nep-law New Economics Papers
on Law and Economics
Issue of 2015‒08‒30
ten papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. How Much Do Cartel Overcharge? (The "Working Paper" Version) By Marcel Boyer; Rachidi Kotchoni
  2. Law on the Market? Evaluating the Securities Market Impact of Supreme Court Decisions By Daniel Martin Katz; Michael J Bommarito II; Tyler Soellinger; James Ming Chen
  3. The Impact of Team Inspections on Enforcement and Deterrence By Muehlenbachs, Lucija Anna; Staubli, Stefan; Cohen, Mark A.
  4. Bad Behavior: Delinquency, Arrest and Early School Leaving By Ward, Shannon; Williams, Jenny; van Ours, Jan C.
  5. Decline of CFC rules and rise of IP boxes: How the ECJ affects tax competition and economic distortions in Europe By Bräutigam, Rainer; Spengel, Christoph; Streif, Frank
  6. Bargaining with Optimism: A Structural Analysis of Medical Malpractice Litigation By Merlo, Antonio; Tang, Xun
  7. Tailoring Negligence Standards to Accident Records By Guerra, Alice; Hlobil, Tobias M.
  8. Does Introduction of Bureaucratic Competition Reduce Corruption in Public Service Delivery? By Banerjee, Panchali; Mukherjee, Vivekananda
  9. Structural Estimation of a Becker-Ehrlich Equilibrium Model of Crime: Allocating Police across Cities to Reduce Crime By Fu, Chao; Wolpin, Kenneth I.
  10. Trust in the Judicial System: Evidence from Brazil By Rodrigo De-Losso; Joelson Oliveira Sampaio, Luciana Grosso Cunha

  1. By: Marcel Boyer; Rachidi Kotchoni
    Abstract: The estimation of cartel overcharges lies at the heart of antitrust policy on cartel prosecution as it constitutes a key element in the determination of fines. Connor and Lande (2008) conducted a survey of cartels and found a mean overcharge estimate in the range of 31% to 49%. By examining more sources, Connor (2010) finds a mean of 50.4% for successful cartels. However, the data used in those studies are estimates obtained from different methodologies, sources and contexts rather than from direct observations. Therefore, these data are subject to model error, estimation error, endogeneity bias, and publication bias. An examination of the Connor database reveals that the universe of overcharge estimate is asymmetric, heterogenous and contains a number of influential observations. Beside the fact that overcharge estimates are potentially biased, fitting a linear regression model to the data without providing a carefull treatment of the problems raised above may produce distorted results. We conduct a meta-analysis of cartel overcharge estimates in the spirit of Connor and Bolotova (2006) while providing a sound treatment of these matters. We find bias-corrected mean and median overcharge estimates of 15.47% and 16.01%. Clearly, our results have significant antitrust policy implications. L’estimation des surprix des cartels est au coeur de la politique de lutte aux cartels car elle est un élément clé de la détermination des pénalités. Connor et Lande (2008) survolent la litérature sur les majorations de prix des cartels et concluent à une augmentation moyenne variant entre 31% et 49%. Considérant un échantillon plus grand, Connor (2010) trouve une moyenne de 50,4% pour les cartels réussis. Cependant, les données utilisées dans ces études sont des estimations obtenues à partir de méthodologies, sources, et contextes différents plutôt que d’observations directes. De ce fait, ces données héritent potentiellement d’erreurs de modélisation et d’estimation, ainsi que de biais d'endogenéité et de publication. L’analyse directe des surprix dans l’échantillon de Connor révèle une distribution asymétrique, une importante hétérogénéité et la présence d’observations aberrantes. Au-delà du fait que les estimations des surprix sont potentiellement biaisées, l’estimation d’un modèle de régression linéaire avec de telles données sans un traitement adéquat des problèmes identifiés ci-dessus pourait produire des résultats fallacieux. Nous présentons une méta-analyse dans l’esprit de Connor and Bolotova (2006), mais qui tient compte adéquatement des problèmes mentionnés ci-dessus. Après correction des biais, nous obtenons une moyenne et une médiane de majorations de prix de l’ordre de 15,47% et 16,01%. Nos résultats débouchent sur des enjeux importants en matière de politique de la concurrence.
    Keywords: Antitrust, Cartel overcharges, Heckman, Heckit, Kullback-Leibler divergence, Meta-analysis, Antitrust, Surprix de cartel, Heckman, Heckit, Divergence de Kullback-Leibler, Meta-analyse
    Date: 2015–07–31
  2. By: Daniel Martin Katz; Michael J Bommarito II; Tyler Soellinger; James Ming Chen
    Abstract: Do judicial decisions affect the securities markets in discernible and perhaps predictable ways? In other words, is there "law on the market" (LOTM)? This is a question that has been raised by commentators, but answered by very few in a systematic and financially rigorous manner. Using intraday data and a multiday event window, this large scale event study seeks to determine the existence, frequency and magnitude of equity market impacts flowing from Supreme Court decisions. We demonstrate that, while certainly not present in every case, "law on the market" events are fairly common. Across all cases decided by the Supreme Court of the United States between the 1999-2013 terms, we identify 79 cases where the share price of one or more publicly traded company moved in direct response to a Supreme Court decision. In the aggregate, over fifteen years, Supreme Court decisions were responsible for more than 140 billion dollars in absolute changes in wealth. Our analysis not only contributes to our understanding of the political economy of judicial decision making, but also links to the broader set of research exploring the performance in financial markets using event study methods. We conclude by exploring the informational efficiency of law as a market by highlighting the speed at which information from Supreme Court decisions is assimilated by the market. Relatively speaking, LOTM events have historically exhibited slow rates of information incorporation for affected securities. This implies a market ripe for arbitrage where an event-based trading strategy could be successful.
    Date: 2015–08
  3. By: Muehlenbachs, Lucija Anna (Resources for the Future); Staubli, Stefan; Cohen, Mark A.
    Abstract: This paper provides new insights into the productivity of teams. Government enforcement agencies often send teams of inspectors instead of a sole inspector to a regulated facility. Yet, determining the impact of teams is problematic due to endogeneity (e.g., the enforcement agency might naturally send larger teams when they expect a more violations). Exploiting exogenous variation in the number of inspectors that are sent to offshore oil and gas platforms in the Gulf of Mexico, we show that adding an inspector to a team increases the number of sanctions issued as well as the severity of the sanctions.Classification-JEL: Q58, K42
    Keywords: inspections, enforcement, deterrence, offshore oil
    Date: 2013–11–08
  4. By: Ward, Shannon (University of Melbourne); Williams, Jenny (University of Melbourne); van Ours, Jan C. (Tilburg University)
    Abstract: In this paper we investigate the effects of delinquency and arrest on school leaving using information on males from the National Longitudinal Survey of Youth 1997. We use a multivariate mixed proportional hazard framework in order to account for common unobserved confounders and reverse causality. Our key finding is that delinquency as well as arrest leads to early school leaving. Further investigation reveals that the effect of delinquency is largely driven by income generating crimes, and the effect of both income generating crime and arrest are greater when onset occurs at younger ages. These findings are consistent with a criminal capital accumulation mechanism. On the basis of our sample, we show that taking into account the proportion of young men affected by delinquency and arrest, that the overall reduction in education due to delinquency is at least as large as the reduction due to arrest. This highlights the need for crime prevention efforts to extend beyond youth who come into contact with the justice system.
    Keywords: duration models, delinquency, arrest, education
    JEL: C4 I2 K4 D0
    Date: 2015–08
  5. By: Bräutigam, Rainer; Spengel, Christoph; Streif, Frank
    Abstract: The European Court of Justice (ECJ) has become an influential player in the field of direct taxation in the European Union in the past twenty years. However, it is unclear whether the ECJ's decisions actually increase tax neutrality and therefore contribute to the achievement of an internal market as stipulated by the European treaties or not. In 2006, the ECJ limited the applicability of specific tax rules in Europe that are intended to prohibit the excessive use of low-tax countries. Our counterfactual scenarios show that this restriction of so-called controlled foreign company (CFC) rules and the related emergence of IP boxes cast doubt on the positive effects the ECJ is assumed to have. Additionally, we show that the abolishment of IP boxes would strengthen tax neutrality in Europe. Overall, further research is needed to relate and harmonise economic and legal concepts of tax neutrality.
    Keywords: European Court of Justice,Tax Neutrality,Effective Tax Rates,Controlled Foreign Company Rules,Intellectual Property Boxes
    JEL: H21 K10
    Date: 2015
  6. By: Merlo, Antonio (Rice University); Tang, Xun (Rice University)
    Abstract: We study identification and estimation of a structural model of bargaining with optimism where players have heterogeneous beliefs about the final resolution of a dispute if they fail to reach an agreement. We show the distribution of the players' beliefs and the stochastic bargaining surplus are nonparametrically identified from the probability of reaching an agreement and the distribution of transfers in the final resolution of the dispute. We use a Maximum Simulated Likelihood approach to estimate the beliefs of doctors and patients in medical malpractice disputes in Florida during the 1980s and 1990s. We find strong evidence that beliefs for both parties vary with the severity of the injury and the qualification of the doctor named in the lawsuit, even though these characteristics are statistically insignificant in explaining whether the court rules in favor of the plaintiff or of the defendant. We also quantify the reduction in settlement amounts that would result from the introduction of a (counterfactual) policy that imposes caps on the total compensation for plaintiffs.
    Date: 2015–08
  7. By: Guerra, Alice; Hlobil, Tobias M.
    Abstract: Traditional economic models of accident law are static and assume homogeneous individuals under perfect information. This paper relaxes these assumptions and presents a dynamic unilateral accident model in which potential injurers differ in their probability of accident. Information about individual risk-type is hidden from the social planner and from each potential injurer. We ask how negligence standards should be optimally tailored to individual risk-type when this is imperfectly observable. We argue that information about past accident experiences helps to efficiently define negligence standards, narrowing the distance between first-best standards perfectly tailored to individual risk-type and third-best averaged standards. We finally show that negligence standards refined on the basis of past accident experiences and of individual risk-type do not undermine private incentives to undertake due care.
    Keywords: accident law, individualized negligence standards, negligence, bayesian updating rule
    JEL: K10 K13
    Date: 2015–08–10
  8. By: Banerjee, Panchali (Department of Economics, Jadavpur University); Mukherjee, Vivekananda (Department of Economics, Jadavpur University)
    Abstract: The paper theoretically explores the impact of introducing bureaucratic competition on corruption. For this purpose it considers three different measures of corruption such as corruption incidence (CI), relative corruption incidence (CRI) and corruption rents (CR) in two different types of economies namely corruption-tolerant economies and corruption-reliant economies. As it compares both intensive margin (i.e. the magnitude of bribe) and extensive margin (i.e. the number of bribe incident) of corruption with and without bureaucratic competition, it turns out that as traditionally perceived the introduction of bureaucratic corruption does not necessarily reduce corruption in an economy. The outcome depends on the type of the economy that has been studied, the measure of corruption being used and the initial level of corruption in the economy. Among the counterintuitive results, we find that in a corruption-tolerant economy going by the CI measure, corruption is always higher under competitive regime compared to monopoly regime. The same holds true if the CR measure is used in such economies with sufficiently high share of corrupt officials. In a reliant economy, if CRI measure is applied, corruption is more in competitive regime.
    Keywords: Corruption ; Competition ; Bureaucracy ; Red tape ; Measures of corruption ; Extortion ; Collusion
    JEL: D73 K42
    Date: 2015–07
  9. By: Fu, Chao (University of WI); Wolpin, Kenneth I. (Rice University and University of PA)
    Abstract: We develop a model of crime in which the number of police, the crime rate, the arrest rate, the employment rate and the wage rate are joint outcomes of a subgame perfect Nash equilibrium. The local government chooses the size of its police force and citizens choose among work, home and crime alternatives. We estimate the model using MSA-level data. We use the estimated model to examine the effects on crime of targeted federal transfers to local governments to increase police. We find that knowledge about unobserved MSA-specific attributes is critical for the optimal allocation of police across MSA's.
    Date: 2014–08
  10. By: Rodrigo De-Losso; Joelson Oliveira Sampaio, Luciana Grosso Cunha
    Abstract: One issue that affects the economic and social development of a country is the ability of the judiciary to present itself as a legitimate instance in resolving conflicts that arise in the social, business and economic development. One way to measure this is through legitimacy of the motivations that lead citizens to trust or not in the Judiciary. We created the Brazilian Confidence in Justice Index (BCJI) as a validation argument for our confidence measure. The BCJI is a measure of perception, which shows the opinion of the population about Brazil’s judiciary. Our results indicate that race and gender are important predictors once controlled for other characteristics of respondents. Blacks have a slightly lower level of confidence in the judiciary than whites. Women also present less confidence than men. We also show that people with low income have lower levels of trust. Our findings also have other important implications for confidence in the judicial system. We show that there is a positive and strong relationship between confidence in the judicial system and propensity to seek the judiciary.
    Keywords: Trust in the judicial system; Institutions; Judiciary
    JEL: G12
    Date: 2015–08–11

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