nep-law New Economics Papers
on Law and Economics
Issue of 2016‒05‒21
nine papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Sorry Clause By Srivastava, Vatsalya
  2. Experimental Criminal Law. A Survey of Contributions from Law, Economics and Criminology By Christoph Engel
  3. Are Settlements in Patent Litigation Collusive? Evidence from Paragraph IV Challenges By Eric Helland; Seth A. Seabury
  4. Behavior Under Vague Standards: Evidence from the Laboratory By Sven Hoeppner; Laura Lyhs
  5. Bribery: Greed versus reciprocity By Gneezy, Uri; Saccardo, Silvia; van Veldhuizen, Roel
  6. Bayesian Learning and Regulatory Deterrence: Evidence from Oil and Gas Production By Peter Maniloff
  7. Causes of domination of individual enterprises in relation to other legal forms of business organizations in the Republic of Kosovo By Krasniqi, Armand
  8. Distribution Dynamics of Property Crime Rates in the United States By Alessandro Moro
  9. Self-Concept Maintenance and Tax Evasion By Francesco Flaviano Russo

  1. By: Srivastava, Vatsalya (Tilburg University, TILEC)
    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
  2. By: Christoph Engel (Max Planck Institute for Research on Collective Goods)
    Abstract: In three distinct disciplines, crime and punishment are studied experimentally: in empirical legal studies, in experimental economics, and an experimental criminology. These three disciplines have surprisingly little interaction. The current paper surveys the rich evidence, and discusses the methodological reasons for running experiments on these issues, the limitations of the method, and how they can be mitigated.
    Keywords: crime, punishment, experiment, experimental economics, experimental criminology
    JEL: A12 C91 C93 D03 H26 K14
    Date: 2016–04
  3. By: Eric Helland; Seth A. Seabury
    Abstract: The use of “pay-for-delay” settlements in patent litigation – in which a branded manufacturer and generic entrant settle a Paragraph IV patent challenge and agree to forestall entry – has come under considerable scrutiny in recent years. Critics argue that these settlements are collusive and lower consumer welfare by maintaining monopoly prices after patents should have expired, while proponents argue they reinforce incentives for innovation. We estimate the impact of settlements to Paragraph IV challenges on generic entry and evaluate the implications for drug prices and quantity. To address the potential endogeneity of Paragraph IV challenges and settlements we estimate the model using instrumental variables. Our instruments include standard measures of patent strength and a measure of settlement legality based on a split between several Circuit Courts of Appeal. We find that Paragraph IV challenges increase generic entry, lower drug prices and increase quantity, while settlements effectively reverse the effect. These effects persist over time, inflating price and depressing quantity for up to 5 years after the challenge. We also find that eliminating settlements would result in a relatively small reduction in research and development (R&D) expenditures.
    JEL: I1 K0
    Date: 2016–04
  4. By: Sven Hoeppner (Center for Advanced Studies in Law and Economics, Ghent University Law School, Ghent); Laura Lyhs (Friedrich Schiller University Jena)
    Abstract: Doctrinal lawyers strive to reduce legal uncertainty based on the premise that difficult to predict legal consequences discourage socially desirable activities. Contributions from the economic theory of law suggest that increasing legal uncertainty can be socially beneficial. We test in an innovative laboratory experiment whether increasing the variability of an exogenous choice threshold (legal standard) increases or reduces socially desirable behavior. The results indicate a U-shaped relationship between increases in variability and activity choices: increases in variability first induce lower than optimal choices under an efficient standard (overcompliance), but eventually lead to greater than optimal choices under an efficient standard (undercompliance). We also find that overcompliance arises only under low degrees of standard variability. Moreover, increasing variability gradually crowds-out compliant choices. Finally, in the experiment minimal variability of the legal standard induces erratic individual behavior beyond socially satisfactory levels such that the standard loses its coordination function.
    Keywords: legal uncertainty, vague legal standard, overcompliance and undercompliance, experimental law and economics, compliance crowding-out
    JEL: C91 D02 K10
    Date: 2016–05–11
  5. By: Gneezy, Uri; Saccardo, Silvia; van Veldhuizen, Roel
    Abstract: It is estimated that a trillion dollars are annually exchanged in bribes, distorting justice and economic efficiency. In a novel experiment, we investigate the drivers of bribery. Two participants compete for a prize; a referee picks the winner. Participants can bribe the referee. When the referee can keep only the winner's bribe, bribes distort her judgment. When the referee keeps the bribes regardless of the winner, bribes no longer influence her judgment. An extra-laboratory experiment in an Indian market confirms these results. Hence, our participants are influenced by bribes out of greed, and not because of a desire to reciprocate.
    Keywords: Bribery,Reciprocity,Laboratory Experiment,Extra-Laboratory experiment
    JEL: D73 C91 K42
    Date: 2016
  6. By: Peter Maniloff (Division of Economics and Business, Colorado School of Mines)
    Abstract: This paper proposes a Bayesian learning model of regulatory enforcement. Firms exert compliance effort based on their belief about a regulator's effort level. Firms use regulatory actions to learn about the regulator and update their own compliance efforts accordingly. This theoretical model suggests that deterrence will be most effective when regulators have discretion or when firms are inexperienced. Econometric analysis of inspections of Pennsylvania oil and gas wells supports these hypothesis. This work provides a causal mechanism for the commonly observed phenomenon of general deterrence in which regulatory actions towards one firm lead other fims to increase their own compliance.
    Keywords: enforcement, deterrence, reputation oil and gas, hydraulic fracturing
    JEL: D22 K32 L51 L71 Q58
    Date: 2016–04
  7. By: Krasniqi, Armand
    Abstract: Business associations in each country may be established and can operate under specific legal forms. They are established by two or more natural persons and/or legal entities that agree to achieve common business objectives through contributions to society, as defined in the act of incorporation or its statutes. Individual business (sole propretorship) is one of the simpliest forms of business activity, in which the owner of the leading business simultaneously. This form of business functions without the need to establish complex business organization, and in our country the law does not consider it as the legal personality. This kind of formation from the year 2000 until now participates with highest percentage, compared with other forms of business associations in Kosovo. Although registered in this form, the strength, volume, distribution and operation of their business is not in harmony with the mission of their registration. So far there is no study what are the causes of domination of the establishments in relation to other business formations. The phenomenon no adverse, effects on the legal plan but their impact from this aspect is reflected in the fiscal economic system. This phenomenon is not likely to decrease without a synchronization of laws of companies, by systematic regulating of laws in tax system, by forcing the founders who depend on the size and economic power, to adopt the legal form of the organization.
    Keywords: Law, Organization, Business Association, Tax System,
    JEL: K22
    Date: 2016–04–01
  8. By: Alessandro Moro (Department of Economics, University Of Venice Cà Foscari)
    Abstract: Using crime data for the 48 continental and conterminous US states and the distribution dynamics approach, this paper detects two distinct phases in the evolution of the property crime distribution: a period of strong convergence (1971-1980) is followed by a tendency towards divergence and bimodality (1981-2010). Moreover, the analysis reveals that differences in income per capita and police can explain the emergence of a bimodal shape in the distribution of property crime: in fact, after conditioning on these variables, the bimodality completely disappears. This empirical evidence is consistent with the predictions of a two-region model, that stresses the importance of income inequality in determining the dynamics of the property crime distribution.
    Keywords: Crime Distribution, Property Crime, Convergence Analysis, Distribution Dynamics, Non-Parametric Statistics
    JEL: C14 C63 C72
    Date: 2016
  9. By: Francesco Flaviano Russo (Università di Napoli Federico II and CSEF)
    Abstract: I analyze quasi-experimental data on tax evasion reports collected by the Italian webpage I find that a bigger number of reports per unit of irregular activity, which indicates a stronger tax morale, is negatively correlated with the median reported amount. I show that this evidence is consistent with a model of self-concept maintenance, where illegal actions are categorized more easily, in the sense that they are consistent with a positive self image of honesty, if they involve small amounts of money. The data suggest that a stronger individual and social attitude towards evasion makes this categorization more difficult, lowering the threshold below which evasion is acceptable. The result is tax evasion reports of smaller amount. I also propose a Montecarlo exercise to estimate this threshold and its dependence on tax morale.
    Keywords: Tax morale, Categorization, Attention to Standard.
    JEL: H26 K34
    Date: 2016–05–14

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