nep-law New Economics Papers
on Law and Economics
Issue of 2017‒05‒14
sixteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Bankruptcy and the difficulty of firing By Nicolae Stef
  2. Understanding Judicial Delays in Debt Tribunals. By Regy, Prasanth V.; Roy, Shubho
  3. Competition, Regulation and Institutional Quality By Raul V. Fabella
  4. Demand for Narcotics in Thailand, with Policy Implications By Sukharomana, Renu; Chang, Chia-Lin
  5. Digitalisation and intermediaries in the music industry By Hviid, Morten; Izquierdo Sanchez, Sofia; Jacques, Sabine
  6. Do Higher Achievers Cheat Less? An Experiment of Self-Revealing Individual Cheating By Siniver, Erez; Tobol, Yossi; Yaniv, Gideon
  7. Growing Up without Finance By Brown, James R.; Cookson, J Anthony; Heimer, Rawley
  8. Choices in Equity Finance A Global Perspective By Groen-Xu, Moqi; Massa, Massimo; Mataigne, Virginie; Vermaelen, Theo
  9. Infant Mortality and the Repeal of Federal Prohibition By David S. Jacks; Krishna Pendakur; Hitoshi Shigeoka
  10. Does the Allocation of Property Rights Matter in the Commons? By Andreas Leibbrandt; John Lynham
  11. How post-crisis regulation has affected bank CEO compensation By Cerasi, Vittoria; Deininger, Sebastian; Gambacorta, Leonardo; Oliviero, Tommaso
  12. The criminal population in New England: records, convictions, and barriers to employment By Clifford, Robert; Sullivan, Riley
  13. Growth in the Shadows: Effect of the Shadow Economy on U.S. Economic Growth over More Than a Century By Goel, Rajeev K.; Saunoris, James W.; Schneider, Friedrich
  14. Does the Paradox of Plenty Exist? Experimental Evidence on the Curse of Resource Abundance By Andreas Leibbrandt; John Lynham
  15. Labeling Regulation or Product Liability? Managing Product Risks When Consumer Label-Reading Efforts Count By Maria Arbatskaya; Maria Vyshnya Aslam
  16. Transitional restricted linkage between Emissions Trading Schemes. By Simon Quemin; Christian de Perthuis

  1. By: Nicolae Stef
    Abstract: Firms may use layoffs as an ex ante mechanism to avoid filing for bankruptcy. However, the national labor law may impose some restrictions that delay or hamper the firing decision of the employer. This study proposes a different legal pathway for policymakers whose goal is to reduce the use of bankruptcy without acting on the design of the bankruptcy law. Using a sample of 33 countries from 2007 to 2015, we show that the total amount of firing restrictions leads to more bankruptcies. The employer's legal obligation to notify a third party prior the dismissal of one employee tends to increase the number of bankruptcies. It is very likely that the employer's rescue strategy endures an intense ex post monitoring of the employment contracts and/or a strong legal opposition to the layoff decision from such third party. In addition, labor codes that apply priority rules in case of reemployment can increase the use of bankruptcy.
    Keywords: Bankruptcy, Layoff, Labor.
    JEL: G33 G38 J63 K31
    Date: 2017
  2. By: Regy, Prasanth V. (National Institute of Public Finance and Policy); Roy, Shubho (National Institute of Public Finance and Policy)
    Abstract: We argue that the judicial statistics that are currently collected are inadequate for understanding and solving the problem of judicial delay. We propose a new approach to collecting data, which will lead to useful insights about delays. We apply this approach to a dataset, and find that about half the time taken by cases is lost to delays. Most delays are due to the petitioners asking for more time to file documents.
    Date: 2017–05
  3. By: Raul V. Fabella (School of Economics, University of the Philippines Diliman; National Academy of Science and Technology)
    Abstract: Regulation and competition policy are two alternative modalities by which the state intervenes in the market. In order for either to deliver welfare gains, there must first be a pre-existing market failure. We first present different varieties of market failures and identify those for which regulation is best address (cooperation failures such as The Fishing Game and the Public Goods Game, scale economies-based failures such as a Natural Monopoly and Meta-Market Failures) and those where competition policy works better (market power-based failures such as an artificial monopoly or cartel). We also discuss those market failures which cannot be remedied by an imperfect state. We show graphically the welfare outcomes of various industrial organizations (monopoly, duopoly, Walrasian limit) under the symmetric Cournot competition. We also deal with the welfare implications of imperfect substitutability. We then discuss some welfare implications of the Bertrand competition, its effect on innovation and on the formation of "trusts". We present reasons why competition policy is better than regulation in jurisdictions where institutions are weak. The reasons are: information intensity and asymmetry being greater with regulation, the greater ease of capture of the organs of regulation and, finally, the presence of private players who serve as allies of the competition agency and help monitor abuse of market power.
    Keywords: competition policy; regulation; weak institutions; market failures; Cournot competition; Bertrand competition
    JEL: K21 L51 L41 L44
    Date: 2017–03
  4. By: Sukharomana, Renu; Chang, Chia-Lin
    Abstract: The paper examines the demand for narcotic drugs, based on Becker (1968), as purported rational behavior of human beings. The results from sampling surveys in eight provinces in Thailand in 2014, representing nationwide drug users/addicts, show that the demand for narcotics (amphetamines, ice drug, and marijuana) are price inelastic (between -0.533 and -0.701), as well as normal goods. The key econometric coefficients in models A and B are 0.192 and 0.0467, respectively, and an increase in income will lead to an increase in the demand for narcotics. In addition, factors affecting the demand for narcotics are the age and age squared of the user, friendship, family member relationship, social relationship, reasons for drug use, risk behavior, and expected punishment. Public policy implications are also proposed and analysed.
    Keywords: Price elasticity of demand, Narcotics, Amphetamines, Ice drug, Marijuana, Policy implications.
    JEL: K42 L65 Q21
    Date: 2017–05–12
  5. By: Hviid, Morten; Izquierdo Sanchez, Sofia; Jacques, Sabine
    Abstract: Prior to digitalisation, the vertical structure of the market for recorded music could be described as a large number of artists [composers, lyricists and musicians] supplying creative expressions to a small number of larger record labels and publishers who funded, produced, and marketed the resulting recorded music to subsequently sell these works to consumers through a fragmented retail sector. We argue that digitalisation has led to a new structure in which the retail segment has also become concentrated. Such a structure, with successive oligopolistic segments, can lead to higher consumer prices through double marginalisation. We further question whether a combination of disintermediation of the record labels function combined with “self-publishing” by artists, will lead to the demise of powerful firms in the record label segment, thus shifting market power from the record label and publisher segment to the retail segment, rather than increasing the number of segments with market power.
    Keywords: Streaming; self publishing; music industry
    JEL: K0 K2 O34
    Date: 2017–03–01
  6. By: Siniver, Erez (College of Management, Rishon Lezion Campus); Tobol, Yossi (Jerusalem College of Technology (JTC)); Yaniv, Gideon (Ariel University)
    Abstract: The extensive body of survey-based research correlating between students' cheating and their academic grade point average (GPA) consistently finds a significant negative relationship between cheating and the GPA. The present paper reports the results of a two-round experiment designed to expose student cheating at the individual level and correlate it with three intellectual achievement measures: the GPA, the high-school matriculation average grade (MAG) and the psychometric exam score (PES). The experiment involved two classes of third-year economics students incentivized by a competitive reward to answer a multiple-choice trivia quiz without consulting their electronic devices. While this forbiddance was deliberately overlooked in the first round, providing an opportunity to cheat, it was strictly enforced in the second, conducted two months later in the same classes with the same quiz. A comparison of subjects' performance in the two rounds, self-revealed a considerable extent of cheating in the first one. Regressing the individual cheating levels on subjects' gender and their intellectual achievement measures exhibited no significant differences in cheating between males and females. However, cheating of both genders was found to significantly increase with each achievement measure, implying, in sharp contrast with the direct-question surveys, that higher achievers are bigger cheaters.
    Keywords: experimental data, cheating behavior, intellectual achievement
    JEL: A22 C91 C92 K42
    Date: 2017–04
  7. By: Brown, James R. (Iowa State University); Cookson, J Anthony (University of Colorado at Boulder); Heimer, Rawley (Federal Reserve Bank of Cleveland)
    Abstract: Early-life exposure to local financial institutions increases household financial inclusion and leads to long-term improvements in consumer credit outcomes. We identify the effect of local financial markets using congressional legislation that led to large and unintended differences in financial market development across Native American reservations. Individuals who grow up on financially underdeveloped reservations enter formal credit markets later than individuals from financially developed reservations and have persistently worse consumer credit outcomes (10 point lower credit scores and a 4 percentage point increase in delinquent accounts). These differences are equal to the effect of a $6,000 decrease in annual personal incomes. The effects are long-lived: The financial health of individuals who grow up on and leave financially underdeveloped reservations takes more than a decade to converge with those from financially developed reservations.
    Keywords: Native Americans; Credit Scores; Household finance; Consumer Credit;
    JEL: G21 K40 P48
    Date: 2017–05–02
  8. By: Groen-Xu, Moqi; Massa, Massimo; Mataigne, Virginie; Vermaelen, Theo
    Abstract: Equity issues can be structured as cash or rights offers and depending on the country's legislation firms can allow or restrict tradability of the rights. We study these choices using a worldwide sample of equity issues announced in 127 countries. We consider whether these choices as well as the short and long-term stock returns can be explained by a number of hypotheses proposed in the literature. The empirical findings confirm that the issuing method is driven by adverse selection and financial distress concerns, while the tradability decision reflects execution risk as well as transactions costs.
    Keywords: liquidity of rights; rights issue; seasoned equity offer
    JEL: G14 G32 G38 K22
    Date: 2017–04
  9. By: David S. Jacks (Simon Fraser University); Krishna Pendakur (Simon Fraser University); Hitoshi Shigeoka (Simon Fraser University)
    Abstract: Exploiting a newly constructed dataset on county-level variation in prohibition status from 1933 to 1939, this paper asks two questions: what were the effects of the repeal of federal prohibition on infant mortality? And were there any significant externalities from the individual policy choices of counties and states on their neighbors? We find that dry counties with at least one wet neighbor saw baseline infant mortality increase by roughly 3% while wet counties themselves saw baseline infant mortality increase by roughly 2%. Cumulating across the six years from 1934 to 1939, our results indicate an excess of 13,665 infant deaths that could be attributable to the repeal of federal prohibition in 1933.
    Keywords: federal prohibition, infant mortality, policy externalities
    JEL: H73 I18 J10 N30
    Date: 2017–05
  10. By: Andreas Leibbrandt; John Lynham
    Abstract: A popular solution to the Tragedy of the Commons is to create private property rights to access the commons. If resource users care about equity, they may be unwilling to respect property rights regimes that lead to less equitable outcomes. We explore in a series of laboratory experiments whether it is possible to undermine the efficiency of property rights solutions through the allocation process. We find that both the extent to which property rights are enforced and how they are allocated significantly affect extraction and compliance. Our findings suggest that one of the most popular allocation methods is suboptimal: we observe that occasional enforcement and the grandfathering of property rights is dominated by no enforcement and the equal allocation or inverse grandfathering of property rights. Our results challenge the view that equity is irrelevant for property rights solutions to the commons problem.
    Keywords: tragedy of the commons; privatization; grandfathering; equity; social norms
    JEL: A13 C92 D23 D62 D63 H23
    Date: 2017–04
  11. By: Cerasi, Vittoria; Deininger, Sebastian; Gambacorta, Leonardo; Oliviero, Tommaso
    Abstract: This paper assesses whether compensation practices for bank Chief Executive Officers (CEOs) changed after the Financial Stability Board (FSB) issued post-crisis guidelines on sound compensation. Banks in jurisdictions which implemented the FSB's Principles and Standards of Sound Compensation in national legislation changed their compensation policies more than other banks. Compensation in those jurisdictions is less linked to short-term profits and more linked to risks, with CEOs at riskier banks receiving less, by way of variable compensation, than those at less-risky peers. This was particularly true of investment banks and of banks which previously had weaker risk management, for example those that previously lacked a Chief Risk Officer.
    Keywords: Managerial compensation; Prudential regulation; risk-taking
    JEL: G21 G28 G32
    Date: 2017–04
  12. By: Clifford, Robert (Federal Reserve Bank of Boston); Sullivan, Riley (Federal Reserve Bank of Boston)
    Abstract: The portion of the U.S. population with a criminal record has been receiving mounting attention in recent years. While there is a significant amount of data about the criminal population under supervision, there is very limited linked data identifying how most individuals move through the criminal justice system. By analyzing multiple national and state data sources, this report aims to identify the size of the New England population with a criminal record and to describe the broad demographic characteristics of this population. The report illustrates that the size of the population in the region with a criminal record is significant: in 2014 there are 5.3 million individuals in criminal record databases in New England. Young men between 20 and 24 years of age account for a disproportionate number of arrests and convictions in New England, and most individuals with a criminal record committed a misdemeanor, not a felony. The report illustrates that the region's mid-sized cities often host a disproportionately larger share of ex-offenders. The report discusses the need for more complete and coordinated data systems that can accurately examine flows through the criminal justice system and the outcomes of all ex-offenders.
    Date: 2017–03–01
  13. By: Goel, Rajeev K. (Illinois State University); Saunoris, James W. (Eastern Michigan University); Schneider, Friedrich (University of Linz)
    Abstract: This paper provides a long-term view by studying the effect of the underground or shadow economy on economic growth in the Unites States over the period 1870 to 2014. Shadow activities might spur or retard economic growth depending on their interactions with the formal sector and impacts on the provision of public goods. Nesting the analysis in a standard neo-classical growth model, we use a relatively new time-series technique to estimate the short-run dynamics and long-run relationship between economic growth and its determinants. Results suggest that prior to WWII the shadow economy had a negative effect on economic growth; however, post-WWII the shadow economy was beneficial for growth. This ambiguity regarding the overall growth impact of the shadow economy is consistent with underlying theoretical arguments.
    Keywords: economic growth, shadow economy, United States, time series
    JEL: E26 O43 O51 K42
    Date: 2017–04
  14. By: Andreas Leibbrandt; John Lynham
    Abstract: There is conflicting evidence about whether abundant resources are indeed a blessing or a curse. We make use of specially designed economic experiments to investigate how resource abundance affects cooperation in the absence or presence of regulatory institutions. We observe that in the absence of regulatory institutions, there is less cooperation in groups with access to large resource pools than in groups with access to small resource pools. However, if regulatory institutions are present, we show that there is more cooperation in groups with access to large resource pools than in groups with access to small resource pools. Our findings also reveal that resource users are more willing to regulate access to abundant than to small resource pools. These findings provide causal evidence for the “paradox of plenty” and identify the causes for the pitfalls and potentials of resource wealth.
    Keywords: lab experiment; stakes; institutions; rent seeking.
    Date: 2017–04
  15. By: Maria Arbatskaya; Maria Vyshnya Aslam
    Abstract: This paper compares regulatory and liability approaches to product safety. Labeling regulation requires a producer to disclose that their product contains harmful content when its level (unknown to consumers) exceeds a certain threshold. Requiring a higher level of transparency for warning labels encourages more consumer label-reading effort and provides further incentives for producer care through a "vigilance effect." By contrast, a stronger product liability encourages producer care but has a "lulling effect" on consumer care. The reason is that consumers always view producer care and consumer care levels as strategic substitutes, while the firm views them as strategic complements when product liability is weak. We argue that an intervention policy has to be chosen with caution and the endogeneity of consumer label-reading effort is not to be overlooked.
    Date: 2017–05
  16. By: Simon Quemin; Christian de Perthuis
    Abstract: Linkages between Emissions Trading Systems are deemed to play an important role in implementing the Paris Agreement. However linkages have been few and far between. This is attributable to their multi-faceted nature and growing heterogeneity in policy designs. This article compares various link restrictions in facilitating linkage negotiations, namely quantitative restrictions, border permit taxes, exchange and discount rates, and unilateral linkage. These restrictions undermine cost-efficiency and generate rents and should thus be used as a transitory mechanism to full linkage. Trial restricted-link periods may allow to test the effects of the link while containing its reach, spur cooperation and provide more time and flexibility in circumventing impediments to full linkage. There is no ideal transitional restricted link as each has its relative merits and weaknesses. While quantitative restrictions seem to be the natural route to a full link, their implications can be misleading. While those of a border tax are more manageable, this policy seems harder to pursue. Exchange rates adjust for programmes' stringencies and have potential to increase overall ambition, but are challenging to select. As experience corroborates, unilateral linkage may constitute a practical and promising approach.
    Keywords: Emissions trading, Linkage, Trade restrictions.
    Date: 2017

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