nep-law New Economics Papers
on Law and Economics
Issue of 2016‒04‒09
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Illegal migration and consumption behavior of immigrant households By Dustmann, Christian; Fasani, Francesco; Speciale, Biagio
  2. Technology entry in the presence of patent thickets By Bronwyn H. Hall; Christian Helmers; Georg von Graevenitz
  3. Government Corruption and Foreign Direct Investment Under the Threat of Expropriation By Christopher Hajzler; Jonathan Rosborough
  4. Illegal markets boundaries and interfaces between legality and illegality By Mayntz, Renate
  5. Study on Structures of Aggressive Tax Planning and Indicators By Ramboll Management Consulting and Corit Advisory
  6. Formation of the Credit Rating Agency Regulation in Russia By Anton S. Selivanovsky
  7. Rent sharing to control non-cartel supply in the German cement market By Harrington, Joseph E.; Hüschelrath, Kai; Laitenberger, Ulrich
  8. The Impact of Paid Parental Leave on Labour Supply and Employment Outcomes By Broadway, Barbara; Kalb, Guyonne; McVicar, Duncan; Martin, Bill
  9. Copyright Enforcement: Evidence from Two Field Experiments By Hong Luo; Julie Holland Mortimer
  10. Corruption, Norm Violation and Decay in Social Capital By Banerjee, Ritwik
  11. Environmental Regulation and Choice of Innovation in Oligopoly By Iwata, Hiroki

  1. By: Dustmann, Christian; Fasani, Francesco; Speciale, Biagio
    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% 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: consumption behavior; legal status; weather shocks
    JEL: D12 F22 K42
    Date: 2016–03
  2. By: Bronwyn H. Hall (Institute for Fiscal Studies); Christian Helmers (Institute for Fiscal Studies and Santa Clara University); Georg von Graevenitz (Institute for Fiscal Studies and Queen Mary University of London)
    Abstract: We analyze the effect of patent thickets on entry into technology areas by firms in the UK. We present a model that describes incentives to enter technology areas characterized by varying technological opportunity, complexity of technology, and the potential for hold-up in patent thickets. We show empirically that our measure of patent thickets is associated with a reduction of first time patenting in a given technology area controlling for the level of technological complexity and opportunity. Technological areas characterized by more technological complexity and opportunity, in contrast, see more entry. Our evidence indicates that patent thickets raise entry costs, which leads to less entry into technologies regardless of a firm’s size.
    Keywords: IPR, patents, entry, technological opportunity, technological complexity, hold-up
    JEL: O34 O31 L20 K11
    Date: 2016–02
  3. By: Christopher Hajzler; Jonathan Rosborough
    Abstract: Foreign investment is often constrained by two forms of political risk: expropriation and corruption. We examine the role of government corruption in foreign direct investment (FDI) when contracts are not fully transparent and investors face the threat of expropriation. Using a novel dataset on worldwide expropriations of FDI over the 1990–2014 period, we find a positive relationship between the extent of foreign investor protections and the likelihood of expropriation when a country’s government is perceived to be highly corrupt, but not otherwise. We then develop a theory of dynamic FDI contracts under imperfect enforcement and contract opacity in which expropriation is a result of illicit deals made with previous governments. In the model, a host-country government manages the FDI contract on behalf of the public, which does not directly observe government type (honest or corrupt). A corrupt type is able to extract rents by encouraging hidden investments in return for bribes. Opportunities for corrupt deals arise from the distortions in the optimal contract when the threat of expropriation is binding. Moreover, a higher likelihood of the government being corrupt increases the public’s temptation to expropriate FDI, magnifying investor risk. The model predicts that expropriation is more likely to occur when the share of government take is low and following allegations of bribes to public officials, and it suggests an alternative channel through which corruption reduces optimal foreign capital flows.
    Keywords: Development economics, Economic models, International topics
    JEL: F23 F21 F34
    Date: 2016
  4. By: Mayntz, Renate
    Abstract: In sociology generally, the infringement of legal norms is not treated as a special kind of norm violation, the sociology of law being an obvious exception. The study of illegal markets therefore faces the challenge of distinguishing illegality from legality, and relating both to legitimacy. There is no conceptual ambiguity about the distinction between legal and illegal if legality is formally defined. In practice, (formal) legality and (social) legitimacy can diverge: there is both legitimate illegal action and illegitimate legal action. Illegal markets are a special kind of illegal social system, constituted by market transactions. Illegal markets are empirically related to organized crime, mafia and even terrorist organizations, and they interact both with legal markets and the forces of state order. Where legal and illegal action systems are not separated by clear social boundaries, they are connected by what has come to be called 'interfaces': actors moving between a legal and an illegal world, actions that are illegal but perceived as legitimate or the other way around, and a gray zone of actions that are neither clearly legal nor illegal, and neither clearly legitimate nor illegitimate. Interfaces facilitate interaction between legal and illegal action systems, but they are also sources of tension and can lead to institutional change.
    Abstract: Die Verletzung von Rechtsnormen wird in der Soziologie - abgesehen von der Rechtssoziologie - nicht systematisch als eine besondere Art von Devianz behandelt. Daher verlangt die Untersuchung illegaler Märkte, zwischen Legalität und Illegalität zu unterscheiden und ihre Beziehung zu Legitimität zu bestimmen. Die Unterscheidung von Legalität und Illegalität ist unproblematisch, wenn man diese Begriffe formal definiert. Legalität und soziale Legitimität können auseinanderfallen; es gibt sowohl als legitim erachtetes illegales wie als illegitim erachtetes legales Handeln. Illegale Märkte sind eine durch Markttransaktionen gebildete, besondere Art illegaler Handlungssysteme. Empirisch sind illegale Märkte verbunden mit organisiertem Verbrechen, Mafiaorganisationen und selbst Terrororganisationen, und sie interagieren sowohl mit legalen Märkten wie mit staatlichen Ordnungskräften. Wo legale und illegale Handlungssysteme nicht durch klar definierte soziale Grenzen getrennt sind, werden sie durch Grauzonen unklar einzuordnenden Handelns, durch als legitim wahrgenommene illegale Praktiken (bzw. umgekehrt) und durch Akteure verbunden, die fallweise in legalen und illegalen Systemen agieren. Diese sogenannten Interfaces verbinden legale und illegale Sozialsysteme, stellen aber zugleich eine Quelle von Spannungen dar, die zur Veränderung der formal definierten Grenze zwischen Legalität und Illegalität führen können.
    Date: 2016
  5. By: Ramboll Management Consulting and Corit Advisory
    Abstract: As a response to the increasing sophistication of tax planners in identifying and exploiting the legal arbitrage opportunities and the boundaries of acceptable tax planning, policy makers across OECD, G20 and EU countries have taken steps to ensure that taxation duly takes place where economic value is generated and where the economic activity is actually carried out. In this context, the European Commission sees a strong need to obtain increased knowledge of the tax laws and practices of Member States of the European Union, which may expose particular jurisdictions to aggressive tax planning (ATP). The present study was commissioned with the aim to: 1. Identify model ATP structures; 2. Identify ATP indicators which facilitate or allow ATP; 3. Review the corporate income tax systems of the EU Member States by means of the ATP indicators, in order to identify those tax rules and practices (or lack thereof) that result in Member States being vulnerable to ATP. This study was carried out by Ramboll and Corit Advisory with the support of a network of independent national tax experts. It reviews and assesses the corporate income tax systems of all EU Member States. It identifies weaknesses of the national tax systems in the EU and sets the ground for additional analysis and new policy initiatives
    Keywords: European Union, corporate income tax, BEPS, agressive tax planning, ACE, CCCTB
    JEL: G30 H21 H26
    Date: 2016–01
  6. By: Anton S. Selivanovsky (National Research University Higher School of Economics)
    Abstract: This Working Paper is dedicated to the new system of legal regulation of credit rating agency (hereinafter “CRA”) activity in Russia. The main focus of the new rules is administrative regulation and rigid control of procedural issues by the Russian mega-regulator for financial markets. The author criticizes current legislation and argues that such rules will obstruct CRA activity and adversely affect protection of investors’ and creditors’ rights, and will ultimately lead to an increase in transaction costs. It is necessary to continue work on CRA regulation in order to develop effective mechanisms to ensure a balance of interests among parties to the credit rating contract, and ensure that investors and the regulator take into account not only legal, but also economic, managerial, organizational and a number of other issues. Regulation of CRA focused only on rigid control of procedural issues by the Bank of Russia will not lead to the desired result. CRA regulation should instead be "delicate and fine."
    Keywords: credit rating agencies, securities market, conflict of interests, regulation of credit rating agencies, liability of rating agencies
    JEL: Z
    Date: 2016
  7. By: Harrington, Joseph E.; Hüschelrath, Kai; Laitenberger, Ulrich
    Abstract: A challenge for many cartels is avoiding a destabilizing increase in non-cartel supply in response to having raised price. In the case of the German cement cartel that operated over 1991-2002, the primary source of non-cartel supply was imports from Eastern European cement manufacturers. Industry sources have claimed that the cartel sought to control imports by sharing rents with intermediaries in order to discourage them from sourcing foreign supply. Specifically, cartel members would allow an intermediary to issue the invoice for a transaction and charge a fee even though the output went directly from the cartel member's plant to the customer. We investigate this claim by first developing a theory of collusive pricing that takes account of the option of bribing intermediaries. The theory predicts that the cement cartel members are more likely to share rents with an intermediary when the nearest Eastern European plant is closer and there is more Eastern European capacity outside of the control of the cartel. Estimating a logit model that predicts when a cartel member sells through an intermediary, the empirical analysis supports both predictions.
    Keywords: collusion,cartel,non-cartel supply,cement,distribution channels,intermediary
    JEL: L41 K21
    Date: 2016
  8. By: Broadway, Barbara (Melbourne Institute of Applied Economic and Social Research); Kalb, Guyonne (Melbourne Institute of Applied Economic and Social Research); McVicar, Duncan (Queen's University Belfast); Martin, Bill (University of Queensland)
    Abstract: The introduction of the Australian Paid Parental Leave scheme in 2011 provides a rare opportunity to estimate the labour supply and employment impacts of publicly-funded paid leave on mothers in the first year post-partum. The almost universal coverage of the scheme coupled with detailed survey data collected specifically for this purpose means that eligibility for paid leave under the scheme can be plausibly taken as exogenous following a standard propensity score matching exercise. In line with much of the existing literature, we find a positive impact on leave taking in the first half year and on the probability of eventually returning to work in the first year. The paper provides new evidence of a positive impact on continuing in the same job and under the same conditions. Further new evidence shows that disadvantaged mothers – low income, less educated, without access to employer-funded leave – respond most to the scheme.
    Keywords: labour supply, parental leave, mothers, duration analysis, propensity score matching
    JEL: J13 J18 J22
    Date: 2016–03
  9. By: Hong Luo (Harvard Business School); Julie Holland Mortimer (Boston College)
    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.
    Date: 2016–02–19
  10. By: Banerjee, Ritwik (Indian Institute of Management)
    Abstract: The paper studies the link between corruption and social capital (measured as trust), using data from a lab experiment. Subjects play either a harassment bribery game or a strategically identical but differently framed ultimatum game, followed by a trust game. In a second experiment, we elicit social appropriateness norm of actions in the bribery game and the ultimatum game treatments. Our experimental design allows us to examine whether subjects, who have been asked to pay a bribe, are less likely to trust than those in an isomorphic role in the ultimatum game. We also uncover the underlying mechanism behind any such behavioral spillover. Results suggest that a) there is a negative spillover effect of corruption on trust and the effect increases with decrease in social appropriateness norm of the bribe demand; b) lower trust in the bribery game treatment is explained by lower expected return on trust; c) surprisingly, for both the bribery and the ultimatum game treatments, social appropriateness norm violation engenders the decay in trust through its adverse effect on belief about trustworthiness.
    Keywords: corruption, social capital, social norm, trust games
    JEL: C91 C92 D03
    Date: 2016–03
  11. By: Iwata, Hiroki
    Abstract: This study investigates the effect of an environmental regulation on the innovation choice of firms in an oligopoly. Most existing studies on environmental regulations and innovations examine the optimal behavior of firms when one innovation project is feasible. In our model, firms are allowed to choose from multiple types of innovation projects. Our main contributions are that we derive the conditions under which environmentally friendly and cost reducing innovations are selected in Bertrand competition and we show how environmental regulation affects innovation choice.
    Keywords: environmental regulation; innovation; the Porter hypothesis
    JEL: D21 Q55 Q58
    Date: 2016–03–25

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