nep-law New Economics Papers
on Law and Economics
Issue of 2016‒03‒06
fifteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Malicious Litigation By Guha, Brishti
  2. Leniency and Damages By Marvao, Catarina; Spagnolo, Giancarlo; Buccirossi, Paolo
  3. Crime, compulsory schooling laws and education By Brian Bell; Rui Costa; Stephen Machin
  4. Med-arb and arb-med procedures in conflicts among professionals in agriculture By Alecu, Ioan Niculae; Ciocan, Felix-Dimitrie; Nicolae, Horia; Ciocan, Mihut Miki
  5. Enforcement Matters: The Effective Regulation of Labor By Kanbur, Ravi; Ronconi, Lucas
  6. The Causal Effect of Military Conscription on Crime and the Labor Market By Hjalmarsson, Randi; Lindquist, Matthew J.
  7. Fighting Corruption in Education: What Works and Who Benefits? By Borcan, Oana; Lindahl, Mikael; Mitrut, Andreea
  8. Reforming personal insolvency law in India By Siva Ramann; Renuka Sane; Susan Thomas
  9. Airbnb in New York City: Law and Policy Challenges By Lazarow, Andrea
  10. Crime Scars: Recessions and the Making of Career Criminals By Bell, Brian; Bindler, Anna; Machin, Steve
  11. Margin squeeze: An above-cost predatory pricing approach By Gaudin, Germain; Mantzari, Despoina
  12. Debt collection agencies and the supply of consumer credit By Fedaseyeu, Viktar
  13. The origins of Argentina’s litigation and arbitration saga, 2002-2014 By Porzecanski, Arturo C.
  14. Do higher corporate taxes reduce wages? Micro evidence from Germany By Fuest, Clemens; Peichl, Andreas; Siegloch, Sebastian
  15. Two Sides to the Evasion: The Pirate Bay and the Interdependencies of Evasive Entrepreneurship By Elert, Niklas; Henrekson, Magnus; Lundblad, Joakim

  1. By: Guha, Brishti
    Abstract: It has long been recognized that some plaintiffs sue defendants out of malice, but malicious litigation has not been previously modeled in the law and economics literature. I construct a simple model of malicious litigation, wherein malice is defined by the plaintiff’s obtaining some utility whenever the defendant incurs costs. When plaintiffs are malicious, they are more likely to file even non-meritorious suits; both probability of filing and the plaintiff’s settlement payoff increase in the plaintiff’s malice. However, if the defendant is also malicious, obtaining utility when the plaintiff incurs litigation expenses, settlements may fail even with complete information. Two-sided malice deters filing over a certain parameter range; outside it, it raises the ratio of cases that go to trial instead of being resolved through settlement. Giving the defendant the right to call for a bar on settlement is less effective at deterring malicious lawsuits relative to non-malicious “negative-expected-value” (NEV) or “nuisance” suits. However, combining the optional settlement bar with a “commitment requirement” stipulating that the plaintiff commit to going to trial (rather than withdraw) whenever the defendant opts to defend discourages malicious litigation for a wider range of parameters.
    Keywords: Malice, lawsuits, settlement, withdrawal, trial.
    JEL: K10 K4 K41
    Date: 2016–02–15
  2. By: Marvao, Catarina (Stockholm Institute of Transition Economics); Spagnolo, Giancarlo (Stockholm Institute of Transition Economics); Buccirossi, Paolo (LEAR)
    Abstract: Modern antitrust engenders a possible conflict between public and private enforcement due to the central role of Leniency Programs. Damage actions may reduce the attractiveness of Leniency Programs for cartel participants if their cooperation with the competition authority increases the chance that the cartel’s victims will bring a successful suit. A long legal debate culminated in a EU directive, adopted in November 2014, which seeks a balance between public and private enforcement. It protects the effectiveness of a Leniency Program by preventing the use of leniency statements in subsequent actions for damages and by limiting the liability of the immunity recipient to its direct and indirect purchasers. Our analysis shows such compromise is not required: limiting the cartel victims’ ability to recover their loss is not necessary to preserve the effectiveness of a Leniency Program and may be counterproductive. We show that damage actions will actually improve its effectiveness, through a legal regime in which the civil liability of the immunity recipient is minimized (as in Hungary) and full access to all evidence collected by the competition authority, including leniency statements, is granted to claimants (as in the US).
    Keywords: Private and public enforcement; cartels; competition policy; Leniency Program
    JEL: C72 C73 D43 D81 H11 K21 K42 L13 L44 L51
    Date: 2015–02–13
  3. By: Brian Bell; Rui Costa; Stephen Machin
    Abstract: Do compulsory schooling laws reduce crime? Previous evidence for the U.S. from the 1960s and 1970s suggests they do, primarily working through their effect on educational attainment to generate a causal impact on crime. In this paper, we consider whether more recent experience replicates this. There are two key findings. First, there is a strong and consistent negative effect on crime from stricter compulsory schooling laws. Second, there is a weaker and sometimes non-existent link between such laws and educational attainment. As a result, credible causal estimates of the education-crime relationship cannot in general be identified for the more recent period, though they can for some groups with lower education levels (in particular, for blacks).
    Keywords: crime; education; compulsory schooling laws
    JEL: I2 K42
    Date: 2015–10
  4. By: Alecu, Ioan Niculae; Ciocan, Felix-Dimitrie; Nicolae, Horia; Ciocan, Mihut Miki
    Abstract: Disputes among professionals in agronomy are generally caused by failure in performing a contract, most often the result of unclear formulations or of some flaws in drafting a contract. These arise from a failure to observe objective law, the non-satisfaction of subjective law and a failure to perform one's obligations. These are moments when Med-Arb is needed to resolve disputes and preserve business relationships between farmers. First, we must emphasize that the ADR (Alternative Dispute Resolution) phenomenon is far smaller in Romania when compared to the United States of America (a leader in the field, as previously shown), but also as to any other West European country that holds a tradition in the field. The ratio between classical state justice and alternate methods for dispute resolution is overwhelmingly in favour of the former. Thus, from data provided by the Superior Council of Magistracy, in 2014, at a national level, there were over 4,200,000 cases on the docket before courts of law and only 800-900 cases before The Romanian Court of International Commercial Arbitration. As regards mediation, The Mediation Council declared several thousand mediations carried over 2014. The purpose of this paper is to carry out an analysis on out-of-court alternatives for dispute resolution in business relationships among agribusiness professionals or between agribusiness professionals ans professionals from other fields, with whom they establish varied legal relationships.
    Keywords: Mediation; arbitration; agronomy; Med-Arb; dispute
    JEL: D63 D83 K22 K4 Q0
    Date: 2015–11–20
  5. By: Kanbur, Ravi; Ronconi, Lucas
    Abstract: This paper provides, to our knowledge for the first time, cross-country measures of enforcement of labor law across almost every country in the world. The distinction between de jure and de facto regulation is well understood in theory, but almost never implemented in cross-country empirical work because of lack of data. As a result, influential papers like the one by Botero et. al. (2004) published in the Quarterly Journal of Economics, which have shaped the policy debate by finding strong negative consequences of labor regulation on labor market outcomes, are based entirely on measures of de jure stringency of regulations. We show that this neglect of regulation enforcement matters. There is, on average, a negative correlation between the stringency of labor regulation and the intensity of its enforcement. The strong results of Botero et. al. (2004) on the consequences of labor regulation, and the hypotheses of La Porta et. al (2008) on the legal origin theory of regulation stringency, no longer hold for effective labor regulation.
    Keywords: effective regulation; enforcement; labor market outcomes; labor regulation; legal origin theory
    JEL: J88 K42
    Date: 2016–02
  6. By: Hjalmarsson, Randi (Department of Economics, School of Business, Economics and Law, Göteborg University); Lindquist, Matthew J. (Swedish Institute for Social Research (SOFI))
    Abstract: This paper uses detailed individual register data to identify the causal effect of mandatory peacetime military conscription in Sweden on the lives of young men born in the 1970s and 80s. Because draftees are positively selected into service based on their draft board test performance, our primary identification strategy uses the random assignment of potential conscripts to draft board officiators who have relatively high or low tendencies to place draftees into service in an instrumental variable framework. We find that military service significantly increases post-service crime (overall and across multiple crime categories) between ages 23 and 30. These results are driven primarily by young men with pre-service criminal histories and who come from low socioeconomic status households. Though we find evidence of an incapacitation effect concurrent with conscription, it is unfortunately not enough to break a cycle of crime that has already begun prior to service. Analyses of labor market outcomes tell similar post-service stories: individuals from disadvantaged backgrounds have significantly lower income, and are more likely to receive unemployment and welfare benefits, as a result of service, while service significantly increases income and does not impact welfare and unemployment for those at the other end of the distribution. Finally, we provide suggestive evidence that peer effects may play an important role in explaining the unintended negative impacts of military service.
    Keywords: Conscription; Crime; Criminal Behavior; Draft; Military Conscription; Military Draft; Incapacitation; Labor Market; Unemployment
    JEL: H56 J08 K42
    Date: 2016–02
  7. By: Borcan, Oana (Department of Economics, School of Business, Economics and Law, Göteborg University); Lindahl, Mikael (University of Uppsala); Mitrut, Andreea (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: We investigate the efficiency and distributional consequences of a corruptionfighting initiative in Romania targeting the endemic fraud in a high-stakes high school exit exam, which introduced CCTV monitoring of the exam and credible punishment threats. We find that punishment coupled with monitoring was effective in reducing corruption. Estimating the heterogeneous impact for students of different ability, poverty status, and gender, we show that fighting corruption led to efficiency gains (ability predicts exam outcomes better) but also to a worrisome score gap increase between poor and non-poor students. Consequently,the poor students have reduced chances to enter an elite university.
    Keywords: corruption; high-stakes exam; bribes; monitoring and punishment
    JEL: I21 I24 K42
    Date: 2015–02
  8. By: Siva Ramann (Comptroller and Auditor General of India); Renuka Sane (Indian Statistical Institute); Susan Thomas (Indira Gandhi Institute of Development Research)
    Abstract: In India, we have paid more attention to the restructuring and winding up processes for companies. In contrast, the legal framework for insolvency in India is rooted in century old laws. In this paper, we motivate the need for a personal bankruptcy law, and study the existing Indian legal framework in the form of the Presidency Towns Insolvency Act, 1909 (PTIA) for Calcutta, Bombay and Madras and the Provincial Insolvency Act, 1920 (PIA). We also study the system in the UK and Australia, and draw lessons for reform for India.
    Keywords: Personal insolvency resolution, bankruptcy resolution, entrepreneurs, Sole proprietors, personal credit
    JEL: K35
    Date: 2015–12
  9. By: Lazarow, Andrea
    Abstract: This case will present Airbnb’s operation in New York City (NYC). NYC is Airbnb’s largest U.S. market, but it has proven to be a difficult business environment, due to the legal framework, which strictly curtails short-term rental activity there. Students will identify how, going forward, Airbnb should work with the authorities to change the law, allowing expansion of the operation in NYC. Though this case focuses on NYC, it is relevant for Asia-based students, due to Airbnb’s plans to enlarge its operation there. This case can be used in a law and public policy class for either high level undergraduate or post-bachelors law students.
    Keywords: Airbnb, New York City, law, short-term, peer-to-peer, rental, platform, affordable housing
    JEL: K2 K20
    Date: 2015–11–10
  10. By: Bell, Brian; Bindler, Anna; Machin, Steve
    Abstract: Recessions lead to short-term job loss, lower levels of happiness and decreasing income levels. There is growing evidence that workers who first join the labour market during economic downturns suffer from poor job matches that have a sustained detrimental effect on their wages and career progression. This paper uses a range of US and UK data to document a more disturbing long-run effect of recessions: young people who leave school in the midst of recessions are significantly more likely to lead a life of crime than those entering a buoyant labour market. Thus crime scars from higher entry level unemployment rates are both long lasting and substantial.
    Keywords: crime; recessions; unemployment
    JEL: J64 K42
    Date: 2015–02
  11. By: Gaudin, Germain; Mantzari, Despoina
    Abstract: We provide a new legal perspective for the antitrust analysis of margin squeeze conducts. Building on recent economic analysis, we explain why margin squeeze conducts should solely be evaluated under adjusted predatory pricing standards. The adjustment corresponds to an increase in the cost benchmark used in the predatory pricing test by including opportunity costs due to missed upstream sales. This can reduce both the risks of false-positives and false-negatives in margin squeeze cases. We justify this approach by explaining why classic arguments against above-cost predatory pricing typically do not hold in vertical structures where margin squeezes take place and by presenting case law evidence supporting this adjustment. Our approach can help to reconcile the divergent US and EU antitrust stances on margin squeeze.
    Keywords: Margin squeeze,Predatory pricing,Price-cost test,Abuse of dominance
    JEL: K21 L12 L43
    Date: 2016
  12. By: Fedaseyeu, Viktar (Bocconi University)
    Abstract: Supersedes Working Paper 13-38/R. The activities of third-party debt collectors affect millions of borrowers. However, relatively little is known about their impact on consumer credit. To study this issue, I investigate whether state debt collection laws affect the ability of third-party debt collectors to recover delinquent debts and if this, in turn, affects the amount of credit being provided. This paper constructs, from state statutes and session laws, a state-level index of debt collection restrictions and uses changes in this index over time to estimate the impact of debt collection laws on revolving credit. Stricter debt collection regulations appear to reduce the number of third-party debt collectors and to lower recovery rates on delinquent credit card loans. This, in turn, leads to fewer openings of credit cards.
    Keywords: Household finance; Consumer credit; Creditor rights; Contract enforcement; Debt collection; Law and finance
    JEL: D12 D18 G18 G20 K35
    Date: 2015–06–19
  13. By: Porzecanski, Arturo C.
    Abstract: The voluminous and protracted litigation and arbitration saga featuring the Republic of Argentina (mostly as defendant or respondent, respectively) has established important legal and arbitral precedents, as illustrated by three cases involving Argentina which were appealed all the way up to the U.S. Supreme Court and were settled in 2014. At first glance, the scale of Argentina-related litigation activity might be explained by the sheer size of the government’s 2001 default, the largest-ever up to that point. However, its true origins are to be found in the unusually coercive and aggressive way that the authorities in that country went about defaulting on and restructuring their sovereign debt obligations. The mass filing of arbitration claims, in turn, was prompted by Argentina’s radical and seemingly irreversible changes to the “rules of the game” affecting foreign strategic investors, which clashed with commitments prior governments had made in multiple bilateral investment treaties. In sum, a major deviation from best practices as understood and settled in the early 2000s, which codified how economic policy adjustments are to be made in a way that minimizes damage to the investment climate, preserves access to the international capital markets, and promotes rapid and sustainable economic growth, lies at the root of Argentina’s litigation and arbitration saga during 2002-2014.
    Keywords: Argentina, default, debt, sovereign, litigation, arbitration, investor, holdout, ICSID
    JEL: E6 F34 F51 F55 F59 K4 N26
    Date: 2015–05–13
  14. By: Fuest, Clemens; Peichl, Andreas; Siegloch, Sebastian
    Abstract: This paper estimates the incidence of corporate taxes on wages using a 20-year panel of German municipalities. Administrative linked employer-employee data allows estimating heterogeneous worker and firm effects. We set up a general theoretical framework showing that corporate taxes can have a negative effect on wages in various labor market models. Using an event study design, we test the predictions of the theory. Our results indicate that workers bear about 40% of the total tax burden. Empirically, we confirm the importance of both labor market institutions and profit shifting possibilities for the incidence of corporate taxes on wages.
    Keywords: business tax,wage incidence,administrative data,local taxation
    JEL: H2 H7 J3
    Date: 2016
  15. By: Elert, Niklas (Research Institute of Industrial Economics (IFN)); Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Lundblad, Joakim (Centre for Innovation, Research and Competence in the Learning Economy (CIRCLE))
    Abstract: Evasive entrepreneurs innovate by circumventing or disrupting existing formal institutional frameworks by evading them. Since such evasions rarely go unnoticed, they usually lead to responses from lawmakers and regulators. We introduce a conceptual model to illustrate and map the interdependence between evasive entrepreneurship and the regulatory response it provokes. We apply this framework to the case of the file sharing platform The Pirate Bay, a venture with a number of clearly innovative and evasive features. The platform was a radical, widely applied innovation that transformed the Internet landscape, yet its founders became convicted criminals because of it. Applying the evasive entrepreneurship framework to this case improves our understanding of the relationship between policymaking and entrepreneurship in the digital age, and is a first step towards exploring best responses for regulators facing evasive entrepreneurship.
    Keywords: Entrepreneurship; Innovation; Institutions; Regulation; Self-employment
    JEL: L50 M13 O31 P14
    Date: 2016–01–06

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