nep-law New Economics Papers
on Law and Economics
Issue of 2017‒01‒08
fifteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Avoiding Convictions: Regression Discontinuity Evidence on Court Deferrals for First-Time Drug Offenders By Mueller-Smith, Michael; Schnepel, Kevin T.
  2. Blind Tigers and Red-Tape Cocktails: Liquor Control and Homicide in Late-Nineteenth-Century South Carolina By Howard Bodenhorn
  3. Does Gender Matter in the Civil Law Judiciary? Evidence from French Child Support Court Decisions. By Bruno Jeandidier; Cécile Bourreau-Dubois; Jean-Claude Ray; Myriam Doriat-Duban
  4. Do open borders tempt a saint? Evidence from Schengen on crime rates in German border regions By Pia Wassmann
  5. Corporate Control around the World By Gur Aminadav; Elias Papaioannou
  6. On the Use of Price-Cost Tests in Loyalty Discounts and Exclusive Dealing Arrangements: Which Implications from Economic Theory? By Chiara Fumagalli; Massimo Motta
  7. The more economic approach to predatory pricing By Michael Funk; Christian Jaag
  8. The Impact of the Employment Protection Legislation Reform on the Labor Market’s Flexicurity in Morocco By Toufik, Said; Arkhis, Mohammed-Amine; Oukhallou, Youssef
  9. Contract Law 2.0: «Smart» Contracts as the Beginning of the End of Classic Contract Law By Alexander Savelyev
  10. Hitler's Judges: Ideological Commitment and the Death Penalty in Nazi Germany By Wayne Geerling; Gary Magee; Vinod Mishra; Russell Smyth
  11. Jobs, cime, and votes: A short-run evaluation of the refugee crisis in Germany By Gehrsitz, Markus; Ungerer, Martin
  12. Bank Secrecy in Offshore Centres and Capital Flows: Does Blacklisting Matter? By Olga Balakina; Angelo D’Andrea; Donato Masciandaro
  13. Populism and the Return of the “Paranoid Style”: Some Evidence and a Simple Model of Demand for Incompetence as Insurance against Elite Betrayal By Rafael Di Tella; Julio J. Rotemberg
  14. Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation By Rafael Di Tella; Juan Dubra; Alejandro Luis Lagomarsino
  15. Job security and long-term investment: An experimental analysis By Gary Charness; Ramon Cobo-Reyes; Natalia Jimenez; J. Antonio Lacomba; Francisco Lagos

  1. By: Mueller-Smith, Michael (University of Michigan); Schnepel, Kevin T. (University of Sydney)
    Abstract: This paper studies the causal impact of court deferrals, a legal strategy to help defendants avoid a felony conviction record, on the future criminal and labor market outcomes of first-time felony drug offenders. To accomplish this, we exploit two natural experiments in Harris County, Texas, in which defendants appearing in court one day versus the next experienced abruptly different likelihoods of deferral. In 1994 deferral rates dropped by 34 percentage points the day following the implementation of a penal code reform; in 2007 deferral rates increased by 22 percentage points the day after the unexpected failure of a ballot initiative to expand the county jail. Using administrative data and local polynomial regression discontinuity methods, we find robust evidence consistent across both experiments that regimes with expanded use of court deferrals generated substantially lower rates of reoffending and unemployment over a five-year follow-up period. Additional analysis delves further into the timing, nature and incidence of these impacts. Together our results suggest that increasing the use of deferral programs may be an attractive and feasible option for a jurisdiction seeking to reduce the fiscal cost and community impact of its criminal justice system.
    Keywords: felony records, criminal justice, drug offenders, recidivism, labor market
    JEL: J24 K14 K42
    Date: 2016–12
  2. By: Howard Bodenhorn
    Abstract: In 1893 South Carolina prohibited the private manufacture, transportation, and sale of alcohol and established a state monopoly in wholesale and retail alcohol distribution. The combination of a market decline in the availability of alcohol, reduced variety, and monopoly pricing at state-operated outlets encouraged black markets in alcohol. Because black market participants tend to resort to extra-legal mechanisms for dispute resolution, including violence, one result of South Carolina’s alcohol restriction was an increase in homicide. A continuous-treatment difference-in-difference approach reveals that homicide rates increased by about 30 to 60 percent in counties that more vigorously enforced the law.
    JEL: K14 K42 N41
    Date: 2016–12
  3. By: Bruno Jeandidier; Cécile Bourreau-Dubois; Jean-Claude Ray; Myriam Doriat-Duban
    Abstract: This article assesses whether and to what extent gender matters in one particular area of the civil law system, family law. Using a dataset of 2,000 child support decisions from French courts of appeal, we show that in a civil law system like that in France, the gender of the judge does seem to matter. We find that this influence is likely to manifest itself in two ways. First, our results show that female and male judges do not make the same decisions: comparatively to the latter, the former (i) are more generous, fixing higher amounts of child support (the difference represents between 8% and 17% of the average amount of child support), and (ii) make more pro-mother decisions, regardless of whether the mothers are debtors or creditors. The magnitude of these differences is greater when the panel is composed of three female judges, comparatively to mixed or all-male panels.
    Keywords: judicial decision-making; gender; family law.
    JEL: K41 K36
    Date: 2016
  4. By: Pia Wassmann
    Abstract: The abolishment of passport and any other type of border controls at the German-Polish and German-Czech border in December 2007 provoked public concerns that open border would increase cross-border crime. Despite these widespread concerns, there is still little research on whether the public fears were justified. The paper evaluates the extent to which the implementation of the Schengen Agreement in Poland and the Czech Republic in 2007 affected crime rates in German regions bordering these two countries. Effects are identified by regression-adjusted difference-in-difference estimation on matched samples that allows evaluating the Schengen effects in a causal way. Preliminary results show that no significant Schengen effect can be observed for the most common types of criminal offense. This indicates that crime patterns did not change after the implementation of the Schengen Agreement in a statistically significant way. These findings suggest that in contrast to public concerns, border regions have not experienced an increase in crime as a result of Schengen. In light of the current discussion on the future of the Schengen zone and borderless Europe, this is quite an important, indicatory result.
    Keywords: Crime Rates; Border Regions; Schengen Agreement; Open Borders
    JEL: R10 R20 F60 J60 K40
    Date: 2016–12
  5. By: Gur Aminadav; Elias Papaioannou
    Abstract: We provide an autopsy of the patterns of corporate control and ownership concentration in a dataset covering more than 40,000 listed firms from 127 countries over 2004−2012. Employing a plethora of original and secondary sources, big data techniques, and applying the Shapley-Shubik algorithm to quantify shareholder’s voting power we trace ultimate controlling shareholders from the complex, pyramidal, and often obscure corporate structures. First, we show that there are large differences in the type of corporate control (widely held firms with and without significant equity blocks, firms controlled by families, governments, and other public-private firms) across and within continents. Corporate structures appear persistent as the recent global financial crisis did not affect them much. Second, we examine the role of legal traditions on corporate control. There are economically large differences on corporate structure across legal families, with the share of controlled (widely-held) firms being the highest (lowest) in French civil-law countries, followed by German and then Scandinavian civil law countries. State ownership and control by individual/families via complex corporate structures is pervasive in civil-law countries. And while equity blocks are commonplace across widely-held firms all around the world and across all legal families, the share of widely-held firms with large blocks is the highest in French civil-law countries. Moreover, ownership concentration is considerably higher in French civil-law (and to a lesser extent in German civil-law) countries as compared to common-law countries. These patterns apply to very large, big, medium-sized and small listed firms and are not driven by regional differences, the level of economic development, or industrial structure, suggesting that legal origin has sizable long-lasting consequences on corporate structure. Third, as legal origin may affect corporate control via multiple channels, we examine the role of some likely mechanisms. We find that shareholder protection rights against self-dealing activities of insiders correlate strongly with corporate control and ownership concentration. Legal formalism and creditor’s rights do not seem to play a role. Yet, the "reduced-form" link between legal origin and corporate control (and ownership concentration) is also driven by entry and labour market regulation.
    JEL: F30 G3 G34 G38 K11 K12 K31
    Date: 2016–12
  6. By: Chiara Fumagalli; Massimo Motta
    Abstract: Recent cases in the US (Meritor, Eisai) and in the EU (Intel ) have revived the debate on the use of price-cost tests in loyalty discount cases. We draw on existing recent economic theories of exclusion and develop new formal material to argue that economics alone does not justify applying a price-cost test to predation but not to loyalty discounts. Still, the latter contain features (they reference rivals and allow to discriminate across buyers and/or units bought) that have a higher exclusionary potential than the former, and this may well warrant closer scrutiny and more severe treatment from antitrust agencies and courts.
    Keywords: Market-Share Discounts, Ine?cient Foreclosure, Exclusive Dealing, Antitrust Policy
    JEL: K21 L41
    Date: 2016
  7. By: Michael Funk; Christian Jaag
    Abstract: The “more economic approach” was introduced to antitrust in order to achieve a more effect-based and theoretically grounded enforcement. However, related to predatory pricing it resulted in systematic over- and under-enforcement: Economic theory does not require dominance for pre-dation to be a rational (and harmful) strategy while an ex ante dominant firm would often refrain from predation. Hence, within the current legal framework, a more effect-based and theoretically grounded antitrust en-forcement with respect to predatory pricing will result in systematic over- and under-enforcement. Therefore, we suggest separating predatory pric-ing from exclusionary abuse of a dominant firm, both legally and analyti-cally. Instead, predatory pricing should be analyzed along the same logic as a merger. In particular, we argue that three elements from merger con-trol should be adopted: in absence of dominance, market share and/or turnover thresholds may serve as a de minimis rule; recoupment should be analyzed similarly to the competitive effect of a merger between the predator and its prey; and a stronger efficiency defense should be estab-lished.
    Keywords: Predatory pricing, competition policy, antitrust, more economic approach, predation
    JEL: L11 L41
    Date: 2016–12
  8. By: Toufik, Said; Arkhis, Mohammed-Amine; Oukhallou, Youssef
    Abstract: This paper uses the OECD’s methodology to build an Employment Protection Legislation index (EPL) for the Moroccan economy. In this framework, the main objective is to assess the impact of the new Labor Code’s provisions on the degree of flexicurity in the labor market. The paper also investigates the approximate influence of the EPL changes as regards to some employment-related variables. Our results show that after the 2004 Labor Code reform, the labor market’s flexibility level went down from 75 percent to 44 percent, as EPL became significantly stricter. Furthermore, our analysis suggests that the new legislation, although it brought relatively strict restrictions on hiring and firing, generated a significant increase in dismissals during the three first years of its implementation. And unlike the buckle of conventional literature and several empirical findings, the unemployment rate actually dropped, allegedly backed-up by a solid GDP growth during the 2000’s.
    Keywords: Labor Market, Flexicurity, Employment Protection Legislation, EPL Index
    JEL: E24 J81 K31
    Date: 2016–12–17
  9. By: Alexander Savelyev (National Research University Higher School of Economics)
    Abstract: The paper analyzes legal issues associated with application of existing contract law provisions to so-called Smart contracts, defined in the paper as “agreements existing in the form of software code implemented on the Blockchain platform, which ensures autonomy and self-executive nature of Smart contract terms based on predetermined set of factors”. The paper consists of several sections. In the first section, the paper outlines peculiarities of Blockchain technology as currently implemented in Bitcoin cryptocurrency and which forms the core of Smart contracts. In the second section, the main characteristic features of Smart contracts are described. Finally, the paper outlines key tensions between classic contract law and Smart contracts.. The conclusion section sets the core question for analysis of the perspectives of implementation of this technology by governments: “How to align the powers of the government with Blockchain if there is no central authority but only distributed technologies”. The author suggests two solutions, which are not optimal: 1) providing the state authorities with the status of a Superuser with extra powers and 2) relying on traditional remedies and enforcement practices, by pursuing specific individuals – parties to Smart contract - in offline mode. It is emphasized that those jurisdictions, which have the most Blockchain-friendly regulations will have competitive advantage in attraction of new innovative business models and companies willing to exploit them in a legal way.
    Keywords: contract, obligation, Blockchain, Bitcoin, Smart contract.
    JEL: Z
    Date: 2016
  10. By: Wayne Geerling; Gary Magee; Vinod Mishra; Russell Smyth
    Abstract: To what extent do judges in courts in authoritarian regimes merely implement the will of the state? What determines judges’ behaviour in such contexts? We address these questions by examining the role of judicial policy preferences in influencing whether judges in Nazi Germany sentenced defendants charged with serious political offences - treason and high treason - to death. Our findings lend support to the attitudinal model of judicial decision-making. Specifically, we find that judicial policy preferences, measured by the depth of the ideological commitment of the judge to the Nazi Party worldview, were an important determinant of whether judges imposed the death sentence. We also find that judges who were more ideologically committed to the Nazi Party were more likely to impose the death sentence on those who belonged to the most organised political opposition groups to the Nazi state, those whose acts of treason or high treason involved violent resistance against the state, and those with characteristics to which Nazism was intolerant.
    Date: 2016–03
  11. By: Gehrsitz, Markus; Ungerer, Martin
    Abstract: Millions of refugees made their way to Europe between 2014 and 2015, with over one million arriving in Germany alone. Yet, little is known about the impact of this inflow on labor markets, crime, and voting behavior. This article uses administrative data on refugee allocation and provides an evaluation of the short-run consequences of the refugee inflow. Our identification strategy exploits that a scramble for accommodation determined the assignment of refugees to German counties resulting in exogeneous variations in the number of refugees per county even within states. Our estimates suggest that migrants have not displaced native workers but have themselves struggled to find gainful employment. We find very small increases in crime in particular with respect to drug offenses and fare-dodging. Our analysis further suggests that counties which experience a larger influx see neither more nor less support for the main anti-immigrant party than counties which experience small migrant inflows.
    Keywords: Immigration,Refugees,Unemployment,Crime,Voting
    JEL: J6 J15 K4 D72
    Date: 2016
  12. By: Olga Balakina; Angelo D’Andrea; Donato Masciandaro
    Abstract: This study analyses cross-border capital flows in order to verify the existence and direction of the effect of the soft regulation promoted by international organizations against banking secrecy which characterized the so called tax and financial heavens. This effect is called in the literature Stigma Effect but both the existence and the direction of the stigma effect are far from being obvious. The international capital flows can simply neglect the relevance of the blacklisting, or worst, the attractiveness of banking secrecy can produce a race to the bottom: the desire to elude more transparent regulation can sensibly influence the capital movements. We test whether being included and later excluded from the FATF blacklist is an effective measure that influences countries’ cross-border capital flows. Using annual panel data for the period 1996-2014, we apply our framework to 126 countries worldwide. We find evidence that in general the stigma effect does not exist.
    Keywords: bank secrecy, offshore centres, international capital flows, name and shame regulation, money laundering
    JEL: F21 K42
    Date: 2016
  13. By: Rafael Di Tella; Julio J. Rotemberg
    Abstract: We present a simple model of populism as the rejection of “disloyal” leaders. We show that adding the assumption that people are worse off when they experience low income as a result of leader betrayal (than when it is the result of bad luck) to a simple voter choice model yields a preference for incompetent leaders. These deliver worse material outcomes in general, but they reduce the feelings of betrayal during bad times. We find some evidence consistent with our model in a survey carried out on the eve of the recent U.S. presidential election. Priming survey participants with questions about the importance of competence in policymaking usually reduced their support for the candidate who was perceived as less competent; this effect was reversed for rural, and less educated white, survey participants.
    JEL: D64 K42 P16
    Date: 2016–12
  14. By: Rafael Di Tella; Juan Dubra; Alejandro Luis Lagomarsino
    Abstract: We analyze the role of people’s beliefs about the rich in the determination of public policy in the context of a randomized online survey experiment. A question we study is the desirability of government-private sector meetings, a variable we argue is connected to State capacity. Survey respondents primed with negative views about business leaders want fewer meetings, as well as higher taxes to the top 1% and more regulation. We also study how these effects change when subjects are (additionally) primed with positive/negative views about government officials. Distrust in the government increases the preferred tax rate on the top 1% only when business legitimacy is low. A model with multiple equilibria helps interpret these findings. In one of the equilibria, meetings are allowed, business legitimacy is high, and people set a low income tax rate for businesspeople. In the other, meetings are forbidden, business legitimacy is low, and people set high taxes to punish the businesspeople for their corrupt behavior.
    JEL: H2 K42 P16
    Date: 2016–12
  15. By: Gary Charness (Department of Economics, University of California, Santa Barbara); Ramon Cobo-Reyes (Department of Economics, University of Granada & University of Exeter Business School); Natalia Jimenez (Department of Economics, Universidad Pablo de Olavide & Middlesex University); J. Antonio Lacomba (Departamento de Teoria e Historia Economica, University of Granada & Globe); Francisco Lagos (Departamento de Teoria e Historia Economica, University of Granada & Globe)
    Abstract: This article considers three different types of experimental labor contracts. A novel aspect of our experimental design is that workers have the chance of investing money in a long-term project in order to increase their income. We find a strong relationship between what happens inside the labor market (worker’s performance) and what happens outside the labor market (long-term investment). Long-term labor relationships seem to provide a safer environment for undertaking successful long-term projects. In the other direction, investing in long-term projects leads workers to improve their performance inside the labor market. We also introduce a new type of performance-based dismissal-barrier contract, whereby firms are required to retain workers if they have satisfied the effort level required by the firms. We find that performance-based dismissal barriers in the labor market leads to more long-term employment relationships and higher overall productivity.
    Keywords: Incomplete contracts, long-term relationships, renewable dismissal barriers, workers’ stability, investment and experiments.
    JEL: J41 J3 C91 D01
    Date: 2016

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