nep-law New Economics Papers
on Law and Economics
Issue of 2016‒12‒11
ten papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Expert opinion in a tort litigation game By Yves Oytana; Nathalie Chappe
  2. The Effect of Fee Shifting on Litigation: Evidence from a Court Reform in the UK By Helmers, Christian; Lefouili, Yassine; Love, Brian; McDonagh, Luke
  3. Transfer Mispricing as an Argument for Corporate Social Responsibility By Asongu, Simplice A; Nwachukwu, Jacinta C.
  4. Harmonised Standards and Firm Productivity: Difference-in-Differences Evidence By Vojtech Olbrecht
  5. Whistleblowers on the Board? The Role of Independent Directors in Cartel Prosecutions By Murillo Campello; Daniel Ferrés; Gaizka Ormazabal
  6. The Unintended Consequences of Employer Credit Check Bans on Labor and Credit Markets By Cortes, Kristle Romero; Glover, Andrew; Tasci, Murat
  7. The Impact of the 1896 Factory and Shops Act on Victorian Labour Markets By Seltzer, Andrew; Borland, Jeff
  8. Bankruptcy and Delinquency in a Model of Unsecured Debt By Athreya, Kartik B.; Sanchez, Juan M.; Tam, Xuan S.; Young, Eric R.
  9. Cheat or Perish? A Theory of Scientific Customs By Benoît LE MAUX; Sarah NECKER; Yvon ROCABOY
  10. Audit publicity and tax compliance: a quasi-natural experiment By Pietro Battiston; Denvil Duncan; Simona Gamba; Alessandro Santoro

  1. By: Yves Oytana (Université de Bourgogne Franche-Comté, CRESE); Nathalie Chappe (Université de Bourgogne Franche-Comté, CRESE)
    Abstract: We investigate the potential impact of various proposed reforms intended to improve the quality of expert testimony while reducing its cost, and to facilitate the work of judges in appointing experts and reading their reports. To do so, we present a unilateral care model under strict liability in which the court cannot perfectly observe the amount of harm a tortfeasor has caused to a victim. However, the judge may appoint an expert to improve his chance of reaching a correct decision. In this context, we find that the likelihood of a victim filing a lawsuit decreases with the quality of the expert testimony and with the cost of the expertise procedure, and increases with the non-monetary cost for the judge to appoint an expert. Moreover, we find that the effects of these parameters on the injurer’s level of precaution are ambiguous. We also find that the injurer’s level of care is suboptimal. Finally, we make some public policy recommendations in order to (i) increase the injurer’s level of care and (ii) reduce the expected cost of a trial in the event of an accident. We find that the policy maker faces a trade-off between these two objectives.
    Keywords: Litigation, Expert, Expert testimony, Liability
    JEL: K40 K41 K49
    Date: 2016–11
  2. By: Helmers, Christian; Lefouili, Yassine; Love, Brian; McDonagh, Luke
    Abstract: We study a U.K. court reform that established a cap on the amount of costs that a successful litigant may recover in a case litigated in the Patents County Court (PCC, now the IP Enterprise Court). We first build a theoretical model showing that the introduction of a costs cap is equivalent to an intermediate cost allocation rule falling between the English and American Rules. Our model suggests that the impact of the introduction of such a fee-shifting rule on the number of claims filed and the settlement rate is ambiguous. It shows, however, that the effect of the costs cap on IP holders' incentives to file a claim is stronger for smaller IP holders. Our empirical analysis of the impact of the costs cap takes advantage of our ability to compare IP litigation in the PCC with IP litigation in the High Court of England and Wales, which was not directly affected by the reform. Contrary to the existing literature, we find that the costs cap increased the number of cases filed by smaller companies and decreased the rate of settlement.
    Keywords: Litigation, Fee Shifting, Intellectual Property, Court Reform, U.K.
    JEL: K41 O34
    Date: 2016–12
  3. By: Asongu, Simplice A; Nwachukwu, Jacinta C.
    Abstract: This article presents a case for transfer mispricing as an argument for Corporate Social Responsibility (CSR). The argument builds on the position that in order to compensate for potential loss of brand image and reputation, Multinational Companies (MNCs) would be more socially responsible when they are operating in countries where the legislation and laws in place are not effective at identifying and sanctioning transfer mispricing. We first discuss the dark side of transfer pricing (TP), next we present the nexus between TP and poverty and finally we advance arguments for CSR in transfer mispricing. While acknowledging that TP is a legal accounting practice, we argue that in view of its poverty and underdevelopment externalities, the practice per se should be a solid justification for CSR because it is also associated with schemes that deprive developing countries of capital essential for investments in health, education and development programmes. Therefore CSR owing to TP cannot be limited to a strategic management approach, but should also be considered as some kind of social justice because of associated transfer mispricing practices. We further argue that, CSR by multinational corporations could incite domestic companies to comply more willingly with their tax obligations and/or engage in similar activities. Whereas, traditional advocates of CSR have employed concepts such as reputation, licence-to-operate, sustainability, moral obligation and innovation to make the case for CSR, the present inquiry extends this stream of literature by arguing that TP and its externalities are genuine justifications for CSR. We consolidate our arguments with a case study of Glencore and the mining industry in the Democratic Republic of Congo.
    Keywords: Corporate Social Responsibility; Transfer pricing; Extreme poverty
    JEL: F20 H20 M14 O11
    Date: 2016–08
  4. By: Vojtech Olbrecht (Department of Business Economics, Faculty of Business and Economics, Mendel university in Brno, Zemedelska 1, 613 00 Brno, Czech Republic)
    Abstract: One of the main objectives of the European Union is to enhance the competitiveness of companies within its Member States and that may be supported by further development of the Single Market. Introduction of harmonized standards for production of goods and services encourages companies to take advantage of the Single Market by reducing transaction costs. In other words, the EU is adjusting the economic and legal framework in which companies operate in order to remove existing barriers to its vision of a well-functioning Single Market. This paper researches the relationship between these changes and productivity of microeconomic agents – firms. The analysis uses a panel data regression model with difference-in-differences research design built on a sample of affected and unaffected firms as control groups to be able to extract effect caused by the regulation. The article provides evaluation of individual standards and states the direction of effect at each of those. It can be said that while some standards (mostly those with wide applicability) have a positive relation with productivity and some are insignificant. There can be found also one that has a robust significant negative correlation with productivity.
    Keywords: harmonised standards, productivity, difference-in-differences, law and economics, European Union, legislation
    JEL: K20 K33 O12 O24
    Date: 2016–12
  5. By: Murillo Campello; Daniel Ferrés; Gaizka Ormazabal
    Abstract: Stock market reactions to news of cartel prosecutions are muted when indicted firms have a high proportion of independent directors serving on their boards. This finding is robust to self-selection and is more pronounced when those directors hold more outside directorships and have fewer stock options — when they have fewer economic ties to the indicted firms. Results are stronger when independent directors’ appointments were attributable to SOX, preceded the CEO’s appointment, or followed class action suits — when they have fewer direct ties to indicted CEOs. Independent directors serving on indicted firms are penalized by losing board seats and vote support across their directorships in other firms. Moreover, firms with more independent directors are more likely to cooperate with antitrust authorities through leniency programs and to dismiss CEOs after cartel indictments. Our results show that cartel prosecution imposes significant personal costs onto independent directors and that they take actions to reduce those costs. Understanding these incentives is key for antitrust authorities in designing strategies for cartel prosecution.
    Keywords: Cartel Prosecution; Antitrust Policy; Leniency Programs; Independent Directors; Reputational Costs; Heckman Selection Test
  6. By: Cortes, Kristle Romero (Federal Reserve Bank of Cleveland); Glover, Andrew (University of Texas at Austin); Tasci, Murat (Federal Reserve Bank of Cleveland)
    Abstract: Lenders have traditionally used credit reports to measure a borrower’s riskiness, but credit agencies also market reports to employers for use in hiring. Since the onset of the Great Recession, eleven state legislatures have restricted the use of credit reports in the labor market. We document that county-level unemployment rose faster in states that restricted employer credit checks. Furthermore, counties with high subprime populations experienced larger increases in the unemployment rate than average. Underlying the increase in unemployment rates post-restriction is a higher separation rate in those states, which we interpret as evidence that employer credit checks are an ex-ante screening device that improves the matching process. We provide further evidence of deteriorating credit market outcomes. Using a credit panel, we find that access to credit declines and delinquencies increase significantly after the state-level policy changes.
    Keywords: unemployment rate; credit score; credit check;
    JEL: G18 J6
    Date: 2016–11–28
  7. By: Seltzer, Andrew (Royal Holloway, University of London); Borland, Jeff (University of Melbourne)
    Abstract: This paper examines the effects of the Victorian Factory and Shops Act, the first minimum wage law in Australia. The Act differed from modern minimum wage laws in that it established Special Boards, which set trade-specific minimum wage schedules. We use trade-level data on average wages, employment, and other outcomes to examine the effects of changes in minimum wages. Although the minimum wages were binding, we find that the effects on employment and other outcomes were modest. We speculate that this was partly because the Special Boards, which were comprised mostly of employers and union officials, followed labour market conditions when setting wages for their trades.
    Keywords: minimum wages, Australia, Factory and Shops Act
    JEL: J38 N37
    Date: 2016–11
  8. By: Athreya, Kartik B. (Federal Reserve Bank of Richmond); Sanchez, Juan M. (Federal Reserve Bank of St. Louis); Tam, Xuan S. (City University of Hong Kong); Young, Eric R. (University of Virginia)
    Abstract: This paper documents and interprets two facts central to the dynamics of informal default or "delinquency" on unsecured consumer debt. First, delinquency does not mean a persistent cessation of payment. In particular, we observe that for individuals 60 to 90 days late on payments, 85% make payments during the next quarter that allow them to avoid entering more severe delinquency. Second, many in delinquency (40%) have smaller debt obligations one quarter later. To understand these facts, we develop a theoretically and institutionally plausible model of debt delinquency and bankruptcy. Our model reproduces the dynamics of delinquency and suggests an interpretation of the data in which lenders frequently (in roughly 40% of cases) reset the terms for delinquent borrowers, typically involving partial debt forgiveness, rather than a blanket imposition of the "penalty rates" most unsecured credit contracts specify.
    JEL: E43 E44 G33
    Date: 2016–12–01
  9. By: Benoît LE MAUX (CREM-CNRS and Condorcet Center, University of Rennes 1, France); Sarah NECKER (University of Freiburg, Walter-Eucken Institute, Deutschland); Yvon ROCABOY (CREM-CNRS and Condorcet Center, University of Rennes 1, France)
    Abstract: We develop a theory of the evolution of scientific misbehavior. Our empirical analysis of a survey of scientific misbehavior in economics suggests that researchers’ disutility from cheating varies with the expected fraction of colleagues who cheat. This observation is central to our theory. We develop a one-principal multi-agent framework in which a research institution aims to reward scientific productivity at minimum cost. As the social norm is determined endogenously, performance-related pay may not only increase cheating in the short run but can also make cheat-ing increasingly attractive in the long run. The optimal contract thus depends on the dynamics of scientific norms. The premium on scientific productivity should be higher when the transmission of scientific norms across generations is lower (low marginal peer pressure) or the principal cares little about the future (has a high discount rate). Under certain conditions, a greater probability of detection also increases the optimal productivity premium.
    Keywords: Economics of Science, Contract Theory, Scientific Misbehavior, Social Norms
    JEL: A11 A13 K42
    Date: 2016–12
  10. By: Pietro Battiston; Denvil Duncan; Simona Gamba; Alessandro Santoro
    Abstract: We use confidential data on Value Added Tax payments at the sector level, in two large Italian cities, to estimate the effect of audits publicity on tax compliance of local sellers. By employing a Difference-in-Differences identification strategy, we find that such publicity has a positive effect on fiscal declarations made shortly after. The results suggest that increasing awareness on future audits via the media can be an important instrument in the hands of tax authorities.
    Keywords: Tax evasion, Quasi-natural experiment, Audit publicity
    Date: 2016–07–12

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