nep-law New Economics Papers
on Law and Economics
Issue of 2016‒03‒29
fifteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Self-insuring against Liability Risk: Evidence from Physician Home Values in States with Unlimited Homestead Exemptions By Eric Helland; Anupam B. Jena; Dan P. Ly; Seth A. Seabury
  2. Fighting Software Piracy: Some Global Conditional Policy Instruments By Simplice Asongu; Pritam Singh; Sara Le Roux
  3. Expanding Employment Discrimination Protections for Individuals with Disabilities: Evidence from California By Patrick Button
  4. Judges, Juveniles and In-group Bias By Briggs Depew; Ozkan Eren; Naci Mocan
  5. The Sorry Clause By Srivastava, Vatsalya
  6. Organized Crime, Violence, and Politics By Alberto Alesina; Salvatore Piccolo; Paolo Pinotti
  7. The Nature of Corruption - An Interdisciplinary Perspective By Dimant, Eugen; Schulte, Thorben
  8. Corporate opportunities law and the non-executive director By Simon Witney
  9. Anti-Corruption Reforms and Shareholder Valuations: Event Study Evidence from China By Chen Lin; Randall Morck; Bernard Yeung; Xiaofeng Zhao
  10. How Collateral Laws Shape Lending and Sectoral Activity By Charles W. Calomiris; Mauricio Larrain; José M. Liberti; Jason D. Sturgess
  11. Coasean Bargaining to Address Environmental Externalities By Gary D. Libecap
  12. The Effect of Education and School Quality on Female Crime By Javier Cano-Urbina; Lance Lochner
  13. Police Bias in the Enforcement of Drug Crimes: Evidence from Low Priority Laws By Gregory DeAngelo; R. Kaj Gittings; Amanda Ross; Annie Walker
  14. An Empirical Analysis of the Public Spending Decomposition on Organized Crime By Maria Berrittella; Carmelo Provenzano
  15. Sea Level Rise, Radical Uncertainties and Decision-Maker’s Liability: the European Coastal Airports Case By Leonid V. Sorokin; Gérard Mondello

  1. By: Eric Helland; Anupam B. Jena; Dan P. Ly; Seth A. Seabury
    Abstract: When faced with financial uncertainty, rational agents have incentives to take steps ex ante to reduce the probability (self-protection) or size (self-insurance) of a loss. However, in the case of liability risk, especially physician responses to malpractice risk, most empirical analyses have focused exclusively on measuring self-protection. This paper studies whether physicians invest in self-insurance by exploring how they respond to policies that allow them to lower the financial cost of malpractice liability. Specifically, we test whether physicians exploit provisions of bankruptcy laws and adjust the value of their home purchases to protect assets from liability claims exceeding their malpractice policy limits. We find that in states with unlimited “homestead” exceptions—provisions of state law that protect home equity when individuals file for bankruptcy—physicians invest 13% more in the value of their homes compared to what they would have invested in the absence of an exemption, whereas no such effect is true for other professionals of similar family income, family size, demographics, and city of residence. Additionally, the response of physicians to unlimited homestead exemptions is larger in areas with higher liability risk, where physicians would have greater incentive to insure against financial risks. Our findings suggest that physicians take financially costly decisions to protect themselves from uninsured malpractice risk, implying more generally that individuals self-insure against liability risk when insurance markets are incomplete.
    JEL: G22 I1 K13
    Date: 2016–02
  2. By: Simplice Asongu (Yaoundé/Cameroun); Pritam Singh (Oxford Brookes, UK); Sara Le Roux (Oxford Brookes, UK)
    Abstract: This study examines the efficiency of tools for fighting software piracy in the conditional distributions of software piracy. Our paper examines software piracy in 99 countries for the period 1994-2010, using contemporary and non-contemporary quantile regressions. The intuition for modelling distributions contingent on existing levels of software piracy is that the effectiveness of tools against piracy may consistently decrease or increase simultaneously with increasing levels of software piracy. Hence, blanket policies against software piracy are unlikely to succeed unless they are contingent on initial levels of software piracy and tailored differently across countries with low, medium and high levels of software piracy. Our findings indicate that GDP per capita, research and development expenditure, main intellectual property laws, multilateral treaties, bilateral treaties, World Intellectual Property Organisation treaties, money supply and respect of the rule of law have negative effects on software piracy. Equitably distributed wealth reduces software piracy, and the tendency not to indulge in software piracy because of equitably distributed wealth increases with increasing software piracy levels. Hence, the negative degree of responsiveness of software piracy to changes in income levels is an increasing function of software piracy. Moreover the relationships between policy instruments and software piracy display various patterns, namely: U-shape, Kuznets-shape, S-shape and negative thresholds. A negative threshold represents negative estimates with increasing negative magnitude throughout the conditional distributions of software piracy. We also discuss the policy implications of our study.
    Keywords: Intellectual property rights; Panel data; Software piracy
    JEL: F42 K42 O34 O38 O57
    Date: 2016–03
  3. By: Patrick Button (Department of Economics, Tulane University)
    Abstract: Individuals with less severe impairments are often ineligible for disability programs and are not covered under the Americans with Disabilities Act, but this group still faces employment barriers through discrimination or requiring on-the-job accommodations. Effective 2001, California passed the Prudence Kay Poppink Act which broadened California’s disability employment discrimination law to cover individuals with less severe impairments by lowering the burden of proof to establish a disability. I estimate how this act affected the labor market outcomes for individuals with disabilities using both difference-in-differences and difference-in-differences-in-differences regression analyses using data from the Current Population Survey’s Annual Social and Economic Supplement. The results show either no effect on employment, or, in the preferred specifications, a large increase in employment. This suggests that an expansion of disability discrimination protections leads to, at a minimum, no negative employment effects, but more likely leads to an increase in employment.
    Keywords: disability, discrimination, employment law, Prudence Kay Poppink Act, Americans with Disabilities Act, Sutton Trilogy, Americans with Disabilities Amendments Act
    JEL: J14 J71 J78 K31
    Date: 2016–02
  4. By: Briggs Depew; Ozkan Eren; Naci Mocan
    Abstract: We investigate the existence of in-group bias (preferential treatment of one’s own group) in court decisions. Using the universe of juvenile court cases in a U.S. state between 1996 and 2012 and exploiting random assignment of juvenile defendants to judges, we find evidence for negative racial in-group bias in judicial decisions. All else the same, black (white) juveniles who are randomly assigned to black (white) judges are more likely to get incarcerated (as opposed to being placed on probation), and they receive longer sentences. Although observed in experimental settings, this is the first empirical evidence of negative in-group bias, based on a randomization design outside of the lab. Explanations for this finding are provided.
    JEL: D03 J15 K4 K41
    Date: 2016–02
  5. By: Srivastava, Vatsalya (Tilburg University, Center For Economic Research)
    Abstract: When players face uncertainty in choosing actions, undesirable outcomes cannot be avoided. Accidental defections caused by uncertainty, that does not depend on the level of care, require a mechanism to reconcile the players. This paper shows the existence of a perfect sorry equilibrium in a game of imperfect public monitoring. In the sorry equilibrium, costly apology is self-imposed in case of accidental defections, making private information public and allowing cooperation to resume. Cost of the apology required to sustain this equilibrium is calculated, the efficiency characteristics of the equilibrium evaluated and outcomes compared to those from other bilateral social governance mechanisms and formal legal systems. It is argued that with the possibility of accidental defections, other social mechanisms have limitations, while formal legal systems can generate perverse incentives. Therefore, apologies can serve as a useful economic governance institution.
    Keywords: apology; sorry; imperfect public monitoring; uncertainty; social norms; economics governance; Legal institutions; incentives
    JEL: D80 K40 K41 K42 D02
    Date: 2016
  6. By: Alberto Alesina (Harvard University, IGIER, CEPR, and NBER); Salvatore Piccolo (Università Cattolica del Sacro Cuore di Milano and CSEF); Paolo Pinotti (Bocconi University, fRDB, and BAFFI-CAREFIN Center)
    Abstract: We investigate how criminal organizations strategically use violence to influence elections in order to get captured politicians elected. The model offers novel testable implications about the use of pre-electoral violence under different types of electoral systems and different degrees of electoral competition. We test these implications by exploiting data on homicide rates in Italy since 1887, comparing the extent of “electoral-violence cycles” between areas with a higher and lower presence of organized crime, under democratic and non-democratic regimes, proportional and majoritarian elections, and between contested and non-contested districts. We provide additional evidence on the influence of organized crime on politics using parliamentary speeches of politicians elected in Sicily during the period 1945-2013.
    Keywords: organized crime, electoral violence, voting, political discourse
    JEL: K42 D72
    Date: 2016–03–11
  7. By: Dimant, Eugen; Schulte, Thorben
    Abstract: In response to the many facets of corruption, many scholars have produced interdisciplinary research from both the theoretical and empirical perspective. This paper provides a comprehensive state-of-the-art survey of existing literature on corruption, utilizing these interdisciplinary in-sights. Specifically, we shed light on corruption research including insights from, among others, the fields of economics, psychology, and criminology. Our systematic discussion of the antecedents and effects of corruption at the micro, meso, and macro level allows us to capture the big picture of not only what drives corrupt behavior, but also its substantial ramifications.
    Keywords: Bribery, Corruption, Interdisciplinary Approach, Survey
    JEL: D73 H1 K42 O17
    Date: 2016–01
  8. By: Simon Witney
    Abstract: This article considers the current state of the fiduciary duty to avoid conflicts of interest as it applies to non-executive directors (NEDs) of UK companies, particularly in the context of corporate opportunities discovered by them in an outside capacity. The article charts the current law through the no-conflict and no-profit rules developed by the common law, and argues that the Companies Act 2006 leaves significant real-world uncertainties for the modern non-executive with outside business interests. Empirical data gathered from the largest listed companies in the UK are used to show that companies do attempt to legislate for this problem, but in a way that is only partially satisfactory. Finally, the article argues that the courts can and should develop the law in a way that accords with these real-world contractual solutions and the commercial expectations of NEDs, and suggests how the courts should approach cases of this type.
    JEL: K22
    Date: 2016–01–08
  9. By: Chen Lin; Randall Morck; Bernard Yeung; Xiaofeng Zhao
    Abstract: Chinese share prices rose sharply on the Politburo’s Dec. 4th 2012 announcement of its Eight-point Regulation, an uncharacteristically detailed and concrete Party policy, initiating an extensive anti-corruption campaign and announced surprisingly soon after a change in leadership. The reaction is uniformly positive for state-owned enterprises (SOEs), but heterogeneous across non-SOEs. The reaction is more positive for non-SOEs in provinces with more developed market institutions and with higher prior productivity, greater external financing dependence, and greater growth potential. A non-SOE’s prior spending on entertainment and travel costs (ETC), a proxy for investment in “connections”, correlates negatively with the share price changes of firms based in provinces with weak market institutions. We posit that limiting corruption cuts the valuations of these non-SOEs by limiting their ability to utilize “connections” where these are more important. SOEs are well-connected in any case, and their ETC may reflect their top insiders’ perks consumption or self-dealing. Reforms that limit this boost SOEs’ valuations. Overall, these results are consistent with investors expecting the reforms to be meaningful and limiting corruption to be more valuable if prior reforms have strengthened market forces.
    JEL: D70 G34 G38 P2
    Date: 2016–02
  10. By: Charles W. Calomiris; Mauricio Larrain; José M. Liberti; Jason D. Sturgess
    Abstract: We demonstrate the central importance of creditors’ ability to use “movable” assets as collateral (as distinct from “immovable” real estate) when borrowing from banks. Using a unique cross-country micro-level loan dataset containing loan-to-value ratios for different assets, we find that loan-to-values of loans collateralized with movable assets are lower in countries with weak collateral laws, relative to immovable assets, and that lending is biased towards the use of immovable assets. Using sector-level data, we find that weak movable collateral laws create distortions in the allocation of resources that favor immovable-based production. An analysis of Slovakia’s collateral law reform confirms our findings.
    JEL: G18 G21
    Date: 2016–01
  11. By: Gary D. Libecap
    Abstract: I examine Ronald Coase’s criticism of standard regulatory and tax policies to address environmental externalities. I elaborate some of Coase’s key points and discuss opportunities for Coasean exchange as an alternative mitigation approach. Regulation, tax, and Coasean exchange, such as through cap-and-trade regimes, are presented as substitutes, based on the relative transaction costs involved. Transaction costs are those of information, bounding, enforcing, and exchanging property rights. In general, transaction costs are not examined in depth in the environmental economics literature. This is particularly the case for the costs of political bargaining and lobbying that arise from implementing and administering government regulation and tax policies, although these costs have received somewhat more attention with cap and trade regimes. Coasean exchange and important market design issues are illustrated with examples.
    JEL: H23 K32 N5 Q28 Q38 Q58
    Date: 2016–01
  12. By: Javier Cano-Urbina (Florida State University); Lance Lochner (The University of Western Ontario)
    Abstract: This paper estimates the effects of educational attainment and school quality on crime among American women. Using changes in compulsory schooling laws as instruments, we estimate significant effects of schooling attainment on the probability of incarceration using Census data from 1960-1980. Using data from the 1960-90 Uniform Crime Reports, we also estimate that increases in average schooling levels reduce arrest rates for violent and property crime but not white collar crime. The estimated reductions in crime for women are smaller in magnitude than comparable estimates for men; however, the effects for women are larger in percentage terms (relative to baseline crime rates). Our results suggest small and mixed direct effects of school quality (as measured by pupil-teacher ratios, term length, and teacher salaries) on incarceration and arrests. Finally, we show that the effects of education on crime for women is unlikely to be due to changes in labor market opportunities and may be more related to changes in marital opportunities and family formation.
    Date: 2016
  13. By: Gregory DeAngelo (West Virginia University, Department of Economics); R. Kaj Gittings (Texas Tech University, Department of Economics); Amanda Ross (West Virginia University, Department of Economics); Annie Walker (University of Colorado, Denver, Department of Economics)
    Abstract: We consider the impact of adoption of a low priority initiative in some jurisdictions within Los Angeles County on police behavior. Low priority initiatives instruct police to make the enforcement of low level marijuana possession offenses their “lowest priority.†Using detailed data from the Los Angeles County Sheriff’s Department and a difference-indifferences strategy, we show that the mandate resulted in a lower arrest rate for misdemeanor marijuana possession in adopting areas. However, the lower relative arrest rate is driven by a spike in the arrest rate in areas not affected by the mandate rather than a reduction in adopting areas.
    Keywords: drug crimes, enforcement, police bias, laws
    Date: 2016–03
  14. By: Maria Berrittella (Università degli Studi di Palermo, Dipartimento di Scienze Economiche, Aziendali e Statistiche); Carmelo Provenzano (Facoltà di Scienze Economiche e Giuridiche, Università Kore di Enna)
    Abstract: The aim of this paper is to investigate, empirically, what components of the public spending imply a decreasing effect on the organized crime and what components create opportunities for the organized crime, discussing also the role of government efficiency. The findings show a strikingly consistent pattern. Organized crime mainly operates in the distribution of the public spending for health, housing and community amenities. There is a decreasing effect on organized crime of the public expenditure devoted to education and to create morality values, such as the expenditure for recreation, culture and religion. Finally, government efficiency in public spending is beneficial for reducing the opportunities of the organized crime.
    Keywords: Government Efficiency, Organized Crime, Public Spending
    JEL: C13 H50 K40
    Date: 2016–01
  15. By: Leonid V. Sorokin (Peoples’ Friendship University of Russia); Gérard Mondello (University of Nice Sophia Antipolis)
    Abstract: Until now, most of the growing climate legal litigations mainly concern environmental associations or victims against energy of energy-users firms or States. However, in a near future, because of exacerbating sudden floods linked to climate change, future litigations could (will) concern infrastructure governance versus private companies. Indeed, sues would (will) concern the financial losses these last ones would (will) endure because the infrastructure managers did not make convenient protection choices in due time. This paper particularly investigates the case of coastal airports at the European level. It insists on the importance of climate scientists divergent opinions about the sea level rise and its consequences for decision-takers concerning their potential legal liability for negligence.
    Keywords: Climate Change, Sea Level Rise, Flood, Airports, Transportation Infrastructures, Legal Liability, Uncertainty
    JEL: K32 Q54 R53
    Date: 2016–01

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