nep-law New Economics Papers
on Law and Economics
Issue of 2016‒09‒18
thirteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Correlated accidents By L. A. Franzoni
  2. The Perils of Top-down State Building: Evidence from Colombia's False Positives By Daron Acemoglu; Leopoldo Fergusson; James A. Robinson; Dario Romero; Juan F. Vargas
  3. Smart Contracts – How will Blockchain Technology Affect Contractual Practices? By Lauslahti, Kristian; Mattila, Juri; Seppälä, Timo
  4. The Impact of Grade Retention on Juvenile Crime By Juan Diaz; Nicolas Grau; Tatiana Reyes; Jorge Rivera
  5. Emotional Judges and Unlucky Juveniles By Ozkan Eren; Naci Mocan
  6. Efficiency-Morality Trade-Offs in Repugnant Transactions: A Choice Experiment By Julio J. Elias; Nicola Lacetera; Mario Macis
  7. Labour rights in Peru and the EU trade agreement: Compliance with the commitments under the sustainable development chapter By Orbie, Jan; Van den Putte, Lore
  8. Labour Market Regulations and Capital Intensity By Gilbert Cette; Jimmy Lopez; Jacques Mairesse
  9. Post-Socialist Constitutions: The De Jure - De Facto Gap, Its Effects and Determinants By Katarzyna Metelska-Szaniawska
  10. Purpose-driven corporations: how corporate law reorders the field of corporate governance By Blanche Segrestin; Kevin Levillain; Armand Hatchuel
  11. Executive Lawyers: Gatekeepers or Strategic Officers? By Adair Morse; Wei Wang; Serena Wu
  12. State-to-State dispute settlement and the interpretation of investment treaties By David Gaukrodger
  13. Substance Abuse Treatment Centers and Local Crime By Samuel R. Bondurant; Jason M. Lindo; Isaac D. Swensen

  1. By: L. A. Franzoni
    Abstract: This paper investigates cases in which harms are statistically correlated. When parties are risk averse, correlation plays an important role in the choice between liability rules. Specifically, positively correlated harms favor a liability rule that spreads the risk over a multitude of parties, as in the negligence rule. Negatively correlated harms favor a liability rule that pools risks together, as in strict liability. The same applies when parties can purchase costly insurance (first party or third party). This policy recommendation is in line with current products liability law, which places design defects and warning failures under a de facto negligence regime.
    JEL: K13
    Date: 2016–08
  2. By: Daron Acemoglu; Leopoldo Fergusson; James A. Robinson; Dario Romero; Juan F. Vargas
    Abstract: How should a state which lacks the monopoly of violence go about acquiring it? We investigate the use of high-powered incentives for members of the Colombian army as part of a strategy to combat left-wing guerillas and build the state's monopoly of violence. We show that this top-down state-building effort produced several perverse side effects. Innocent civilians were killed and misrepresented as guerillas (a phenomenon known in Colombia as 'false positives'). Exploiting the fact that Colombian colonels have stronger career concerns and should be more responsive to such incentives, we show that there were significantly more false positives during the period of high-powered incentives in municipalities where a higher share of brigades were commanded by colonels and in those where checks coming from civilian judicial institutions were weaker. We further find that in municipalities with a higher share of colonels, the period of high-powered incentives coincided with a worsening of local judicial institutions and the security situation, with more frequent attacks not just by the guerillas but also by paramilitaries.
    JEL: D02 D73 D74 D82 K42
    Date: 2016–09
  3. By: Lauslahti, Kristian; Mattila, Juri; Seppälä, Timo
    Abstract: Unlike conventional contracts established through speech, written words, or actions, smart contracts are algorithmic, self-executing and self-enforcing computer programs. In this article, we analyze smart contracts from the perspective of digital platforms and the Finnish contract law. We examine how well the formation mechanisms of the general principles of contract law can be applied to the new technological framework of smart contracts. In addition, the adoptability of smart contracts as a part of our current legislation is evaluated on the basis of this analysis. We find that instead of a clearly defined single use case, smart contracts can be applied in a multitude of different ways, with highly varying goals and circumstances. We conclude that at least in some cases, smart contracts can create legally binding rights and obligations to their parties. The mechanism best suited for describing the formation of a smart contract seems to be analogous to a vending machine where the declaration of intent is implicitly expressed by performing contractual obligations. Contracts have not been formerly percieved as a technical boundary resource in the sense that platform ecosystems could foster broader network effects by opening their technical contracting interfaces to third parties. Smart contracts are an example of the new kinds of technology-enabled contracting practices to which companies and public policy makers should start preparing well ahead of time. However, due to the relative immaturity of the smart contract technology, the number of current real-world applications is still very limited. The evolution of digital platforms requires an approach with a combination of technological, economic and legal perspectives.
    Keywords: Digital platforms, boundary resources, blockchain, smart contracts
    JEL: K12 K19 O33 O38
    Date: 2016–09–12
  4. By: Juan Diaz; Nicolas Grau; Tatiana Reyes; Jorge Rivera
    Abstract: Using detailed administrative and individual data on schooling and crime records from Chile, we estimate the effect of grade retention between 4th and 8th grade on juvenile crime. We base our research on the rule which specifies that students who fail more than one subject must repeat the year. We present two empiri- cal strategies to address the strong evidence that the forcing variable is – locally – manipulated. First, we follow Barreca, Guldi, Lindo, and Waddell (2011) in implementing a donut-hole fuzzy regression discontinuity design (FRD). Second, we extend the approach developed by Keele, Titiunik, and Zubizarreta (2015) to implement a method that combines matching with FRD. These two methodolo- gies deliver similar results and neither show a statistically significant effect on a placebo test. According to our results, grade retention increases the probability of juvenile crime by 1.6 percentage point (pp), an increase of 33% (higher for males and low SES students). We also find that grade retention increases the probability of dropping out by 1.5pp. Regarding mechanisms, our findings suggest that the effect of grade retention on crime does not only manifest itself indirectly as a result of its effect on dropping out. Furthermore, the effect of grade retention on crime is worsened when students switch schools right after failing the grade.
    Date: 2016–09
  5. By: Ozkan Eren; Naci Mocan
    Abstract: Employing the universe of juvenile court decisions in a U.S. state between 1996 and 2012, we analyze the effects of emotional shocks associated with unexpected outcomes of football games played by a prominent college team in the state. We investigate the behavior of judges, the conduct of whom should, by law, be free of personal biases and emotions. We find that unexpected losses increase disposition (sentence) lengths assigned by judges during the week following the game. Unexpected wins, or losses that were expected to be close contests ex-ante, have no impact. The effects of these emotional shocks are asymmetrically borne by black defendants. We present evidence that the results are not influenced by defendant or attorney behavior or by defendants’ economic background. Importantly, the results are driven by judges who have received their bachelor’s degrees from the university with which the football team is affiliated. Different falsification tests and a number of auxiliary analyses demonstrate the robustness of the findings. These results provide evidence for the impact of emotions in one domain on a behavior in a completely unrelated domain among a uniformly highly-educated group of individuals (judges), with decisions involving high stakes (sentence lengths). They also point to the existence of a subtle and previously-unnoticed capricious application of sentencing.
    JEL: D02 D03 J15 J71 K4 K41
    Date: 2016–09
  6. By: Julio J. Elias; Nicola Lacetera; Mario Macis
    Abstract: Societies prohibit many transactions considered morally repugnant, although potentially efficiency-enhancing. We conducted an online choice experiment to characterize preferences for the morality and efficiency of payments to kidney donors. Preferences were heterogeneous, ranging from deontological to strongly consequentialist; the median respondent would support payments by a public agency if they increased the annual kidney supply by six percentage points, and private transactions for a thirty percentage-point increase. Fairness concerns drive this difference. Our findings suggest that cost-benefit considerations affect the acceptance of morally controversial transactions, and imply that trial studies of the effects of payments would inform the public debate.
    JEL: C91 D01 D47 D63 D64 I11 K32 Z13
    Date: 2016–09
  7. By: Orbie, Jan; Van den Putte, Lore
    Abstract: European Union (EU) trade policy has become increasingly contested and politicised. Citizens and politicians have become more and more concerned about the human rights and sustainable development implications of free trade. The European Commission in its 'Trade for All' Strategy has recognized the need for a more value-based trade policy. In the same vein, the EU has included a chapter on Trade and Sustainable Development in recent free trade agreements. However, there is still much uncertainty about the specifics of these legal commitments and about their implementation in practice. In this study, we aim to assess the labour rights commitments in the EU-Peru-Colombia agreement, with a specific focus on Peru and the agricultural sector. Based on an analytical framework that summarises the labour-related commitments of the sustainable development Title into three categories - upholding ILO Core Labour Standards, non-lowering domestic labour law, and promoting civil society dialogue - we conclude that Peru has failed to comply in a number of areas. We also make recommendations for the EU and civil society and suggestions for more profound and systematic research.
    Abstract: Diese Studie zeigt, dass sowohl die Peruanische Regierung als auch die EU ihre Bemühungen verstärken könnten, die in ihren Handelsabkommen enthaltenen Verpflichtungen zum Thema Arbeitsnormen einzuhalten, und die Zivilgesellschaft in dieser Hinsicht eine wichtige Rolle spielen könnte. Die Europäische Handelspolitik ist zunehmend umstritten geworden. In Reaktion darauf hat die Europäische Union (EU) in ihren jüngsten Handelsabkommen ein Kapitel zur nachhaltigen Entwicklung aufgenommen, welches Bestimmungen zu den Themen Arbeitsund Umweltschutz enthält. Dies ist unter anderem der Fall für das EU-Peru-Kolumbien Handelsabkommen, das im Jahr 2013 in Kraft getreten ist. Während das Abkommen ein Kapitel zur nachhaltigen Entwicklung enthält und obwohl die Achtung von Arbeitsnormen in Peru allgemein recht gering ist, ist die Einhaltung der Verpflichtungen zu Arbeitsnormen durch Peru im Rahmen des Abkommens bislang nicht untersucht worden. Wir konzentrieren uns in unserer Untersuchung auf den landwirtschaftlichen Exportsektor im breiteren Kontext von Arbeitsnormen. [...]
    Keywords: Peru,labour,European Union,trade
    Date: 2016
  8. By: Gilbert Cette; Jimmy Lopez; Jacques Mairesse
    Abstract: On the basis of a country*industry unbalanced panel data sample for 14 OECD countries and 18 industries covering the years 1988 to 2007, this study proposes an econometric investigation of the effects of the OECD Employment Protection Legislation (EPL) indicator on capital intensity for four capital components, and on the share of employment for two skill components. Our results relying on a difference-in-difference approach are the following: i) positive and significant effects for non-ICT physical capital intensity and the share of high-skilled employment; ii) non-significant effects for ICT capital intensity; and (iii) negative and significant effects for R&D capital intensity and the share of low-skilled employment. These results suggest that firms consider that the strengthening of Employment Protection Legislation is equivalent to a rise in the cost of labor, resulting in capital-to-labor substitution in favor of non-ICT capital and working at the disadvantage of low-skill relatively to high-skill workers. They indicate to the contrary that structural reforms for more labor flexibility weakening this legislation could have a favorable impact on firms’ R&D investment and their hiring of low-skill workers.
    JEL: C23 E22 E24 L50 O30 O43 O47
    Date: 2016–09
  9. By: Katarzyna Metelska-Szaniawska (Faculty of Economic Sciences, University of Warsaw)
    Abstract: In this paper we aim to contribute to the debate on constitutional rules and their economic effects by extending the focus to the de jure – de facto constitutional gap. Firstly, we provide evidence that the size of this gap matters as non-compliance lowers the effectiveness of the constitutional commitment mechanism. Secondly, we identify several explanans of this gap, in particular relating to the democratization process, political conflict, age and comprehensiveness of the constitution. We base the conclusions on an empirical study for the unique setting of the post-socialist countries of Europe and Asia, which all enacted new constitutional frameworks after 1989, and argue that the constitutions in these countries acted primarily as blueprints.
    Keywords: Constitutional Economics, constitutional compliance, post-socialist transition, economic reforms, sham constitutions
    JEL: H11 K19 P21 P26
    Date: 2016
  10. By: Blanche Segrestin (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique); Kevin Levillain (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique); Armand Hatchuel (CGS i3 - Centre de Gestion Scientifique i3 - MINES ParisTech - École nationale supérieure des mines de Paris - PSL - PSL Research University - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In a number of States, new legal " benefit " or " purpose " corporate forms are introduced to promote stakeholder-oriented companies. If it is too early to know empirically if this legal framework will work, we can build upon what we know on corporate governance to predict whether it is likely to work or not. In this paper, we present a mapping of the theories on corporate governance and derive some tentative predictions for purpose-driven corporations. We find that theories make diverging predictions, and in a paradoxical way: agency theory is seen as a shareholder-oriented theory, but it supports the new legal forms while stakeholder theory does not. This reordering of the field reveals that theories may overlook the possibility of a legal change. Our work thus contributes to suggest an empirical test of the theories with the purpose-driven companies, but it also opens further avenues to reappraise the theories of corporate governance.
    Keywords: Corporate law,purpose-driven corporation,stakeholder,corporate governance,agency theory,stewardship
    Date: 2016–06–01
  11. By: Adair Morse; Wei Wang; Serena Wu
    Abstract: Lawyers now serve as executives in 44% of corporations. Although endowed with gatekeeping responsibilities, executive lawyers face increasing pressure to use time on strategic efforts. In a lawyer fixed effects model, we quantify that lawyers are half as important as CEOs in explaining variances in compliance, monitoring, and business development. In a difference-in-differences model, we find that hiring lawyers into executive positions associates with 50% reduction in compliance breaches and 32% reduction in monitoring breaches. We then ask whether firms’ optimal contracting of lawyers into strategic activities implies less lawyer gatekeeping effort. Using a design comparing executive lawyers hired from law firms to lawyers poached from corporations, we find that lawyers hired with high compensation delta (indicative of the importance of strategic goals in compensation contracts) do less monitoring, preventing 25% fewer breaches than are typically mitigated by having an executive gatekeeper. Reassuringly, lawyers do not compromise compliance.
    JEL: G32 G34 J33 K22 M52
    Date: 2016–09
  12. By: David Gaukrodger
    Abstract: Many governments have expressed concerns about the uncertainty linked to the perceived inconsistency of treaty interpretation in Investor-State dispute settlement (ISDS). An OECD-hosted intergovernmental investment roundtable has been considering a range of tools through which governments can take action to improve the interpretation of investment treaties and some participants suggested consideration of the potential role of State-to-State dispute settlement (SSDS) in this area. This paper responds to this interest. The first part sets forth a rough typology of possible SSDS claims under investment treaties. The second part outlines policy issues relating to a possible type of SSDS claim which would be most relevant to the question of interpretation, for so-called “pure” interpretation of an investment treaty. The analysis seeks to identify policy reasons why governments might wish to provide for or exclude the power to obtain pure interpretations of investment treaties from SSDS tribunals or to make it broad or narrow. The final section examines SSDS cases under investment treaties addressing claims for interpretation.
    Keywords: foreign investment, international investment, international investment law, international economic law, international arbitration, investment treaties, international investment agreements, investor-state dispute settlement, bilateral investment treaties
    JEL: F02 F13 F21 F23 F53 K23 K33 K4 K41
    Date: 2016–09–13
  13. By: Samuel R. Bondurant; Jason M. Lindo; Isaac D. Swensen
    Abstract: In this paper we estimate the effects of expanding access to substance-abuse treatment on local crime. We do so using an identification strategy that leverages variation driven by substance-abuse-treatment facility openings and closings measured at the county level. The results indicate that substance-abuse-treatment facilities reduce both violent and financially motivated crimes in an area, and that the effects are particularly pronounced for relatively serious crimes. The effects on homicides are documented across three sources of homicide data.
    JEL: I12 K14 K42
    Date: 2016–09

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