nep-law New Economics Papers
on Law and Economics
Issue of 2016‒04‒04
twelve papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Organized Crime, Violence, and Politics By Alberto Alesina; Salvatore Piccolo; Paolo Pinotti
  2. Crime, the Criminal Justice System, and Socioeconomic Inequality By Lofstrom, Magnus; Raphael, Steven
  3. Patent Settlements in the Pharmaceutical Industry: What Can We Learn From Economic Analysis? By Severin Frank; Wolfgang Kerber
  4. The “Concordato preventivo” in Italian corporate bankruptcy law: a policy evaluation By Claudio Castelli; Giacinto Micucci; Giacomo Rodano; Guido Romano
  5. The Adoption and Termination of Profit Sharing for Employees: Does Management's Attitude Play a Role? By Uwe Jirjahn
  6. The Performance of Elected Officials: Evidence from State Supreme Courts By Elliott Ash; W. Bentley MacLeod
  7. Managerial Delegation, Law Enforcement, and Aggregate Productivity By Jan Grobovsek
  8. Externalities of Public Housing: The Effect of Public Housing Demolitions on Local Crime By Danielle H. Sandler
  9. Copyright Enforcement: Evidence from Two Field Experiments By Hong Luo; Julie Holland Mortimer
  10. Vertical Differentiation and Collusion: Cannibalization or Proliferation? By Jean J. Gabszewicz; Marco A. Marini; Ornella Tarola
  11. Firms that went out of business during the crisis By Sabrina Ferretti; Andrea Filippone; Giacinto Micucci
  12. Conventional Futures: Derivatives from Islamic Law of Contract Perspective By Uddin, Md Akther

  1. By: Alberto Alesina; Salvatore Piccolo; Paolo Pinotti
    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.
    JEL: D72 K42
    Date: 2016–03
  2. By: Lofstrom, Magnus (Public Policy Institute of California); Raphael, Steven (University of California, Berkeley)
    Abstract: Crime rates in the United States have declined to historical lows since the early 1990s. Prison and jail incarceration rates as well as community correctional populations have increased greatly since the mid-1970s. Both of these developments have disproportionately impacted poor and minority communities. In this paper, we document these trends. We then present an assessment of whether the crime declines can be attributed to the massive expansion of the U.S. criminal justice system. We argue that the crime is certainly lower as results of this expansion and the crime rate in the early 1990s was likely a third lower than what they would have been absent changes in sentencing practices in the 1980s. However, there is little evidence of an impact of the further stiffening of sentences during the 1990s, a period when prison and other correctional populations expanded rapidly. Hence, the growth in criminal justice populations since 1990s have exacerbated socioeconomic inequality in the U.S. without generating much benefit in terms of lower crime rates.
    Keywords: crime, criminal victimization, inequality, incarceration, prison
    JEL: D3 D63 I3
    Date: 2016–03
  3. By: Severin Frank (University of Marburg); Wolfgang Kerber (University of Marburg)
    Abstract: Patent settlements between originator and generic firms in the pharmaceutical industry have been challenged by antitrust and competition authorities in the U.S. and the EU. Particularly settlements with large "reverse payments" to generic firms raise the concern of collusive behaviour for protecting weak patents and delaying price competition through generic entry and therefore harming consumers. However, it is still heavily disputed under what conditions such patent settlements are anticompetitive and violate antitrust rules. This article scrutinizes critically what economic analysis has so far contributed to our knowledge about the effects of these patent settlements and the possible rules for their antitrust treatment. An important claim of this paper is that the problem of patent settlements can only be understood, if we analyze it not only from a narrow antitrust perspective but also take into account its deep interrelationship with the problems (and the economics) of the patent system. Therefore we identify three different channels of effects, how patent settlements can influence consumer welfare: (1) price effects, (2) innovation incentive effects, and (3) effects via the incentives to challenge weak patents. The paper critically analyzes the existing economic studies and identifies a number of research gaps, especially also in regard to trade offs between different effects. It also suggests that policy solutions for these patent settlements should also be sought in combination with patent law solutions.
    Keywords: Patent settlements, probabilistic patents, weak patents, pharmaceutical industry, generic competition
    JEL: K40 L40 O34
    Date: 2016
  4. By: Claudio Castelli (Cerved Group); Giacinto Micucci (Bank of Italy); Giacomo Rodano (Bank f Italy); Guido Romano (Cerved Group)
    Abstract: From 2005 to 2013 Italian corporate bankruptcy law underwent a series of reforms. One of the goals was to improve the in-court restructuring proceedings (concordato preventivo), mainly as a way to promote the continuity of distressed but still viable companies. The reforms have succeeded in broadening the use of restructuring proceedings, even taking into account the effects of the economic crisis. The increase has been particularly large since the introduction of the concordato in bianco, which allows the firms to postpone the presentation of their recovery plan. The reforms have thus improved the likelihood of survival of distressed but still viable companies. Nevertheless, only a small proportion of companies (approximately 4.5 per cent) is still active after restructuring, the main purpose of which remains to provide an alternative form of liquidation, entailing a reduced role for courts, with respect to bankruptcy. The use of restructuring procedures is due to the length of bankruptcy proceedings in the courts, as well as to the structural characteristics of companies (larger proportion of fixed assets) and their credit relations (smaller proportion of collateralized loans).
    Keywords: bankruptcy law, restructuring, financial crisis
    JEL: G01 G33 G34 K20
    Date: 2016–03
  5. By: Uwe Jirjahn
    Abstract: Examinations on the determinants of profit sharing usually focus on objective firm characteristics. Using data from manufacturing firms in Germany, this study shows that managers’ subjective attitudes towards profit sharing also play an important role in the adoption and termination of this payment scheme. Positive management attitudes are associated with an increased likelihood of adopting profit sharing. While to some extent this entails failed experimentation, positive managerial attitudes also substantially contribute to a sustained use of profit sharing. The pattern of results holds even when controlling for a variety of objective firm characteristics.
    Keywords: Profit sharing, management attitude, management discretion, subjective factors, experimentation
    JEL: J33 M52
    Date: 2016
  6. By: Elliott Ash; W. Bentley MacLeod
    Abstract: This paper provides evidence on the effect of electoral institutions on the performance of public officials. Using panel data on state supreme courts between 1947 and 1994, we measure the effects of changes in judicial electoral processes on judge work quality – as measured by citations by later judges. Judges selected by non-partisan elections write higher-quality opinions than judges selected by partisan elections. Judges selected by technocratic merit commissions write higher-quality opinions than either partisan-elected judges or non-partisan-elected judges. Election-year politics reduces judicial performance in both partisan and non-partisan election systems. Giving stronger tenure to non-partisan-selected judges improves performance, while giving stronger tenure to partisan-selected judges has no effect. These results are consistent with the view that technocratic merit commissions have better information about the quality of candidates than voters, and that political bias can reduce the quality of elected officials.
    JEL: J24 K4
    Date: 2016–03
  7. By: Jan Grobovsek
    Abstract: This paper proposes a novel conceptual framework to quantify how law enforcement shapes the internal organization of rms and thereby aggregate equilibrium outcomes. First, we present empirical evidence on a signi cant positive cross-country correlation between the aggregate share of managerial workers and the degree of law enforcement. Second, we construct a tractable model that captures bene ts to managerial delegation in large organizations. The model features an agency problem between the owner of the rm and its middle managers. Ine ective law enforcement, allowing middle managers to divert revenue from the rm, constrains rm size by limiting the ecient delegation of managerial authority as well as managerial employment. Third, a calibrated version of the model measures the e ect of deteriorating legal protection. Decreasing law enforcement from the U.S. benchmark to a level associated with countries at ten percent of U.S. GDP per capita reduces aggregate productivity by 18 percent. Auxiliary statistics on the mean employer business size, self-employment, productivity dispersion, skill premium and human capital all paint a picture characteristic of low-income countries.
    Keywords: Growth and Development, TFP, Misallocation, Management, Delegation, Law Enforcement
    JEL: O10 O40 O43 O47
    Date: 2014–08–01
  8. By: Danielle H. Sandler
    Abstract: This paper evaluates the potential for negative externalities from public housing by examining crime rates before and after demolition of public housing projects in Chicago between 1995 and 2010. Using data on block-level crimes by type of crime merged to detailed geographic data on individual public housing demolitions, I find evidence that Chicago's public housing imposed significant externalities on the surrounding neighborhood. Using a difference in difference approach comparing neighborhoods around public housing projects to nearby neighborhoods I find that crime decreases by 8.8% after a demolition. This decrease is concentrated in violent crime. I use an event study to show that the decrease occurs at the approximate date of the eviction of the residents and persists for at least 5 years after the demolition. Neighborhoods with large demolitions and demolitions of public housing that had been poorly maintained display the largest crime decreases.
    Date: 2016–03
  9. By: Hong Luo; Julie Holland Mortimer
    Abstract: Effective dispute resolution is important for reducing private and social costs. We study how resolution responds to changes in price and communication using a new, extensive dataset of copyright infringement incidences by firms. The data cover two field experiments run by a large stock-photography agency. We find that substantially reducing the requested amount generates a small increase in the settlement rate. However, for the same reduced request, a message informing infringers of the price reduction and acknowledging possible unintentionality generates a large increase in settlement; including a deadline further increases the response. The small price effect, compared to the large message effect, can be explained by two countervailing effects of a lower price: an inducement to settle early, but a lower threat of escalation. Furthermore, acknowledging possible unintentionality may encourage settlement due to the typically inadvertent nature of these incidences. The resulting higher settlement rate prevents additional legal action and reduces social costs.
    JEL: L0 M2 O30 O34
    Date: 2016–03
  10. By: Jean J. Gabszewicz (CORE, Université Catholique de Louvain); Marco A. Marini (Università La Sapienza, Roma); Ornella Tarola (Università La Sapienza, Roma)
    Abstract: In this paper, we tackle the dilemma of pruning versus proliferation in a vertically differentiated oligopoly under the assumption that some firms collude and control both the range of variants for sale and their corresponding prices, likewise a multiproduct firm. We analyse whether pruning emerges and, if so, a fighting brand is marketed. We find that it is always more profitable for colluding firms to adopt a pricing strategy such that some variants are withdrawn from the market. Under pruning, these firms commercialize a fighting brand only when facing competitors in a low-end market. The same findings do not hold when firms are horizontally differentiated along a circle.
    Keywords: Vertically Differentiated Markets, Cannibalization, Market Pruning, Price Collusion
    JEL: D42 D43 L1 L12 L13 L41
    Date: 2016–03
  11. By: Sabrina Ferretti (Bank of Italy); Andrea Filippone (Bank of Italy); Giacinto Micucci (Bank of Italy)
    Abstract: This paper analyzes the Italian companies that filed for bankruptcy or underwent voluntary liquidation between 2008 and 2012 and identifies the main characteristics of this phenomenon. The econometric analysis based on firms’ balance sheet data suggests that the probability of going out of business was greater for smaller and younger companies. Other characteristics being equal, such as size, sector and geographical location, the likelihood of a firm initiating bankruptcy proceedings was more strongly correlated with imbalances in its financial structure such as a high leverage ratio, while a firm’s likelihood of opting for voluntary liquidation was influenced to a greater extent by low profitability.
    Keywords: bankruptcies, liquidations, financial structure
    JEL: G33 L25 K20
    Date: 2016–03
  12. By: Uddin, Md Akther
    Abstract: Islamic finance has emerged as a sustainable alternative of conventional finance for last two decades or so thanks to development of Islamic banking industry and more recently Islamic capital market. As Islamic finance industry is based on the principle of Islamic Law of Contract, there are certain rules that need to be followed in every financial transaction to be complaint with Shari’ah. As risk is inherent in business and finance, investors across the world use various risk mitigating tools or instruments including derivative instruments like futures contract. Although, the necessity of this kind of instrument is essential for development of Islamic finance industry but the permissibility of using them is still a debatable issue. In this research paper, a humble attempt has been made to explain the concept of conventional futures contract from Islamic Law of Contract perspectives. It is found in this study that there are arguments for and against the futures contract. On the one hand, majority scholars consider futures contracts are non-compliant with Islamic Law because of selling something that does not exist, deferment in the both counter values, excessive risk taking, uncertainty, pure speculation, and sale of one debt for another. In support of their argument they provided references from the Quran and Sunnah, also views of classical scholars and Jurists. On the other hand, many scholars argue that futures contracts are permissible while refuting the arguments provided against its impermissibility; while others argue that contemporary business environment demand to use them, so it is considered as custome (urf), while others argue it is permissible on the basis of Istihsan (juristic perference), maslaha (public benefits), dharurah (necessity). After analyzing the arguments for and against the futures contract, it can be concluded that contemporary scholars and Jurists in the field of Islamic Law are still divided on this issue as it is quite a new area of research from Islamic Law of Contract perspectives. However, it is safe to assume that conventional futures contracts in its current form do not comply with the Islamic Law.
    Keywords: futures contract, derivatives, Islamic Law of Contract, gharar, maysir, riba
    JEL: A1 G23 K00 K12
    Date: 2015–11–12

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