nep-law New Economics Papers
on Law and Economics
Issue of 2016‒07‒30
sixteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. French legal origins: A Tocquevilian view By Crettez, Bertrand; Deffains, Bruno; Musy, Olivier
  2. The Shareholder Wealth Effects of Delaware Litigation? By Badawi, Adam B.; Chen, Daniel L.
  3. Assessing Bankruptcy Reform in a Model with Temptation and Equilibrium Default By Nakajima, Makoto
  4. Anti-corruption policy-making, discretionary power, and institutional quality An experimental analysis By Amadou Boly; Gillanders
  5. Juvenile Crime and the Four-Day School Week By Stefanie Fischer; Daniel Argyle
  6. Covering: Mutable characteristics and perceptions of voice in the U.S. Supreme Court By Chen, Daniel L.; Halberstam, Yosh; Yu, Alan
  7. Fragile markets: An experiment on judicial independence By Benito Arruñada; Marco Casari
  8. When Do Laws and Institutions Affect Recovery Rates on Collateral? By Degryse, Hans; Ioannidou, Vasso; Liberti, Jose Maria; Sturgess, Jason
  9. Perceived Masculinity Predicts U.S. Supreme Court Outcomes By Chen, Daniel L.; Halberstam, Yosh; Yu, Alan
  10. “Peer effects” or “quasi-peer effects” in Spanish labour court rulings By Malo, Miguel Ángel; Martín-Román, Ángel L.; Moral, Alfonso
  11. Priming ideology: Why Presidential Elections affect U.S. Judges By Chen, Daniel L.
  12. Transnational Policing: Preemption and Deterrence against Elusive Perpetrators By Nakao, Keisuke
  13. Displaced: A Proposal for International Law to Protect Refugees, Migrants, and States By Goldenziel, Jill Iris
  14. An Empirical Analysis of Racial Differences in Police Use of Force By Roland G. Fryer, Jr
  15. Polarization and Corruption in America By Mickael Melki; Andrew Pickering
  16. Incentives and selection in public employment By Cristina Giorgiantonio; Tommaso Orlando; Giuliana Palumbo; Lucia Rizzica

  1. By: Crettez, Bertrand; Deffains, Bruno; Musy, Olivier
    Abstract: We provide an alternative explanation of French legal centralization. To do this we develop a rational choice model of the legal architecture around 1789 and the French Revolution. Following Tocqueville we propose to analyze the French movement towards legal centralization as the result of an increase in the aversion to inequality before the law. We show that legal centralization can be preferred to the "Ancien Régime" situation or intermediate legal decentralization if the aversion to legal differences is sufficiently strong. In addition, we show that when the legal system is centralized it is always optimal to allow some degree of judicial discretion. This result is consistent with the historical evidence that the Napoleonic codification, i.e., the culmination of French legal centralization, was associated with a higher degree of judicial discretion than at the beginning of the Revolution. This view contrasts with the interpretation of the Napoleonic codification as a means of transforming judges into automata.
    Keywords: Aversion to inequality before the law, Codification, Legal origins, Legal centralization, French Revolution
    JEL: K40 N40
    Date: 2016–03
  2. By: Badawi, Adam B.; Chen, Daniel L.
    Abstract: We collect data on the record of every action in over one thousand cases involving public companies from 2004 to 2011 in the Delaware Court of Chancery, which is the leading court for corporate law disputes in the United States. We use these data to estimate how markets respond to Delaware litigation events and characteristics such as case initiations, procedural motions, case quality, and judge identity. We find that negative abnormal returns are associated with the filing of derivative and contract cases, but we observe little effect associated with the filing of the average merger challenge. When we include measures of case quality, we see that higher quality cases increase the expected impact of derivative and contract litigation on firm value. We also develop evidence that tactics associated with multijurisdictional litigation are associated with a weakened impact of litigation on firm value. This evidence is consistent with the belief that the presence of litigation in another jurisdiction allows defense lawyers to bid down competing groups of plaintiffs’ lawyers during settlement negotiations. Finally, we show that abnormal returns are not associated with information on judicial assignment at the time of case filing, nor are they associated with judge identity at case resolution. These results suggest that the judicial impact on shareholder wealth at the time of judicial assignment and the time of case termination is too small to be statistically detected.
    Date: 2016–07
  3. By: Nakajima, Makoto (Federal Reserve Bank of Philadelphia)
    Abstract: A life-cycle model with equilibrium default in which agents with and without temptation coexist is constructed to evaluate the 2005 bankruptcy law reform. The calibrated model indicates that the 2005 reform reduces bankruptcies, as seen in the data, and improves welfare, as lower default premia allows better consumption smoothing. A counterfactual reform of changing income garnishment rate is also investigated. Interesting contrasting welfare effects between two types of agents emerge. Agents with temptation prefer a lower garnishment rate as tighter borrowing constraint prevents them from over-borrowing, while those without prefer better consumption smoothing enabled by a higher garnishment rate. (First draft: May 23, 2008)
    Keywords: Consumer Bankruptcy; Debt; Default; Borrowing Constraint; Temptation and Self-Control; Hyperbolic Discounting; Heterogeneous Agents; Incomplete Markets
    JEL: D91 E21 E44 G18 K35
    Date: 2016–07–11
  4. By: Amadou Boly; Gillanders
    Abstract: We analyse policy makers. incentives to fight corruption under different institutional qualities. We find that .public officials., even when non-corrupt, significantly distort anticorruption institutions by choosing a lower detection probability when this probability applies to their own actions (legal equality), compared to a setting where it does not (legal inequality). As .public officials. are on average equally corrupt with or without legal equality, an institutional setting with legal equality can be considered worse in reducing corruption. Finally, corruption is significantly lower when the detection probability is exogenously set, suggesting that the institutional power to choose detection can itself be corruptive.
    Keywords: anti-corruption, embezzlement, experimental economics, institutions, policy-making
    Date: 2016
  5. By: Stefanie Fischer (Department of Economics, California Polytechnic State University); Daniel Argyle (FiscalNote)
    Abstract: Little is known regarding the extent to which school changes youth criminal behavior in the short-term, if at all, and even less in known on this issue in rural areas. We leverage a unique policy, the adoption of the four-day school week across rural counties and years in Colorado, a school schedule that is becoming more common nationwide especially in rural areas, to examine the causal link between school and youth crime. Those affected by the policy spend the same number of hours in school each week as students on a typical fiveday week, however treated students have Friday off. This policy allows us to learn about two aspects of the school-crime relationship that have previously been unstudied; one, the effects of a more frequent and long lasting schedule change on short-term crime, and two, the impact that school has on youth crime in rural areas. Our difference-in-difference estimates indicate that switching all students in a county from a five-day week to a four-day week increases juvenile arrests for property crimes, in particular larceny, by about 73%. We show that larceny and property crimes increase on all days of the week and are not driven by crime shifting from one day to another, i.e. Wednesday to Friday.
    Keywords: Crime, Inequality, Rural Public Policy, Education Policy
    JEL: R1 H7 I0 I2 H4
    Date: 2016
  6. By: Chen, Daniel L.; Halberstam, Yosh; Yu, Alan
    Abstract: The emphasis on “fit” as a hiring criterion has raised the spectrum of a new form of subtle discrimination (Yoshino 1998; Bertrand and Duflo 2016). Under complete markets, correlations between employee characteristics and outcomes persist only if there exists animus for the marginal employer (Becker 1957), but who is the marginal employer for mutable characteristics? Using data on 1,901 U.S. Supreme Court oral arguments between 1998 and 2012, we document that voice-based snap judgments based on lawyers’ identical introductory sentences, “Mr. Chief Justice, (and) may it please the Court?”, predict court outcomes. The connection between vocal characteristics and court outcomes is specific only to perceptions of masculinity and not other characteristics, even when judgment is based on less than three seconds of exposure to a lawyer’s speech sample. Consistent with employers irrationally favoring lawyers with masculine voices, perceived masculinity is negatively correlated with winning and the negative correlation is larger in more masculine-sounding industries. The first lawyer to speak is the main driver. Among these petitioners, males below median in masculinity are 7 percentage points more likely to win in the Supreme Court. Justices appointed by Democrats, but not Republicans, vote for lessmasculine men. Female lawyers are also coached to be more masculine and women’s perceived femininity predict court outcomes. Republicans, more than Democrats, vote for more feminine-sounding females. A de-biasing strategy is tested and shown to reduce evaluators’ tendency to perceive masculine voices as more likely to win. Perceived masculinity explains 3-10% additional variance compared to the current best prediction model of Supreme Court votes.
    Keywords: Identity, Phonology, Judicial Decision-Making
    JEL: J15 J78 K41
    Date: 2016–07
  7. By: Benito Arruñada; Marco Casari
    Abstract: Contract enforcement does not only affect single transactions but the market as a whole. We compare alternative institutions that allocate enforcement rights to the different parties to a credit transaction: either lenders, borrowers, or judges. Despite all parties having incentives to enforce and transact, the market flourishes or disappears depending on the treatment: paying judges according to lenders' votes maximizes total surplus and equity; and a similar result appears when judges are paid according to average earnings in society. In contrast, paying judges according to borrowers' votes generates the poorest and most unequal society. These results suggest that parties playing the role of borrowers understand poorly the systemic consequences of their decisions, triggering under-enforcement, and hence wasting profitable trade opportunities.
    Keywords: impersonal exchange, third-party enforcement, steps of reasoning, other-regarding preferences, judicial independence.
    JEL: C91 C92 D53 D63 D72 K40
    Date: 2016–07
  8. By: Degryse, Hans; Ioannidou, Vasso; Liberti, Jose Maria; Sturgess, Jason
    Abstract: We examine how law and institutions affect banks' expected recovery rates on collateral using a novel dataset of secured loans made by a single bank across 16 countries, which includes a detailed description of the underlying assets pledged as collateral and the bank's ex-ante appraised liquidation value. On average, expected recovery rates are higher where laws and institutions grant creditors stronger enforcement rights and bargaining power in the event of default. Using within-borrower estimation to compare recovery rates on different assets for the same borrower, we find that movable collateral that is less redeployable, more susceptible to agency problems, or faster to depreciate exhibits recovery rates that are lower and more vulnerable to laws and institutions. Further, the bank compensates for lower recovery rates in economies with weak performance by charging higher interest rates. The results shed light on one of the underlying economic channels through which weak laws and institutions undermine countries' financial and economic development.
    Date: 2016–07
  9. By: Chen, Daniel L.; Halberstam, Yosh; Yu, Alan
    Abstract: Previous studies suggest a significant role of language in the court room, yet none has identified a definitive correlation between vocal characteristics and court outcomes. This paper demonstrates that voice-based snap judgments based solely on the introductory sentences of lawyers arguing in front of the Supreme Court of the United States predict outcomes in the Court. In this study, participants rated the opening statement of male advocates arguing before the Supreme Court between 1998 and 2012 in terms of masculinity, attractiveness, confidence, intelligence, trustworthiness, and aggressiveness. We found significant correlation between vocal characteristics and court outcomes and the correlation is specific to perceived masculinity even when judgment of masculinity is based only on less than three seconds of exposure to a lawyer’s speech sample. Specifically, male advocates are more likely to win when they are perceived as less masculine. No other personality dimension predicts court outcomes. While this study does not aim to establish any causal connections, our findings suggest that vocal characteristics may be relevant in even as solemn a setting as the Supreme Court of the United States.
    Date: 2016–07
  10. By: Malo, Miguel Ángel; Martín-Román, Ángel L.; Moral, Alfonso
    Abstract: The current work seeks to ascertain whether rulings on dismissal cases issued by labour courts in Spain are influenced by whether incumbent judges are acting alone in their own court or sharing duties with other judges such as replacement judges, support judges or incumbent judges from other courts. In the approach used, more than one judge acting in a court is considered to be a treatment, and an analysis is conducted into the effect said treatment has had on the percentage of cases in which the judge has found in favour of the dismissed worker. The data used in the research are taken from the information recorded at court level provided by the statistics kept by the General Council of the Spanish Judiciary. A total of 2,888 observations were available, corresponding to the period spanning 2004 to 2012, and the information is the result of constructing a data panel from all the labour courts in Spain. As regards the findings, the percentage of cases ruled in favour of workers increases in line with the unemployment rate. More cases are also ruled in favour of workers during the crisis and in areas where the construction and industrial sector play a greater role. With regard to treatment as the central analysis variable, it may be concluded that there is a significant positive impact on the number of dismissal cases ruled in favour of workers when incumbent judges are not acting alone in their court.
    Keywords: Dismissal; Legal ruling; Labour court; Peer effects
    JEL: J65 K31 K41
    Date: 2016
  11. By: Chen, Daniel L.
    Abstract: U.S. Presidential elections polarize U.S. Courts of Appeals judges, doubling their dissents, partisan voting, and lawmaking along partisan lines and increasing their reversal of District Court decisions (Berdejo and Chen 2016). Dissents are elevated for ten months before the Presidential elections. I develop a theoretical model showing that the salience of partisan identities drives these behavioral patterns. The polarizing effects are larger in close elections, non-existent in landslide elections, and reversed in wartime elections. I link judges to their states of residence and exploit variation in the timing and importance of a state during the electoral season. Dissents are elevated in swing states and in states that count heavily to winning the election, when these states are competitive. U.S. Senate elections, the timing of which also varies by state, further elevate dissents. I link administrative data on case progression and frequency of campaign advertisements in judges’ states of residence to proxy for a state’s importance during Presidential primaries. Dissents occur shortly before publication, increase with monthly increases in campaign ads, and appear for cases whose legal topic, economic activity, is most heavily covered by campaign ads. Finally, I link the cases to their potential resolution in the Supreme Court. Dissents before elections appear on more marginal cases that cite discretionary miscellaneous issues and procedural (rather than substantive) arguments, which the Supreme Court appears to recognize and only partly remedy. The behavioral changes of unelected Courts of Appeals judges are larger than the behavioral changes of elected judges running for re-election.
    Keywords: Judicial Decision-Making, Group Decision-Making, Moral Decision-Making, Salience
    JEL: D7 K00 Z1
    Date: 2016–07
  12. By: Nakao, Keisuke
    Abstract: Why does a state directly police certain kinds of transnational perpetrators by itself while indirectly policing other kinds through their host government? To address this question, we develop a formal model, where Defender chooses either to police Perpetrators or to make Proxy do so. According to our theory, the delegation of policing can enhance its effectiveness in light of Proxy’s advantages in threatening, identifying, and attacking Perpetrators, but it may also cause inefficiency if Defender has limited information about Proxy’s choice or cost of policing. Depending on the relative size between these advantages and disadvantages, one of the following four forms of policing may emerge: (i) Defender polices Perpetrators on her own (e.g., Somali counter-piracy operations); (ii) Defender induces Proxy to police Perpetrators (U.S. War on Drugs); (iii) Defender and Proxy together police Perpetrators (Operation Inherent Resolve); (iv) two or more Defender-Proxy states police Perpetrators in each’s own domain (Interpol).
    Keywords: cyberattack, deterrence, policing, piracy, preemption, terrorism
    JEL: F51 F52 F53 H56 H77 K42
    Date: 2016–07–12
  13. By: Goldenziel, Jill Iris
    Abstract: How can international law better protect both international security and the human rights of people fleeing violence? International refugee law protects only the refugees: those fleeing across borders due to a well-founded persecution on the basis of race, religion, nationality, political opinion, or membership in a particular social group. The world’s other 42.3 million people displaced by violence have few protections under international law. This article proposes and sketches new international law to address this crucial human rights problem. I argue that a new Displaced Persons Convention to protect people fleeing violent conflict is needed to supplement the 1951 Refugee Convention. The Refugee Convention must be preserved because of the critical protections it provides for the rights of minorities and political dissidents. Adding a new Displaced Persons Convention would better protect the human rights of individuals fleeing violent conflict and state failure, further state interests, and improve international security.
    Date: 2016
  14. By: Roland G. Fryer, Jr
    Abstract: This paper explores racial differences in police use of force. On non-lethal uses of force, blacks and Hispanics are more than fifty percent more likely to experience some form of force in interactions with police. Adding controls that account for important context and civilian behavior reduces, but cannot fully explain, these disparities. On the most extreme use of force – officer-involved shootings – we find no racial differences in either the raw data or when contextual factors are taken into account. We argue that the patterns in the data are consistent with a model in which police officers are utility maximizers, a fraction of which have a preference for discrimination, who incur relatively high expected costs of officer-involved shootings.
    JEL: J01 K0
    Date: 2016–07
  15. By: Mickael Melki; Andrew Pickering
    Abstract: The hypothesis that ideological polarization reduces corruption is tested using panel data from the US. To identify the causal effect of polarization, polarization is instrumented with lagged political position-taking in geographically neighboring states. Polarization is found to significantly reduce corruption. Consistent with the idea that ideological distance imposes additional electoral discipline on politicians, the beneficial effect of polarization is found to increase when political competition is high and when incumbent governors are eligible to run for office.
    Keywords: Corruption, ideological polarization
    JEL: K4 H0
    Date: 2016–07
  16. By: Cristina Giorgiantonio (Bank of Italy); Tommaso Orlando (Bank of Italy); Giuliana Palumbo (Bank of Italy); Lucia Rizzica (Bank of Italy)
    Abstract: The effectiveness of the Public administration depends on its ability to attract and select skilled individuals and encourage them to exert effort. Recruitment and career policies affect the composition of the pool of applicants who take part in the selection procedures. The process by which these are managed determines who, among the self-selected candidates, accesses public employment and, consequently, the distribution of individual characteristics across the public workforce. Such distribution, in turn, sets the environment in which incentive schemes are designed. This work provides an overview of the interactions among these dimensions and studies some critical aspects of the Italian context: the decreased selectivity and increased instability in recruitment, pay and career policies that insufficiently compensate education and skills, rigid selection procedures slanted towards generalist knowledge, the uniform application of incentive schemes to the entire Public administration without structural rearrangements. Furthermore, this work provides a critical comparison between these considerations and the direction taken by the recent reforms of public employment.
    Keywords: public sector labor markets, incentives, sorting
    JEL: J45 K31 M5
    Date: 2016–07

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