nep-law New Economics Papers
on Law and Economics
Issue of 2016‒06‒09
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Organized Crime and the Bright Side of Subversion of Law By Astrid Gamba; Giovanni Immordino; Salvatore Piccolo
  2. Government Corruption and Foreign Direct Investment Under the Threat of Expropriation By Christopher Hajzler; Jonathan Rosborough
  3. Cooperation, Punishment and Organized Crime: A Lab-in-the-Field Experiment in Southern Italy By Nese, Annamaria; O'Higgins, Niall; Sbriglia, Patrizia; Scudiero, Maurizio
  4. Image versus Information: Changing Societal Norms and Optimal Privacy By Ali, S. Nageeb; Benabou, Roland
  5. An Empirical Analysis of Typhoons and Crime Rates in Taiwan By Yu, Chin-Hsien; Mu, Jianhong; Ding, Jinxiu
  6. National treatment under the TBT Agreement By Daniel Rais
  7. The Enforcement of Mandatory Disclosure Rules By Matthias Dahm; Paula Gonzalez; Nicolas Porteiro
  8. The Role of the State in Investor-State Arbitration By Daniel Rais
  9. The Laws and Economics of Payment Systems By Hiromi Yamaoka; Akihiko Watanabe; Chiharu Takeuchi
  10. Communication in Vertical Markets: Experimental Evidence By Claudia Möllers; Hans-Theo Normann; Christopher M. Snyder
  11. Basel III and responding to the recent Financial Crisis: progress made by the Basel Committee in relation to the need for increased bank capital and increased quality of loss absorbing capital By Ojo, Marianne

  1. By: Astrid Gamba; Giovanni Immordino; Salvatore Piccolo (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: When Legislators introduce laws that award amnesties to `low-rank' criminals co- operating with the justice, top criminals may bribe public officials to subvert the law. Legislators should anticipate this reaction and fight it back by introducing policies that bundle amnesties for low-rank criminals with amnesties to corrupt officials who plea guilty. In fact, the threat of being betrayed by their fellows may induce top-criminals to rely on corruption (to avoid sanctions). However, a suitable amnesty for corrupt officials may increase the conviction risk not only for top-criminal but also for low-rank ones. This domino effect can deter crime more than a policy based only on amnesties to low-rank criminals would: a bright side of subversion of law.
    Keywords: Criminal Organizations, Corruption, Leniency.
    JEL: K14 K42 D73 D78
    Date: 2016–05
  2. 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
  3. By: Nese, Annamaria (University of Salerno); O'Higgins, Niall (ILO International Labour Organization); Sbriglia, Patrizia (University of Naples II); Scudiero, Maurizio (Ministry of Justice, Italy)
    Abstract: This paper reports the results of an experimental investigation which allows a deeper insight into the nature of social preferences amongst organized criminals and how these differ from "ordinary" criminals on the one hand and from the non‐criminal population in the same geographical area on the other. We provide experimental evidence on cooperation and response to sanctions by running Prisoner's Dilemma and Third Party Punishment games on three different pools of subjects; students, 'Ordinary Criminals' and Camorristi (Neapolitan 'Mafiosi'). The latter two groups being recruited from within prisons. We are thus able to separately identify 'Prison' and 'Camorra' effects. Camorra prisoners show a high degree of cooperativeness and a strong tendency to punish, as well as a clear rejection of the imposition of external rules even at significant cost to themselves. In contrast, ordinary criminals behave in a much more opportunistic fashion, displaying lower levels of cooperation and, in the game with Third Party punishment, punishing less as well as tending to punish cooperation (almost as much) as defection. Our econometric analyses further enriches the analysis demonstrating inter alia that individuals' locus of control and reciprocity are associated with quite different and opposing behaviours amongst different participant types; a strong sense of self‐determination and reciprocity both imply a higher propensity to cooperate and to punish for both students and Camorra inmates, but quite the opposite for ordinary criminals, further reinforcing the contrast between the behaviour of ordinary criminals and the strong internal mores of Camorra clans.
    Keywords: experimental economics, economics of crime, models of identity, prisoner's dilemma, third party punishment
    JEL: A13 D63 D23 C92 K42 Z13
    Date: 2016–04
  4. By: Ali, S. Nageeb (Pennsylvania State University); Benabou, Roland (Princeton University)
    Abstract: We analyze the costs and benefits of using social image to foster virtuous behavior. A Principal seeks to motivate reputation-conscious agents to supply a public good. Each agent chooses how much to contribute based on his own mix of public-spiritedness, private signal about the value of the public good, and reputational concern for appearing prosocial. By making individual behavior more visible to the community the Principal can amplify reputational payoffs, thereby reducing free-riding at low cost. Because societal preferences constantly evolve, however, she knows only imperfectly both the social value of the public good (which matters for choosing her own investment, matching rate or legal policy) and the importance attached by agents to social esteem and sanctions. Increasing publicity makes it harder for the Principal to learn from what agents do (the "descriptive norm") what they really value (the "prescriptive norm"), thus presenting her with a tradeoff between incentives and information aggregation. We derive the optimal degree of privacy/publicity and matching rate, then analyze how they depend on the economy's stochastic and informational structure. We show in particular that in a fast-changing society (greater variability in the fundamental or the image-motivated component of average preferences), privacy should generally be greater than in a more static one.
    Keywords: social norms, privacy, transparency, incentives, esteem, reputation, shaming punishments, conformity, societal change, culture
    JEL: D62 D64 D82 H41 K42 Z13
    Date: 2016–05
  5. By: Yu, Chin-Hsien; Mu, Jianhong; Ding, Jinxiu
    Abstract: Climate change and variability leads to more frequent and more intensive extreme weather events, such as severe storms and droughts. Due to the special geographic location, Taiwan suffers from serious typhoons frequently, which further threaten the social stability and public security. Using detailed daily-county level data, we examine the impact of typhoons on crime rates in Taiwan and find that with respect to weak-intensity strike, medium-intensity strike significantly increases the rate of automobile theft and motorcycle theft. With dynamic model regression, we find that medium- or strong- intensity strike will statistically significantly decrease the crime rate of drug by 0.11 incidents per 100,000 persons.
    Keywords: Environmental Economics and Policy, Institutional and Behavioral Economics, Public Economics, Environmental Economics and Policy,
    Date: 2016
  6. By: Daniel Rais
    Abstract: The principle of national treatment, or the non-discrimination clause, applies across many fields of international economic law. This book provides a unique horizontal examination of the principle as it applies within international trade law, international investment law and intellectual property law, whilst also offering challenging and perceptive views on commercial practices, trade law and policy. Combining perspectives from practitioners, academics and members of the judiciary, the book is the first to cover the national treatment principle across the whole field of international economic law – including not only in the domain of WTO law, but also in treaty and contractual settings involving investment and in intellectual propertylaw. It also provides practical insights regarding the application of the principle relevant to inter-state relations, state-investor relations and in the context of intellectual property protection. With its comprehensive interdisciplinary coverage, this book will be of special interest to academics, students and practitioners interested in international economic law and trade, international investment law, and intellectual property law and policy.
    Date: 2014–10–28
  7. By: Matthias Dahm (School of Economics, University of Nottingham); Paula Gonzalez (Universidad Pablo de Olavide, Department of Economics); Nicolas Porteiro (Universidad Pablo de Olavide, Department of Economics)
    Abstract: This paper examines the incentives of a firm to invest in information about the quality of its product and to disclose its findings. If the firm holds back information, it might be detected and fined. We show that optimal monitoring is determined by a trade-off. Stricter enforcement reduces the incentives for selective reporting but crowds out information search. Our model implies that (i) the probability of detection and the fine might be complements; (ii) the optimal monitoring policy does not necessarily eliminate selective reporting entirely; (iii) even when there is some selective reporting in equilibrium and more stringent monitoring is costless, increasing the probability of detection might not be beneficial; and (iv) when society values selectively reported information, the optimal fine might not be the largest possible fine.
    Keywords: strategic information transmission, distrust effect, confidence effect, monitoring, penalty, fine, sanction, detection probability
    Date: 2016–04
  8. By: Daniel Rais
    Abstract: Edited by Shaheeza Lalani and Rodrigo Polanco Lazo, <em>The Role of the State in Investor-State Arbitration</em> is a collection of contributions from lawyers, arbitrators and political scientists on the development of the concept of the “State†in a field that currently presents an increasing number of controversial disputes: Investor-State Arbitration. The book analyses the limits of the host State as a regulator, studying issues such as attribution and the role of State-Owned Enterprises and sub-State entities; the changing role of the home State in Investor-State disputes, including its direct participation in Investor-State arbitration and State to State dispute settlement; and the overall role that both home and host States can play in the improvement of Investor-State Dispute Settlement.
    Date: 2014–11–30
  9. By: Hiromi Yamaoka (Bank of Japan); Akihiko Watanabe (Bank of Japan); Chiharu Takeuchi (Bank of Japan)
    Abstract: In designing payment systems, it is necessary to address how legal and institutional frameworks incentivize economic entities, and how their payment activities influence the safety and efficiency of overall systems as well as financial stability and market developments. Such studies and analyses are becoming all the more important in line with progress in information technology and payment innovation. In particular, we need to design a framework that continuously moves payments forward without causing gridlock or unwinding, since smooth payment flows are critical especially when highly-frequent transactions are processed back-to-back. We should also pay careful attention to network externalities and systemic risks. Information security is also a key issue, regardless of whether payments are processed in a centralized or decentralized manner.
    Date: 2016–05–27
  10. By: Claudia Möllers; Hans-Theo Normann; Christopher M. Snyder
    Abstract: When an upstream monopolist supplies several competing downstream firms, it may fail to monopolize the market because it is unable to commit not to behave opportunistically. We build on previous experimental studies of this well-known commitment problem by introducing communication. Allowing the upstream firm to chat privately with each downstream firm reduces total offered quantity from near the Cournot level (observed in the absence of communication) halfway toward the monopoly level. Allowing all three firms to chat together openly results in complete monopolization. Downstream firms obtain such a bargaining advantage from open communication that all of the gains from monopolizing the market accrue to them. A simple structural model of Nash bargaining fits the pattern of shifting surpluses well. We conclude with a discussion of the antitrust implications of open communication in vertical markets.
    JEL: C70 C90 K21 L42
    Date: 2016–05
  11. By: Ojo, Marianne
    Abstract: Developments since the introduction of the 1988 Basel Capital Accord have resulted in growing realisation that new forms of risks have emerged and that previously existing and managed forms require further redress. The revised Capital Accord, Basel II, evolved to a form of meta regulation – a type of regulation which involves the risk management of internal risks within firms. The 1988 Basel Accord was adopted as a means of achieving two primary objectives: Firstly, “…to help strengthen the soundness and stability of the international banking system – this being facilitated where international banking organisations were encouraged to supplement their capital positions; and secondly, to mitigate competitive inequalities.” As well as briefly outlining various efforts and measures which have been undertaken and adopted by several bodies in response to the recent Financial Crisis, this paper considers why efforts aimed at developing a new framework, namely, Basel III, have been undertaken and global developments which have promulgated the need for such a framework. Further, it attempts to evaluate the strengths and flaws inherent in the present and future regulatory frameworks by drawing a comparison between Basel II and the enhanced framework which will eventually be referred to as Basel III.
    Keywords: capital; cyclicality; buffers; risk; regulation; internal controls; equity; liquidity; losses; forward looking provisions; silent participations; Basel III
    JEL: E0 K2 E32 E58 E44 G01
    Date: 2016–04–21

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