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on Law and Economics |
| By: | Vasquez Escallon, Juanita |
| Abstract: | States want their people to follow the law. They can either persuade them, sanction law-breakers, or both. But sanctions do not only alter people s perception of risks and costs; they also affect how people view their state and its legitimacy, unleashing a series of non-economic factors that determine compliance with the law. In fact, when a sanction is perceived as unjust it may be inefficient in reducing law violations and could crowd-out legality in other aspects of life. Law scholars warn against violating the principle of proportionality by exerting extreme punishment in comparison with the magnitude of the crime, as it may result in the loss of citizen cooperation with the law. I take one of Colombia s drug-reducing policies, aerial spraying of coca crops and study the effect of its disproportionate use on legal crops. My results point to a non-linear effect of punishment on legality: spraying shocks or extreme spraying in relation to the amount of illegal crops found reduce engagement in legal crops, where as proportional levels of spraying induce legality. I use four different sources of data to test this relationship: macro data on all coca growing municipalities in Colombia, and micro data of three very different sets of farmers, namely coca growers surveyed by the UNODC, farmers that are beneficiaries of Colombia s biggest alternative development Program (Forest Warden Families) and coffee growers in municipalities that have had coca. I find the same results in all four samples and conclude that when the state overdoes its coercive actions, these can backfire and crowd out legality. |
| JEL: | D78 K42 Q12 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113156&r=law |
| By: | Langenmayr, Dominika Irma |
| Abstract: | Many countries apply lower fines to tax evading individuals when they voluntarily disclose the tax evasion they committed. I model such voluntary disclosure mechanisms theoretically and show that while such mechanisms increase the incentive to evade taxes, they nevertheless increase tax revenues net of administrative costs. I then test the effects of voluntary disclosure in two separate empirical analyses. First, I confirm that voluntary disclosure mechanisms increase tax evasion, using the introduction of the 2009 offshore voluntary disclosure program in the U.S. for identification. Second, I quantify the tax revenues of voluntary disclosures by considering how some state-level governments in Germany bought whistle-blower data from foreign bank employees, thereby increasing the detection probability and the usage of voluntary disclosures. |
| JEL: | H26 K42 H24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113101&r=law |
| By: | Voßwinkel, Jan; Birg, Laura |
| 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. |
| JEL: | K42 L13 L50 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112883&r=law |
| By: | Böckerman, Petri (Turku School of Economics, Labour Institute for Economic Research, Helsinki a); Skedinger, Per (Research Institute of Industrial Economics (IFN)); Uusitalo, Roope (Jyväskylä University School of Business and Economics) |
| Abstract: | We construct a multi-country employer-employee data to examine the consequences of employment protection. We identify the effects by comparing worker exit rates between units of the same firm that operate in two countries that have different seniority rules. The results show that last-in-first-out rules reduce dismissals of older, more senior workers, especially in shrinking multinational firms, and increase their bargaining power, resulting in a steeper seniority-wage profile. |
| Keywords: | Multi-country linked employer-employee data; Employment protection legislation; Seniority rules |
| JEL: | J08 J32 J63 K31 L51 |
| Date: | 2016–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1105&r=law |
| By: | Herold, Daniel |
| Abstract: | This paper analyzes firm owners' incentives to implement Competition Law Compliance Programs as imperfect monitoring devices in a principal-agent setup and the interaction effects with bonus contracts. The manager chooses working effort and has the option to cartelize. The model reveals a non-monotonic relationship between profit targets and incentives to collude. Contrary to intuition, it might be the case that low instead of high profit targets facilitate collusion. This result is driven by the threat of detection and punishment. A Compliance Program deters the agent from misbehavior and enhances effort as long as the agent did not engage in collusive activity. Additionally, the owner can use the Program as an insurance against fines. |
| JEL: | D21 D82 D02 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112980&r=law |
| By: | Dix-Carneiro, Rafael (Duke University); Soares, Rodrigo R. (Sao Paulo School of Economics); Ulyssea, Gabriel (Pontifical Catholic University of Rio de Janeiro (PUC-Rio)) |
| Abstract: | This paper estimates the effect of local labor market conditions on crime in a developing country with high crime rates. Contrary to the previous literature, which has focused exclusively on developed countries with relatively low crime rates, we find that labor market conditions have a strong effect on homicides. We exploit the 1990s trade liberalization in Brazil as a natural experiment generating exogenous shocks to local labor demand. Regions facing more negative shocks experience large relative increases in crime rates in the medium term, but these effects virtually disappear in the long term. This pattern mirrors the labor market responses to the trade shocks. Using the trade liberalization episode to design an instrumental variables strategy, we find that a 10% reduction in expected labor market earnings (employment rate × earnings) leads to a 39% increase in homicide rates. Our results highlight an additional dimension of adjustment costs following trade shocks that has so far been overlooked in the literature. |
| Keywords: | labor markets, crime, trade liberalization |
| JEL: | F16 J23 J24 K42 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9638&r=law |
| By: | Böckerman, Petri (Labour Institute for Economic Research); Skedinger, Per (Research Institute of Industrial Economics, Stockholm); Uusitalo, Roope (HECER) |
| Abstract: | We construct a multi-country employer-employee data to examine the consequences of employment protection. We identify the effects by comparing worker exit rates between units of the same firm that operate in two countries that have different seniority rules. The results show that last-in-first-out rules reduce dismissals of older, more senior workers, especially in shrinking multinational firms, and increase their bargaining power, resulting in a steeper seniority-wage profile. |
| Keywords: | multi-country linked employer-employee data, seniority rules, employment protection legislation |
| JEL: | K31 J63 J32 J08 L51 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9632&r=law |
| By: | Koch, Christian; Müller, Cornelius |
| Abstract: | Many countries grant exemption from legal prosecution under certain conditions, allowing for voluntary disclosures regarding tax evasion. It has been claimed that tax amnesties are most successful when they are accompanied by an increase in compliance efforts because amnesties then help tax evaders to adjust to the new circumstances. At the same time, time-limited amnesties are often repeated or in some countries even permanent amnesty laws exist. When tax amnesties are, however, anticipated, they can serve as an insurance against a rise in the detection probability, potentially leading to less and not more tax compliance. We test the relevance of this insurance effect in an experimental tax game and find that the overall tax compliance actually decreases by about 9 percent because of this effect. |
| JEL: | C91 H26 H24 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112991&r=law |
| By: | Amin, Vikesh (Central Michigan University); Flores, Carlos A. (California Polytechnic State University); Flores-Lagunes, Alfonso (Syracuse University); Parisian, Daniel J. (Mississippi State University) |
| Abstract: | We examine the effect of educational attainment on criminal behavior using random assignment into Job Corps (JC) – the United States' largest education and vocational training program for disadvantaged youth – as a source of exogenous variability in educational attainment. We allow such random assignment to violate the exclusion restriction when used as an instrument by employing nonparametric bounds. The attainment of a degree is estimated to reduce arrest rates by at most 11.8 percentage points (about 32.6%). We also find suggestive evidence that the effects may be larger for males relative to females, and larger for black males relative to white males. Remarkably, our 95 percent confidence intervals on the causal effect of education on arrests are very similar to the corresponding confidence intervals on the same effect from studies exploiting changes in compulsory schooling laws as an instrumental variable in the estimation of the effect of education on arrest rates (e.g., Lochner and Moretti, 2004). |
| Keywords: | degree attainment, arrests, crime, social experiments |
| JEL: | I2 K42 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9695&r=law |
| By: | Wrede, Matthias; Abraham, Martin; Lorek, Kerstin; Richter, Friedemann |
| Abstract: | Although collusive tax evasion by buyers and sellers of commodities and also by employers and employees is widespread all over the world, it has rarely been analyzed in the tax evasion literature. To fill this gap and to compare collusive tax evasion with independent tax evasion, this paper develops a simple non-cooperative game-theoretic model and confirms the model's predictions in a laboratory experiment. Because collusive tax evasion involves social interaction, this paper focuses on the effect of social norms and theoretically and empirically demonstrates that the tax compliance norm has a stronger negative effect on the magnitude of collusive tax evasion than on independent tax evasion. The reason for this result is that in a collusive tax evasion game with multiple equilibria social norms act as an equilibrium selection device, whereas social norms need to be internalized to change the behavior of taxpayers who evade taxes unobservedly. |
| JEL: | H26 A13 H29 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112859&r=law |
| By: | Schweizer, Urs |
| Abstract: | This paper compares the incentives of a party to acquire information prior to negotiating contractual terms with a second party. Two legal regimes are compared: disclosing information before negotiations start is mandatory or it remains voluntary. By assumption, information can only truthfully be disclosed but, under voluntary disclosure, the fact that no evidence was found cannot credibly be communicated. If the party that may acquire information enjoys encompassing bargaining power, the incentives to acquire information will be excessive relative to first best quite generally. Otherwise, more surprisingly, acquisition incentives turn out insufficient even under voluntary disclosure for an informational setting referred to as selfish acquisition. For another setting, referred to as cooperative acquisition, the incentives under voluntary disclosure are even lower as compared with mandatory disclosure. All results hold independently of the underlying bargaining structure and equilibrium selection as exclusive use of constraints is made that hold for equilibrium payoffs from any bargaining game. |
| JEL: | K12 C72 D82 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112868&r=law |