performance of students who are no longer legally permitted to buy cannabis increases substantially. Grade improvements are driven by younger students, and the effects are stronger for women and low performers. In line with how THC consumption affects cognitive functioning, we find that performance gains are larger for courses that require more numerical/mathematical skills. We investigate the underlying channels using students' course evaluations and present suggestive evidence that performance gains are driven by improved understanding of material rather than changes in students' study effort.
    Keywords: marijuana, legalization, student performance
    JEL: I18 I20 K42
    Date: 2015–03
  12. By: Barbieri Paolo Nicola; F. Fazio; G. Gamberini
    Abstract: The aim of this research is to examine the possible effects of labour market institutional characteristics on young people's perceptions of their internship experiences as expressed on Twitter. By looking at these opinions (satisfaction versus dissatisfaction) in relation to certain features of internships as well as to the more general labour market regulatory framework, this project aims to give a voice to young people, enabling them (indirectly) to provide policy suggestions to law-makers. Furthermore, we propose a preview of a possible empirical model for data collection based on the manual coding of Tweets. By employing a Probit regression and Blinder-Oaxaca and Fairlie decompositions, we have tried to establish a link between the perceived evaluation of internships and the country where the internship is based, the latter being used as a proxy for the legal system. In all our tests we found that the country in which the internship is placed is the main factor in the positive or negative perception. Ultimately we shall propose the use of Twitter not only as a relevant research tool, but also as an instrument for bringing young people's needs to the attention of law-makers.
    JEL: J28 K31 Z13
    Date: 2015–03
  13. By: Andrew Mell; Simon Radford; Seth Alexander Thevoz
    Abstract: Trust in political institutions has declined across developed democracies.  One of the main reasons cited for this lack of trust in public opinion polls has been the role of money in politics.  The Supreme Court decisions in Citizens United and McCutcheon, amongst others, have increased the political salience of potential campaign finance reforms, and the Great Recession has reinvigorated a public debate on regulatory capture by Wall Street.  So too scholars have taken up the topic with renewed vigor.  Political scientists have tried to tackle the issue in two main steps: firstly, by showing that money can buy access to legislators; and secondly, that legislators are thereby more responsive to the wishes of donors when writing and voting on laws.  Researchers have used experiments and other techniques to show that Congressional staffs are more responsive to requests from donors compared to others, and have also shown aggregate trends in responsiveness to the preferences of the wealthier. In this paper we try and go one step further: to show that donors can become legislators.  We do this by looking at a novel example: the United Kingdom's appointed Second Chamber, the House of Lords.  Compiling an original dataset of large donations and nominations for "peerages" that allow them to take a seat in the Lords, the authors show that, when the "usual suspects" for a position, like former MPs and party workers, are accounted for, donations seem to play an outsize role in accounting for the remaining peers.  Given the widespread concern at undue influence accorded to large donors, understanding the extent of how donations influence politics and evaluating proposals for democratic renewal should be a major concern of political scienes.
    Keywords: Illegal Behaviour, IlIicit Trade
    JEL: K42 P48
    Date: 2015–03–20
  14. By: Ron Siegel; Bruno Strulovici
    Keywords: Trials, Verdict, Reasonable Doubt, Stigma, Evidence, Plea bargaining shocks, risk aversion. JEL Classification: D02, D7, D81, D82, D83, K1, K4
    Date: 2015–03–03
  15. By: Mariano Tommasi (Department of Economics, Universidad de San Andres); Germán Caruso (Banco Mundial); Carlos Scartascini (Banco Interamericano de Desarrollo)
    Abstract: This paper addresses an important source of variation within democracies – the degree of institutionalization. The concept of institutionalization describes the extent to which politics takes place, and is believed to take place, via formal political institutions. Countries vary in their degree of institutionalization, hence, in the degree to which political actors pursue their goals via conventional politics or via “alternative political technologies”. This paper postulates that if politics is conducted largely outside of formal channels, the structure of the formal channels should not matter much as a determinant of policy outcomes. To address this issue this paper proposes a new index of institutionalization and with it revisits seminal work regarding the impact of constitutions on public spending. The findings show that the effect of constitutional rules on policy outcomes is conditional on the degree of institutionalization.
    Keywords: constitutions, institutions
    Date: 2014–12
  16. By: Louis P. Cain (Loyola University Chicago and Northwestern University); Brooks A. Kaiser (Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: We find three intertwined ambitions that drove federal legislation over wildlife and biodiversity at the beginning of the 20th Century: establishment of multiple-use federal lands, the economic development of natural resources, and the maintenance of option values. We examine this federal intervention in natural resource use by analyzing roll-call votes over the past century. These votes involved decisions regarding public land that reallocated the returns to users by changing the asset’s physical character or its usage rights. We suggest that long term consequences affecting current resource allocations arose from disparities between broadly dispersed benefits and locally concentrated socio-economic and geo-physical (spatial) costs. We show that a primary intent of public land management has become to preserve multiple-use option values and identify important factors in computing those option values. We do this by demonstrating how the willingness to forego current benefits for future ones depends on the community’s resource endowments. These endowments are defined not only in terms of users’ current wealth accumulation but also from their expected ability to extract utility from natural resources over time.
    Keywords: Environmental Legislation; Wildlife Legislation; Endangered Species Act; Lacey Act; Economic History of the Environment
    JEL: N51 N52 Q28 Q23 Q24
    Date: 2015–03

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