nep-law New Economics Papers
on Law and Economics
Issue of 2017‒04‒23
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Uncertain product risk, information acquisition, and product liability By Tim Friehe; Elisabeth Schulte
  2. Using a Ratio Test to Estimate Racial Differences in Wrongful Conviction Rates By Bjerk, David J.; Helland, Eric
  3. Subrogation and the Theory of Insurance When Suits Can Be Brought for Losses Suffered By A. Mitchell Polinsky; Steven Shavell
  4. Judicial Independence in the EU – A Puzzle By Gutmann, Jerg; Voigt, Stefan
  5. How Antitrust Enforcement Can Spur Innovation By Watzinger, Martin; Fackler, Thomas A.; Nagler, Markus
  6. Corporate Leverage and Employees’ Rights in Bankruptcy By Andrew Ellul; Marco Pagano
  7. The Effects of E-Cigarette Minimum Legal Sale Age Laws on Youth Substance Use By Dhaval Dave; Bo Feng; Michael F. Pesko
  8. Regulating 'platform power' By Orla Lynskey
  9. Joint Use of Liability and Regulation in Environmental Law By Michel, Stephan; Romano, Alessandro; Zannini, Ugo
  10. What to Buy When Forum Shopping? Analyzing Court Selection in Patent Litigation By Gaessler, Fabian; Lefouili, Yassine
  11. The Genealogy of Ideology: Predicting Agreement and Persuasive Memes in the U.S. Courts of Appeals By Chen, Daniel L.; Parthasarathy, Adithya; Verma, Shivam

  1. By: Tim Friehe (University of Marburg); Elisabeth Schulte (University of Marburg)
    Abstract: We describe how product liability interacts with regulatory product approval in influencing a firm’s incentives to acquire information about product risk, using a very parsimonious model. The firm may have insufficient information acquisition incentives when it is not fully liable for the harm caused by its product. The firm may also have excessive information acquisition incentives under both full and limited liability. We highlight efficiency inducing liability rules.
    Keywords: Innovation, Product Liability, Uncertainty
    JEL: K13 O31 D83
    Date: 2017
  2. By: Bjerk, David J. (Claremont McKenna College); Helland, Eric (Claremont McKenna College)
    Abstract: We show that under arguably plausible assumptions regarding the DNA exoneration process, in expectation, the ratio of DNA exoneration rates across races among defendants convicted for the same crime in the same state provides an upper bound on the ratio of wrongful conviction rates across races among these defendants. Our estimates of this statistic reveal that among those sentenced to incarceration for rape in the United States between 1983 and 1997, the wrongful conviction rate among white defendants was less than two-thirds of what it was for black defendants. Our results with respect to murder are inconclusive.
    Keywords: wrongful convictions, racial bias, judicial bias, exonerations, DNA evidence
    JEL: K14 J15
    Date: 2017–03
  3. By: A. Mitchell Polinsky; Steven Shavell
    Abstract: The theory of insurance is considered here when an insured individual may be able to sue another party for the losses that the insured suffered—and thus when an insured has a potential source of compensation in addition to insurance coverage. Insurance policies reflect this possibility through so-called subrogation provisions that give insurers the right to step into the shoes of insureds and to bring suits against injurers. We show that subrogation provisions are a fundamental feature of optimal insurance contracts because they relieve litigation-related risks and result in lower premiums—financed by the litigation income of insurers. This income includes earnings from suits that insureds would not otherwise have brought. We also characterize optimal subrogation provisions in the presence of loading costs, moral hazard, and non-monetary losses.
    JEL: G22 K13 K41
    Date: 2017–03
  4. By: Gutmann, Jerg; Voigt, Stefan
    Abstract: Based on data from the EU Justice Scoreboard, we identify a puzzle: National levels of judicial independence (as perceived by the citizens of EU member states) are negatively associated with the presence of formal legislation usually considered as conducive to judicial independence. We try to resolve this puzzle based on political economy explanations and specificities of legal systems, but to no avail. We then ask whether cultural traits can help to put together the puzzle. And indeed, countries with high levels of generalized trust (and to a lesser extent individualistic countries) exhibit increased levels of de facto judicial independence and, at the same time, reduced levels of de jure judicial independence. The combination of these two effects can explain why judicial reforms that should be conducive to an independent judiciary may seem to have adverse consequences. We conclude that cultural traits are of fundamental importance for the quality of formal institutions, even in societies as highly developed as the EU member states.
    Keywords: judicial independence,EU Justice Scoreboard,informal institutions,culture
    JEL: H11 K40 O40 P51
    Date: 2017
  5. By: Watzinger, Martin (University of Munich); Fackler, Thomas A. (University of Munich); Nagler, Markus (University of Munich)
    Abstract: We study the 1956 consent decree against the Bell System to investigate whether patents held by a dominant firm are harmful for innovation and if so, whether compulsory licensing can provide an effective remedy. The consent decree settled an antitrust lawsuit that charged Bell with having foreclosed the market for telecommunications equipment. The terms of the decree allowed Bell to remain a vertically integrated monopolist in the telecommunications industry, but as a remedy, Bell had to license all its existing patents royalty-free. Thus, the path-breaking technologies developed by the Bell Laboratories became freely available to all US companies. We show that in the first five years compulsory licensing increased follow-on innovation building on Bell patents by 17%. This effect is driven mainly by young and small companies. Yet, innovation increased only outside the telecommunications equipment industry. The lack of a positive innovation effect in the telecommunications industry suggests that market foreclosure impedes innovation and that compulsory licensing without structural remedies is ineffective in ending it. The increase of follow-on innovation by small and young companies is in line with the hypothesis that patents held by a dominant firm act as a barrier to entry for start-ups. We show that the removal of this barrier increased long-run U.S. innovation, corroborating historical accounts.
    Keywords: ;
    JEL: O30 O33 O34 K21 L40
    Date: 2017–03–25
  6. By: Andrew Ellul (Indiana University); Marco Pagano (Università di Napoli Federico II CSEF, EEIF, CEPR and ECGI)
    Abstract: Corporate leverage responds differently to employees’ legal protection in bankruptcy depending on whether leverage is chosen to curtail workers’ bargaining power or is driven by credit constraints. Using newly collected cross-country data on employees’ rights in corporate bankruptcy, we estimate the impact of such rights on firms’ capital structure, applying triple-diff strategies that exploit time-series, cross-country and firm-level variation. The estimates show that leverage increases more substantially in response to rises in corporate property values or in profitability at firms where employees have strong seniority in liquidation and weak rights in restructuring, consistently with the strategic use of leverage.
    Keywords: workers’ rights, bankruptcy, seniority, leverage, wage bargaining.
    JEL: G31 G32 G38 H25 H26 M40
    Date: 2017–04–18
  7. By: Dhaval Dave; Bo Feng; Michael F. Pesko
    Abstract: We use difference-in-differences models and individual-level data from the national and state Youth Risk Behavior Surveillance System (YRBSS) from 1991 to 2015 to examine the effects of e-cigarette Minimum Legal Sale Age (MLSA) laws on youth cigarette smoking, alcohol consumption, and marijuana use. Our results suggest that these laws increased youth smoking participation by 0.7 to 1.4 percentage points, approximately half of which could be attributed to smoking initiation. We find little evidence of higher cigarette smoking persisting beyond the point at which youth age out of the law. Our initial results also show little effect of the law on youth drinking, binge drinking, and marijuana use. Taken together, our findings suggest a possible unintended effect of e-cigarette MLSA laws—rising cigarette use in the short term while youth are restricted from purchasing e-cigarettes.
    JEL: D12 I12 I18
    Date: 2017–04
  8. By: Orla Lynskey
    Abstract: Increasing regulatory and doctrinal attention has recently focused on the problem of ‘platform power’. Yet calls for regulation of online platforms fail to identify the problems such regulation would target, and as a result appear to lack merit. In this paper, two claims are advanced. First, that the concept of ‘platform power’ is both an under and over-inclusive regulatory target and, as such, should be replaced by the broader concept of a ‘digital gatekeeper’. Second, that existing legal mechanisms do not adequately reflect the power over information flows and individual behaviour that gatekeepers can exercise. In particular, this gatekeeper power can have implications for individual rights that competition law and economic regulation are not designed to capture. Moreover, the technological design, and complexity, of digital gatekeepers renders their operations impervious to scrutiny by individual users, thereby exacerbating these potential implications.
    JEL: L81
    Date: 2017–02–21
  9. By: Michel, Stephan; Romano, Alessandro; Zannini, Ugo
    Abstract: In this paper, we argue that the joint use of ex-ante regulation and ex-post liability rules is efficient when there are uncertainty surrounding causal investigations and regulatory myopia. As these conditions are generally met in environmental cases, we provide an explanation for the frequent coexistence of these two instruments to control activities that create a risk for the environment. Moreover, we suggest that a joint use of liability and regulation should more frequently be optimal at the European (Federal) level than at the Country (State) level.
    Keywords: Regulation,Liability,Joint Use,Causal Uncertainty,Regulatory Myopia,Precautionary Principle
    JEL: K13 K32 L50 Q52 Q58
    Date: 2017
  10. By: Gaessler, Fabian; Lefouili, Yassine
    Abstract: This paper examines court selection by plaintiffs in patent litigation. We build a forum shopping model that provides a set of predictions regarding plaintiffs' court preferences, and the way these preferences depend on the market proximity between the plaintiff and the defendant. Then, using a rich dataset of patent litigation at German regional courts between 2003 and 2008, we estimate the determinants of court selection with alternative-specific conditional logit models. In line with our theoretical predictions, our empirical results show that plaintiffs prefer courts that have shorter proceedings, especially when they compete against the defendants they face. Further, we find negative effects of the plaintiff's, as well as the defendant's, distance to court on the plaintiff's court selection. Our empirical analysis also allows us to infer whether plaintiffs perceive a given court as more or less pro-patentee than another one.
    Keywords: Litigation, patents, forum shopping, Germany.
    JEL: K41 L38 O34
    Date: 2017–03
  11. By: Chen, Daniel L.; Parthasarathy, Adithya; Verma, Shivam
    Abstract: We employ machine learning techniques to identify common characteristics and features from cases in the US courts of appeals that contribute in determining dissent. Our models were able to predict vote alignment with an average F1 score of 73%, and our results show that the length of the opinion, the number of citations in the opinion, and voting valence, are all key factors in determining dissent. These results indicate that certain high level characteristics of a case can be used to predict dissent. We also explore the influence of dissent using seating patterns of judges, and our results show that raw counts of how often two judges sit together plays a role in dissent. In addition to the dissents, we analyze the notion of memetic phrases occurring in opinions - phrases that see a small spark of popularity but eventually die out in usage - and try to correlate them to dissent.
    Date: 2017–03

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