nep-law New Economics Papers
on Law and Economics
Issue of 2017‒01‒15
seventeen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Prison Work Programs in a Model of Deterrence By A. Mitchell Polinsky
  2. Information suppression by teams and violations of the Brady rule By Andrew F. Daughety; Jennifer F. Reinganum
  3. Global Commercial Law between Unity, Pluralism, and Competition: The Case of the CISG By Gralf-Peter Calliess; Insa Buchmann
  4. Lex Maritima: Vanishing Commercial Trial – Fading Domestic Law? By Gralf-Peter Calliess; Annika Klopp
  5. Immigration enforcement and crime By Paolo Pinotti
  6. When do firms leave cartels? Determinants and the impact on cartel survival By Hellwig, Michael; Hüschelrath, Kai
  7. Smart Contracts – How will Blockchain Technology Affect Contractual Practices? By Lauslahti, Kristian; Mattila, Juri; Seppälä, Timo
  8. What's BEPS got to do with it? Exploring the effectiveness of thin capitalisation rules By Ann, Kayis-Kumar
  9. Constitutional Issues of the Banking Union, between European Law and National Legal Orders By Lorenzo Cuocolo
  10. The Coase Mechanism and the Iteration Argument By Schlicht, Ekkehart
  11. Supply-Side Drug Policy in the Presence of Substitutes: Evidence from the Introduction of Abuse-Deterrent Opioids By Abby Alpert; David Powell; Rosalie Liccardo Pacula
  12. Cooperation in Criminal Markets By Aquilante, Tommaso; Maretto, Guido
  13. EU retail roaming regulation triggers competition mechanisms of wholesale roaming markets that make wholesale prices competitive By Deniau, Philippe; Jaunaux, Laure; Lebourges, Marc
  14. The Impact of Merger Legislation on Bank Mergers By Carletti, Elena; Ongena, Steven; Siedlarek, Jan-Peter; Spagnolo, Giancarlo
  15. Optimal Incentives for Patent Challenges in the Pharmaceutical Industry By Enrico Böhme; Jonas Severin Frank; Wolfgang Kerber
  16. What Matters: Agreement Between U.S. Courts of Appeals Judges By Chen, Daniel L.; Cui, Xing; Shang, Lanyu; Zheng, Junchao
  17. An Economic Analysis of Personal Data Protection Obligations in the European Union By Blades, Nicholas; Herrera-González, Fernando

  1. By: A. Mitchell Polinsky
    Abstract: This article considers the social desirability of prison work programs in a model in which the function of imprisonment is to deter crime. Two types of prison work programs are studied—voluntary ones and mandatory ones. A voluntary work program generates net social benefits: if prisoners are paid a wage that just compensates them for their disutility from work, the deterrent effect of the prison sentence is unaffected, but society obtains the product of the work program. But a mandatory work program yields even higher net social benefits: if prisoners are forced to work without compensation, the deterrent effect of the prison sentence rises, allowing society to restore deterrence and save resources by reducing the probability of detection or the sentence length, and also to obtain greater output than under the optimal voluntary work program. In an extension of the basic analysis, however, in which prisoners vary in their disutility from work, a voluntary work program may be superior to a mandatory work program because prisoners with relatively high disutility from work can elect not to work.
    JEL: H23 J41 J48 K14 K42
    Date: 2017–01
  2. By: Andrew F. Daughety (Vanderbilt University); Jennifer F. Reinganum (Vanderbilt University)
    Abstract: We develop a model of individual prosecutors (and teams of prosecutors) and show how, in equilibrium, team-formation can lead to increased incentives to suppress evidence (relative to those faced by a lone prosecutor). Our model assumes that each individual prosecutor is characterized by a variable that captures that individual's level of tradeoff between a desire for career advancement (by winning a case) and a disutility for unjustly convicting an innocent defendant by suppressing exculpatory evidence. We assume a population of prosecutors that is heterogenous with respect to this tradeoff rate, and each individual's tradeoff rate is their own private information. A convicted defendant may later discover the exculpatory information; a judge will then void the conviction and may order an investigation. If the prosecutor is found to have violated the defendant's Brady rights (to exculpatory evidence), this results in penalizing the prosecutor. The payoff from winning a case is a public good (among the team members) while any penalties are private bads. The anticipated game between the prosecutors and the judge is the main focus of this paper. The decision to investigate a sole prosecutor, or a team of prosecutors, is determined endogenously. We show that the equilibrium assignment of roles within the team involves concentration of authority about suppressing/disclosing evidence.
    Keywords: Evidence suppression, prosecutorial misconduct, disclosure, team organization
    JEL: K0 D8
    Date: 2017–01–10
  3. By: Gralf-Peter Calliess (University of Bremen - Faculty of Law); Insa Buchmann (Max Planck Institute for European Legal History)
    Abstract: The global legal system consists of a multitude of legal regimes of various origin, thus constituting a regulatory framework which is significantly different from the one of a nation state. In the absence of a world state, international and supranational law regimes, various domestic legal systems, and transnational law regimes such as the lex mercatoria each claim normative authority in the global sphere, which inevitably overlap and interfere in some issue areas. Not surprisingly, this messy state has attracted some attention among legal theory scholars, stimulating various different lines of thought on how global law is actually structured and which organizing principles ought to be in operation. In this paper we identify unity, pluralism, and competition as three paradigms, which qualify in particular to guide our discourse on the structure and the organizing principles of global law. Since theoretical debates tend to remain quite abstract and vague, if not opaque, we decided to flesh out the differences and commonalities between the approaches by applying the three paradigms to the concrete field of the United Nations Convention on Contracts for the International Sale of Goods (CISG) as a cornerstone of global commercial law. This brings together up to now more or less separate theoretical and dogmatic discourses in a fruitful cross-disciplinary way. As a result, we plea for a paradigmatic pluralism, meaning that global law should not be constructed according to one single organizing principle only. This paper serves as an introduction to three in-depth papers, which each explore the issue from the perspective of one paradigm. Altogether they will publish in a focus issue of the Uniform Law Review in 2016.
    Keywords: Transnational law market‚paradigms of global law, international sales law, the CISG, international trade, cross-border contracts, transnational law, international uniform law, harmonization of law, regulatory competition, legal pluralism.
    JEL: A14 K12 K20 K33 K40 K49 L14
    Date: 2016–01
  4. By: Gralf-Peter Calliess (University of Bremen - Faculty of Law & ZenTra); Annika Klopp (University of Bremen - Faculty of Law)
    Abstract: This paper elaborates on a fundamental transformation of maritime law. On the basis of statistics it is argued that the London Maritime Arbitration Association (LMAA) has become the dominant provider on the global market for dispute resolution in the maritime industry, but currently is challenged by this very success. In the first part of the paper, we present some statistics on the development of the caseload of German and English Commercial Courts and – more specifically – some data and estimates on the caseload of these courts in maritime law. The upshot is that the commercial trial is vanishing in favour of arbitration. As long as arbitration is only an alternative to litigation there are no problems regarding the maintenance of law through precedent. However, as we illustrate in the second part of the paper, the LMAA nowadays has taken over the role of the ‘general jurisdiction’ of the shipping industry. This raises concerns regarding legal certainty as a public good and the development of law in general, because arbitral awards – even where published – do not carry precedential value. Thus, if arbitration becomes the dominant method of dispute resolution, maritime law may turn into dead ‘law in the books’. In principle, arbitral awards could be used as persuasive precedent, thus contributing to the further development of shipping law. In order to ascertain, whether or not awards could function as a new private source of maritime law, we analysed a series of LMAA and SMA awards, which were published in 2014. We conclude that the analysed awards do not qualify to carry precedential value and discuss a variety of reasons as well as potential solutions. As a result, we remain sceptical with regard to the potential role of arbitration in the maintenance of maritime law.
    Keywords: Law Merchant, maritime Law, international commercial arbitration, transnational law, cross-boarder contracts, international trade, private international law, conflict of laws, general principles of law, party autonomy, trade usage, standard form contracts, legal certainty, Lex Maritima, arbitral awa
    JEL: A14 F13 F14 F15 F23 F63 K12 K21 K33 K41 K49 L14
    Date: 2015–10
  5. By: Paolo Pinotti
    Abstract: Immigration enforcement has ambiguous implications for the crime rate of undocumented immigrants. On the one hand, expulsions reduce the pool of immigrants at risk of committing crimes, on the other they lower the opportunity cost of crime for those who are not expelled. We estimate the e?ect of expulsions on the crime rate of undocumented immigrants in Italy exploiting variation in enforcement toward immigrants of di?erent nationality, due to the existence of bilateral agreements for the control of illegal migration. We ?nd that stricter enforcement of migration policy reduces the crime rate of undocumented immigrants.
    Keywords: immigration, enforcement, crime
    JEL: K37 K42
    Date: 2015
  6. By: Hellwig, Michael; Hüschelrath, Kai
    Abstract: We use a dataset of 615 firms which participated in 114 illegal cartels - convicted by the European Commission between 1999 and 2016 - to investigate the determinants of the duration of a firm's participation in a cartel. Applying a Weibull proportional hazard model with a particular focus on the impact of internal and external time-varying determinants, we find that firms show an increased probability to leave a cartel if prior exits occurred as well as in periods of high demand growth. However, we find a reduced exit probability in situations of prior entries to the cartel or in periods of high interest rates. Additional estimations on the cartel level further suggest that firm exits increase the probability of a cartel breakdown substantially.
    Keywords: Survival Analysis,Cartels,Duration,European Union
    JEL: C41 K21 L41
    Date: 2017
  7. By: Lauslahti, Kristian; Mattila, Juri; Seppälä, Timo
    Abstract: 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: 2017–01–09
  8. By: Ann, Kayis-Kumar
    Abstract: In October 2015, the OECD made a best practice recommendation in Action 4 of its BEPS project, suggesting a Fixed Ratio Rule in place of thin capitalisation rules. This review was almost 3 decades in the making, with the most recent OECD report on thin capitalisation rules published in 1986, which omitted guidance on how these rules could best be designed. Thin capitalisation rules’ strong emphasis on revenue base protection has resulted in their exponentially increasing popularity internationally since the 1960s. However, there is a growing body of literature critiquing the effectiveness of thin capitalisation rules. Accordingly, this paper approaches the issue of thin capitalisation from a novel perspective by conceptualising the cross-border debt bias as the ‘disease’ and thin capitalisation as merely the ‘symptom’. Grounded in the tax principle of efficiency, the overarching question guiding this paper is whether, given the opportunity to start over, the tax-induced cross-border debt bias would be better addressed by retaining thin capitalisation rules in their current form or whether an alternative reform would be more suited to dealing with this ‘disease’. The optimisation model developed in this paper shows that the OECD’s Fixed Ratio Rule is more effective than the current regime of thin capitalisation rules at protecting the tax revenue base from the most tax-aggressive multinational enterprises (MNEs). However, the model also indicates that it is ultimately more effective to align the tax treatment of intercompany funding to eliminate the ‘underlying disease’ (the tax incentive for thin capitalisation), rather than adopting rules that mitigate the ‘symptom’ (such as the OECD’s Fixed Ratio Rule). This research presents a unique contribution to the literature by simulating complex cross-border intercompany tax planning strategies. This facilitates a formal analysis of one of the most significant challenges presented by the mobility and fungibility of capital; namely, anticipating how an MNE structures its internal affairs in a tax-optimal manner given the current tax regime and suggesting tax administrative responses to BEPS accordingly.
    Keywords: Corporate Taxes; BEPS; Tax Competition; Mathematical Programming; Optimisation
    JEL: C4 C44 C49 H26 K3 K34
    Date: 2016–12–16
  9. By: Lorenzo Cuocolo
    Abstract: European history has always been characterized by a strong link between banks and States and, more generally, between banks and politics. National banking systems, therefore, have always been one of the forms of expression of sovereignty. This setting is seriously called into question by the Banking Union project, which has been recently implemented in Europe. Given the importance of the issue, this should be studied not only from the perspective of economics and regulatory studies, but also from the perspective of constitutional law. The paper is divided into eleven parts. The first part aims at reconstructing the historical and economic conditions that have led to design a project of Banking Union.The second part highlights the regulatory asymmetry between euro-area countries and non-euro-area countries. While, in fact, some institutions (such as the EBA) operate across the whole Europe, the Banking Union concerns only those countries that have adopted the euro as their currency.
    Date: 2015
  10. By: Schlicht, Ekkehart
    Abstract: The “iteration argument” presented in Schlicht (1996) shows that the allocation of property rights may generate inefficiencies, contrary to what the “Coase Theorem,” as commonly understood, asserts. The argument may be summarized by saying that markets (and bargaining) cease to function properly if several people are entitled and prepared to engage in the same externality-ridden activity and each of them has to be bribed individually from being the first offender. Given that the harm from pollution does not rise linearily with the amount of pollution, the sum-total of the damages produced when all of the potential offenders engage in the harmful activity may be smaller than the sum-total of the bribes which must be offered to prevent each potential offender from starting the offensive activity, even if the ensuing social damages exceed the associated private returns and an inefficient outcome is obtained. If pollution without permission by the community is not permitted, a different – and in this case efficient – outcome results. This note illustrates the argument by means of a simple example. It is an excerpt of Schlicht (1997).
    Keywords: claims; contract enforcement; contracts; entitlements; interactions; motivation; norms; obligations; rights
    JEL: D02 D04 D23 D62 H23 K11 O50
    Date: 2017
  11. By: Abby Alpert; David Powell; Rosalie Liccardo Pacula
    Abstract: Overdose deaths from prescription opioid pain relievers nearly quadrupled between 1999 and 2010, making this the worst drug overdose epidemic in U.S. history. In response, numerous supply-side interventions have aimed to limit access to opioids. However, these supply disruptions may have the unintended consequence of increasing the use of substitute drugs, including heroin. We study the consequences of one of the largest supply disruptions to date to abusable opioids – the introduction of an abuse-deterrent version of OxyContin in 2010. Our analysis exploits across state variation in exposure to the OxyContin reformulation. Using data from the National Survey on Drug Use and Health (NSDUH), we show that states with higher pre-2010 rates of OxyContin misuse experienced larger reductions in OxyContin misuse, permitting us to isolate consumer substitution responses. We estimate large differential increases in heroin deaths immediately after reformulation in states with the highest initial rates of OxyContin misuse. We find less evidence of differential reductions in overall opioid-related deaths, potentially due to substitution towards other opioids, including more harmful synthetic opioids such as fentanyl. Our results imply that a substantial share of the dramatic increase in heroin deaths since 2010 can be attributed to the reformulation of OxyContin.
    JEL: I12 I18 K42
    Date: 2017–01
  12. By: Aquilante, Tommaso; Maretto, Guido
    Abstract: Using a unique data set on organized crime, we examine for the first time the interplay between domestic and foreign criminal organizations in Italy. We find that cooperation between Italian and foreign organizations is strongly associated to activities in which foreign organizations are well placed to supply inputs. Interestingly, this association is stronger in regions home to the headquarters of traditional Italian organizations (incum- bent regions). To mitigate reverse causality concerns, we use a Propensity Score approach. Once these are taken into account, we find that cooperation is higher when crimes are undertaken in incumbent regions and are such that foreign organizations can more easily supply inputs. Using a simple coalitional model we rationalize our results showing that they are consistent with an economic motive coupled with the threat of violence involved in criminal activities.
    Keywords: Organized Crime
    JEL: K42
    Date: 2016–12–31
  13. By: Deniau, Philippe; Jaunaux, Laure; Lebourges, Marc
    Abstract: The European Commission (EC) draft Regulation (2016)2 on wholesale roaming market proposes a massive decrease of the regulated roaming wholesale price caps for data with a drop from €5ct/MB to €0.85 ct/MB to enable the abolition of retail roaming surcharges in Europe by 15 June 2017. However, according to both the “TSM” Regulation text (2015/2120 25th November 2015) itself which imposes the implementation of Roaming Like At Home (RLAH) in Europe and to the decision of the European Court of Justice upholding the first European roaming regulation (ECJ C-58/08 8 June 2010), a wholesale roaming regulation can be justified in parallel of retail regulation only in case of market failure in the wholesale market and in order to prevent the existence of competitive distortions between mobile operators on the internal market. Therefore, wholesale roaming markets regulation should only address identified competitiveness issues. This paper deals with the question of the competitiveness of the wholesale roaming market regarding two angles: the existence of competitive mechanisms and incentives in wholesale roaming markets and the average level of wholesale roaming market prices in comparison with the corresponding level of full production costs. It shows that wholesale roaming markets exhibit competition mechanisms and incentives triggered by roaming volume growth resulting from the perspective of RLAH retail regulation. It also shows that in 2015, the average level of wholesale roaming market prices in Europe is equivalent to the average level of wholesale roaming production costs. Therefore the wholesale roaming market is competitive. Strong regulatory intervention such as large decrease of wholesale roaming caps is neither justified nor proportionate, generates serious risk of distortion of visited markets and jeopardises investments in mobile networks.
    Date: 2016
  14. By: Carletti, Elena; Ongena, Steven; Siedlarek, Jan-Peter; Spagnolo, Giancarlo
    Abstract: We study the impact on bank merger activity of the strengthening in merger control legislation introduced in Europe between 1989 and 2004. We find that strengthening merger control increases the abnormal returns on bank target stocks in the days around the merger announcement by 7 percentage points relative to before the new legislation.We discuss several potential explanations for this effect of the change in legislation by studying changes in merger characteristics. We find a weak increase in the pre-merger profitability of target banks, a decrease in the size of acquirers and a decrease in the share of transactions in which banks are acquired by other banks. Other merger properties, including the size and risk profile of targets, the geographic overlap of merging banks and the stock market response of rival banks in the country appear unaffected. The evidence is consistent with legislation changes leading to transactions being undertaken that are more profitable and more pro-competitive.
    Date: 2015–11
  15. By: Enrico Böhme (University of Marburg); Jonas Severin Frank (University of Marburg); Wolfgang Kerber (University of Marburg)
    Abstract: Since the patent system relies on private litigation for challenging weak patents, and patent settlements might influence the incentives for challenging patents, the question arises whether the antitrust assessment of patent settlements should also consider their impact on the incentives to challenge potentially invalid patents. Patent settlements in the pharmaceutical industry between originator and generic firms have been scrutinized critically by competition authorities for delaying the market entry of generics and therefore harming consumers. In this paper we present a model that analyzes the tradeoff between limiting the delay of generic entry through patent settlements and giving generic firms more incentives for challenging weak patents of the originator firms. We show that allowing patent settlements with a later market entry of generics than the expected market entry under patent litigation can increase consumer welfare under certain conditions. We introduce a policy parameter for determining the optimal additional period for collusion that would maximize consumer welfare and show that the size of this policy parameter depends on the size of the challenging costs, the intensity of competition, and the duration between the generics’ market entry decisions.
    Keywords: patent settlements, collusion, patent challenges
    JEL: L10 L40 O34
    Date: 2017
  16. By: Chen, Daniel L.; Cui, Xing; Shang, Lanyu; Zheng, Junchao
    Abstract: Federal courts are a mainstay of the justice system in the United States. In this study, we analyze 387,898 cases from U.S. Courts of Appeals, where judges are randomly assigned to panels of three. We predict which judge dissents against co-panelists and analyze the dominant features that predict such dissent with a particular attention to the biographical features that judges share. Random forest, a method developed in Breiman (2001), achieves the best classification. Dissent is predominantly driven by case features, though personal features also predict agreement.
    Date: 2016–12
  17. By: Blades, Nicholas; Herrera-González, Fernando
    Abstract: The collection, storage and processing of data have become easier and cheaper with the development of the Internet and the evolution of ICT technologies in general. This may be a cause (or a consequence) of new business models that rely on the exploitation of these stored data in order to try to extract some kind of value. If some value is found in personal data and in its processing in large volumes, this value would increase social welfare. In order for the value of an asset to be appraised, entrepreneurial activity is required. This is process of trial and error which may be hindered by regulation, due to the limits that this imposes on economic activity, for different reasons. In the European Union, the 1995 Data Protection Directive, the ePrivacy Directive and the more recent General Data Protection Regulation put limits to the exploitation of personal data. These limitations can be synthetized around the four rights that they grant individuals, the so-called ARCO rights: access, rectification, cancellation and objection. In this paper, the consequences of the data protection rights on entrepreneurial activity are analysed, and thus on the value that may be accrued from data related to individuals, and on social welfare. As a conclusion, some policy recommendations are proposed to achieve a balance between legal rights in the EU and possibilities for social welfare improvement.
    Date: 2016

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