nep-law New Economics Papers
on Law and Economics
Issue of 2015‒10‒04
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Social Norms and Legal Design By Bruno Deffains; Claude Fluet
  2. Economic Freedom and Public, Non-Market Institutions: Evidence from Criminal Prosecution By Claudio Detotto; Bryan C. McCannon
  3. Let the Punishment Fit the Criminal By Donna, Javier; Espin Sanchez, Jose
  4. The effectiveness of insider trading regulations: The case of the Italian tender offers By Riccardo Ferretti; Pierpaolo Pattitoni; Anna Salinas
  5. Regulations, institutions and income smoothing by managing technical reserves: international evidence from the insurance industry By Gaganis, Chrysovalantis; Hasan, Iftekhar; Pasiouras, Fotios
  6. Institutional and Political Determinants of Private Participation in Infrastructure By Marian Moszoro; Gonzalo Araya; Fernanda Ruiz-Nuñez; Jordan Schwartz
  7. Contracts and Trust By Bryan C. McCannon; Colleen Tokar Asaad; Mark Wilson
  8. Legal and illegal cartels in the European cement industry By Fink, Nikolaus; Frübing, Stefan
  9. Racial Discrimination in Local Public Services: A Field Experiment in the US By Corrado Giulietti; Mirco Tonin; Michael Vlassopoulos
  10. Labour Courts delays and the composition of employment: Is labour encouraged or endangered by institutions? By Giuseppina Gianfreda; Giovanna Vallanti
  11. Illegal migration and consumption behavior of immigrant households By Christian Dustmann; Francesco Fasani; Biagio Speciale

  1. By: Bruno Deffains; Claude Fluet
    Abstract: We compare fault-based and strict liability offences in law enforcement when behavior is influenced by informal prosocial norms of conduct. Fault tends to be more effective than strict liability in harnessing social or self-image concerns. When enforcement relies on fines and assessing fault is not too costly, the optimal legal regime is fault-based with a standard consistent with the underlying social norm if convictions would seldom occur under optimal enforcement; otherwise liability should be strict. When sanctions are nonmonetary or when stigmatization imposes a deadweight loss, the legal standard may be harsher or more lenient than the social norm.
    Keywords: Social preferences, regulatory offences, law enforcement, strict liability, fault, legal standard, compliance, deterrence
    JEL: D8 K4 Z13
    Date: 2015
  2. By: Claudio Detotto (University of Sassari); Bryan C. McCannon (West Virginia University, Department of Economics)
    Abstract: Economic freedom, which measures the protection of property and freedom to contract, is generally argued to capture the quality of a state’s institutions regarding market activity. As to be expected, numerous studies have found that economic freedom is associated with good economic outcomes. Additionally, much effort in public economics has worked to identify the features of quality non-market public institutions. No effort has been made to connect institutions that influence market activity and institutions that govern non-market activities. We take a first step. We employ a linear programming method for measuring relative efficiencies known as Data Envelopment Analysis. We apply this technique to information on the use of inputs to the production of the prosecution of crime across the thousands of local prosecutor offices in the U.S. We then compare state-level measurements of prosecution productivity with data on state-level economic freedom from the Economic Freedom of North America index. We show that there is a positive and statistically significant relationship between the two. Those states that develop institutions respecting economic freedom also tend to be the states that develop efficient publicly-provided services.
    Keywords: Data Envelopment Analysis, economic freedom, efficiency, prosecution, publicly-provided services
    JEL: H11 C67 D23 D24 D61 K4
    Date: 2015–02
  3. By: Donna, Javier; Espin Sanchez, Jose
    Abstract: We investigate the role of punishment progressivity and individual characteristics in the determination of crime. To analyze welfare implications we model individuals’ re- sponse to judges’ optimal punishment in a dynamic setting. We introduce two distinctive features motivated by our empirical setting. First, judges rarely imposes maximum pun- ishment for first time offenders. Instead, we observe low fines (or just a warning) even when crime detection technology is efficient and punishment is not costly. We account for this by allowing an unobservable (to the judge) individual state to be correlated with a public signal (the environment). This generates an optimal punishment that is conditional on individual observables. Second, judges punishments follow a progressive system: con- ditioning on type, recidivists are punished harsher than first-time offenders for the same crime. We account for these dynamics by introducing a persistent unobservable (to the judge) component. Judges update their beliefs about individuals depending on whether they committed a crime in the previous period; this gives rise to progressivity in the opti- mal punishment system. For the empirical analysis we examine a novel trial data set from a self-governed community of farmers in Southern Spain. We find that judges vary the degree of imposed punishments based on individual characteristics—such as when victims or accused have a Don honorific title indicating they are wealthy. Recidivists are punished harsher than first time offenders.
    Keywords: Auctions, Contracts, Crime, Fines, Punishment
    JEL: C13 D44 K14 K42 L14
    Date: 2014–08
  4. By: Riccardo Ferretti; Pierpaolo Pattitoni; Anna Salinas
    Abstract: This study analyzes the effectiveness of the Market Abuse Directive (MAD) in reducing the possible profits of insider trading during voluntary tender offers with the purpose of delisting initiated by controlling shareholders in Italy. Our results suggest that the introduction of the MAD did not produce appreciable effects on the magnitude of abnormal returns and volumes noted in the period preceding the announcement of a tender offer. However, a regression analysis reveals that the MAD has changed the manner in which certain corporate characteristics influence the capacity of insiders to achieve profits. In particular, in the post-MAD period, the market reaction to tender offer announcements tends to be greater for bigger firms. On the other hand, the effect of ownership concentration has become virtually null. We interpret the results in light of the economic problem of the potential insider who chooses the optimal level of insider trading by considering the marginal costs and benefits of the illegal activity.
    Keywords: Market Abuse Directive, Tender offer, Delisting, Event study
    JEL: G14 G34 K2 K4
    Date: 2015–09
  5. By: Gaganis, Chrysovalantis (University of Crete); Hasan, Iftekhar (Fordham University and Bank of Finland); Pasiouras, Fotios (University of Surrey, UK, and University of Crete)
    Abstract: This paper investigates the role of technical reserves in the income smoothing behavior of insurance companies. This is one of the first attempts in the literature to trace such relationship in the insurance industry, especially at a multi-country setting. The experience of 770 insurance firms operating in 87 countries over the period 2000-2009 reveals that there is a significant evidence of income smoothing. The paper also finds that institutional characteristics, e.g., the rule of law, common law legal origin, economic freedom, and regulations relating to technical provisions and supervisory power constrain income smoothing but other factors such as capital requirements, tax deductibility of provisions, auditing, and corporate governance do not have a significant effect.
    Keywords: earnings management; income smoothing; insurance; technical reserves
    JEL: G20 G22 M40 M48
    Date: 2015–08–17
  6. By: Marian Moszoro; Gonzalo Araya; Fernanda Ruiz-Nuñez; Jordan Schwartz
    Abstract: We assembled a large panel of project-level technical and financial data and country-level economic, institutional, political, and governance variables to assess the determinants of private financing of infrastructure in emerging markets and developing economies. Controlling for economic characteristics, we find that overall private participation of infrastructure financing increases with freedom from corruption, rule of law, quality of regulations, and decreases with court disputes. We provide plausible explanations of deviations from this pattern when data is disaggregated at the sectoral level. We also found that legal systems—types of democracy or dictatorship—do not play a role in whether the private sector invests in infrastructure. Our results do not vary when controlling for income inequality and across quartiles of experience, country wealth, and wealth per capita. The study shows that upstream “enabling” institutions, policies, and regulations and sector economics need to be addressed simultaneously to facilitate private infrastructure investment financing.
    Keywords: corruption, bureaucracy, regulation, rule of law
    JEL: D73 H54 L33 L51 R42
    Date: 2014–10
  7. By: Bryan C. McCannon (West Virginia University, College of Business and Economics); Colleen Tokar Asaad (Baldwin-Wallace University); Mark Wilson (Saint Bonaventure University)
    Abstract: Social preferences and third-party enforcement of formal contracts are two mechanisms that facilitate performance of an agreement. The standard argument is that formal contracting substitutes when social preferences are lacking. We explore the hypothesis that social preferences and contract enforcement are complements. We measure social preferences from a Trust Game and use it is an explanatory variable in a contract game. We find that both increased contract enforcement and high trusting preferences lead to enhanced rates of contract formation and larger investments. There is an interaction effect where trusting individuals make larger investment agreements, specifically when enforcement is greater. Thus, contracts and social preferences complement one another.
    Keywords: contract, experiment, risk, social preference, trust
    JEL: D86 K12 C91
    Date: 2015–05
  8. By: Fink, Nikolaus; Frübing, Stefan
    Abstract: Due to being much better documented, legal cartels have recently attracted the interest of many researchers who aim to understand the functioning of illegal cartels in detail. This paper contributes to the question of what we can learn from legal cartels by taking a closer look at the cement industry which has a rich history of both legal and illegal cartels. We undertake a cross-country comparison for Austria, Germany, Poland and Norway, providing narrative evidence for many traits of the cases based on a variety of detailed sources. We identify similarities between legal and illegal cartels in aspects such as monitoring efforts, information exchange, the importance of industry associations and the role of capacities, whereas we also find substantial differences in the allocation of clients, reactions to deviations and pricing schedules.
    Keywords: cartels,collusion,cement
    JEL: L41 L43 L61
    Date: 2015
  9. By: Corrado Giulietti; Mirco Tonin; Michael Vlassopoulos
    Abstract: Discrimination in access to public services can act as a major obstacle towards addressing racial inequality. We examine whether racial discrimination exists in access to a wide spectrum of public services in the US. We carry out an email correspondence study in which we pose simple queries to more than 19,000 local public service providers. We find that emails are less likely to receive a response if signed by a black-sounding name compared to a white-sounding name. Given a response rate of 72% for white senders, emails from putatively black senders are almost 4 percentage points less likely to receive an answer. We also find that responses to queries coming from black names are less likely to have a cordial tone. Further tests suggest that the differential in the likelihood of answering is due to animus towards blacks rather than inferring socioeconomic status from race.
    Keywords: discrimination, public services provision, school districts, libraries, sheriffs, field experiment, correspondence study
    Date: 2015–09
  10. By: Giuseppina Gianfreda (Università della Tuscia); Giovanna Vallanti (LUISS "Guido Carli")
    Abstract: Employment protection is the results of labour laws and of institutional factors which are not encompassed in official legislation. Courts? delay is settling labour disputes are among those factors. Using individual data on the Italian workforce for the period 2007-2010 and exploiting the territorial heterogeneity in the duration of labour suits among Italian regions we investigate the effect of labour trial delays on the composition of employment. We fi?nd that Labour Courts'delays hinder the occupation rate for specific categories of workers, i.e. women, young and low skilled people, while increasing the inactivity rate of the same groups; furthermore, long duration of trials reduces the likelyhood of accessing a permanent occupation for the same groups. Finally, it induces a shift from short term to long term unemployment.
    Keywords: EPL, courts, occupation rate, inactive workers, temporary jobs.
    JEL: D24 J63 K31 K41
    Date: 2015
  11. By: Christian Dustmann; Francesco Fasani (Queen Mary University); Biagio Speciale (Université Paris 1)
    Abstract: We analyze the effect of immigrants’ legal status on their consumption behavior using unique survey data that samples both documented and undocumented immigrants. To address the problem of sorting into legal status, we propose two alternative identification strategies as exogenous source of variation for current legal status: First, transitory income shocks in the home country, measured as rainfall shocks at the time of emigration. Second, amnesty quotas that grant legal residence status to undocumented immigrants. Both sources of variation create a strong first stage, and – although very different in nature – lead to similar estimates of the effects of illegal status on consumption, with undocumented immigrants consuming about 40 percent less than documented immigrants, conditional on background characteristics. Roughly one quarter of this decrease is explained by undocumented immigrants having lower incomes than documented immigrants. Our findings imply that legalization programs may have a potentially important effect on immigrants’consumption behavior, with consequences for both the source and host countries.
    Keywords: legal status, weather shocks, consumption behavior
    JEL: F22 D12 K42
    Date: 2015–09

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