nep-law New Economics Papers
on Law and Economics
Issue of 2017‒05‒21
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Optimal Multistage Adjudication By Louis Kaplow
  2. Stealing to Survive : Crime and Income Shocks in 19th Century France By Vincent Bignon; Eve Caroli; Roberto Galbiati
  3. Speeding, Punishment, and Recidivism: Evidence from a Regression Discontinuity Design By Gehrsitz, Markus
  4. Marginal Deterrence at Work By Crinò, Rosario; Immordino, Giovanni; Piccolo, Salvatore
  5. The Paradox of Effective Labor Regulation By Lucas Ronconi; Mercedes Sidders; Benjamin Stanwix
  6. Economic Shocks and Crime: Evidence from the Brazilian Trade Liberalization By Rafael Dix-Carneiro; Rodrigo R. Soares; Gabriel Ulyssea
  7. Satisfaction Guaranteed: When Moral Hazard meets Moral Preferences By James Andreoni
  8. Corporate Leverage and Employees’ Rights in Bankruptcy By Andrew Ellul; Marco Pagano
  9. How Far Is Too Far? New Evidence on Abortion Clinic Closures, Access, and Abortions By Scott Cunningham; Jason M. Lindo; Caitlin Myers; Andrea Schlosser
  10. Stock Option Taxation: A Missing Piece in European Innovation Policy? By Henrekson, Magnus; Sanandaji, Tino
  11. Application of time series techniques in relevant market delimitation By Cuiabano, Simone; Nicolini de Moraes, João Carlos; Pinha, Lucas

  1. By: Louis Kaplow
    Abstract: In many settings, there are preliminary or interim decision points at which legal cases may be terminated: e.g., motions to dismiss and for summary judgment in U.S. civil litigation, grand jury decisions in criminal cases, and agencies’ screening and other exercises of discretion in pursuing investigations. This article analyzes how the decision whether to continue versus terminate should optimally be made when (A) proceeding to the next stage generates further information but at a cost to both the defendant and the government and (B) the prospect of going forward, and ultimately imposing sanctions, deters harmful acts and also chills desirable behavior. This subject involves a mechanism design analogue to the standard value of information problem, one that proves to be qualitatively different and notably more complex. Numerous factors enter into the optimal decision rule – some expected, some subtle, and some counterintuitive. The optimal rule for initial or intermediate stages is also qualitatively different from that for assigning liability at the final stage of adjudication.
    JEL: D81 D82 K14 K41 K42
    Date: 2017–04
  2. By: Vincent Bignon (Economix - Université Paris Ouest Nanterre La Défense (Paris 10)); Eve Caroli (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Roberto Galbiati (Observatoire Sociologique du Changement (OSC) - Sciences Po)
    Abstract: Using local administrative data from 1826 to 1936, we document the evolution of crime ratesin 19th century France and we estimate the impact of a negative income shock on crime. Ouridentification strategy exploits the phylloxera crisis. Between 1863 and 1890, phylloxeradestroyed about 40% of French vineyards. We use the geographical variation in the timing ofthis shock to identify its impact on property and violent crime rates, as well as minor offences.Our estimates suggest that the phylloxera crisis caused a substantial increase in propertycrime rates and a significant decrease in violent crimes.
    Keywords: phylloxera,Crime,income shock,19th century France
    Date: 2017–04–20
  3. By: Gehrsitz, Markus (University of Strathclyde)
    Abstract: This paper estimates the effects of temporary driver's license suspensions on driving behavior. A little known rule in the German traffic penalty catalogue maintains that drivers who commit a series of speeding transgressions within 365 days should have their license suspended for one month. My regression discontinuity design exploits the quasi-random assignment of license suspensions caused by the 365-days cut-off and shows that 1-month license suspensions lower the probability of recidivating within a year by 20 percent. This is largely a specific deterrence effect driven by the punishment itself and not by incapacitation, information asymmetries, or the threat of stiffer future penalties.
    Keywords: crime, speeding, deterrence, regression discontinuity
    JEL: I12 K42 R41
    Date: 2017–04
  4. By: Crinò, Rosario; Immordino, Giovanni; Piccolo, Salvatore
    Abstract: We test the rational economic model of marginal deterrence of law enforcement --- i.e., the need for graduating the penalty to the severity of the crime. We use a unique data set, which combines individual-level data on sentence length for a representative sample of US inmates with proxies for maximum punishment and monitoring costs across US states over 50 years. We show that the penalty is increasing in the level of the offense. Consistent with the marginal deterrence framework, we also document that a decrease in maximum penalty or an increase in monitoring cost are associated with longer sentences and higher monitoring rates. We also provide evidence that the effects of maximum penalty and monitoring cost are stronger in states where income inequality is higher. Finally, we show that steeper sanctions are associated with less harmful crimes. Overall, these findings favor the marginal deterrence framework over the maximal penalty principle and other competing theories of justice.
    Keywords: death penalty; Enforcement Policies; Individual-Level Data; Marginal Deterrence
    JEL: K14 K40
    Date: 2017–05
  5. By: Lucas Ronconi; Mercedes Sidders; Benjamin Stanwix (Centro de Investigación y Acción Social (CIAS) and CONICET; )
    Abstract: Why some countries choose a combination of highly protective laws and little enforcement is a puzzle that cannot be rationalized with traditional explanations. This paper collects administrative, legal and household survey data to emphasize a stylized fact about labor regulation that has been generally overlooked – countries with more protective employment regulations tend to enforce these regulations less, and usually focus their enforcement efforts on large firms.
    Keywords: Labor Regulation, Enforcement, Firm Size
    JEL: G18 H32 J5 K2 L5 M51
    Date: 2016–12
  6. By: Rafael Dix-Carneiro; Rodrigo R. Soares; Gabriel Ulyssea
    Abstract: This paper studies the effect of changes in economic conditions on crime. We exploit the 1990s trade liberalization in Brazil as a natural experiment generating exogenous shocks to local economies. We document that regions exposed to larger tariff reductions experienced a temporary increase in crime following liberalization. Next, we investigate through what channels the trade-induced economic shocks may have affected crime. We show that the shocks had significant effects on potential determinants of crime, such as labor market conditions, public goods provision, and income inequality. We propose a novel framework exploiting the distinct dynamic responses of these variables to obtain bounds on the effect of labor market conditions on crime. Our results indicate that this channel accounts for 75 to 93 percent of the effect of the trade-induced shocks on crime.
    JEL: F14 F16 K42
    Date: 2017–05
  7. By: James Andreoni
    Abstract: Theorists and policy analysts have convincingly argued that greater trust makes a more efficient society by eliminating costly contracts or expensive reputations. Concurrently, experiments suggest that reciprocity is a potent substitute for law when compliance with contracts is imperfectly enforced. This paper examines these issues within the context of a common trust-building contract device: satisfaction guaranteed. We find that satisfaction guaranteed indeed builds trust and improves efficiency. Interestingly, sellers offering a guarantee are more trustworthy than those who don't, even when honoring it is fully voluntary, but the guarantee only elicits the trust of buyers when it has legal backing.
    JEL: C92 D02 D4 K2
    Date: 2017–04
  8. By: Andrew Ellul (Kelley School of Business Indiana University, Csef, ECGI and CEPR); Marco Pagano (University of Naples Federico II, CSEF, EIEF, ECGI and CEPR)
    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.
    Date: 2017
  9. By: Scott Cunningham; Jason M. Lindo; Caitlin Myers; Andrea Schlosser
    Abstract: We estimate the effect of Texas HB2, a TRAP law that shuttered nearly half of Texas' abortion clinics in late 2013. After demonstrating that pre-existing trends in abortion rates were unrelated to the changes in access caused by HB2, we implement a difference-in-difference research design to identify the effects of abortion access. Our results suggest a substantial and non-linear effect of distance to abortion services. As the distance to the nearest abortion provider increases from less than 25 miles to 25-50 miles, there is little change in rates of legally induced abortions. But an increase to 50-100 miles reduces legal abortion rates by 16 percent, an increase to 100-200 miles reduces abortion rates by 32 percent, and an increase to 200 or more miles reduces abortion rates by 47 percent. We also introduce a proxy for congestion that predicts additional reductions in abortion rates as fewer clinics serve more women.
    JEL: I11 I12 J13 K23
    Date: 2017–04
  10. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Sanandaji, Tino (Institute for Economic and Business History Research (EHFF), Stockholm School of Economics)
    Abstract: Venture capital has become a dominant form of innovation finance, used by many high-tech startups. Europe lags the U.S. in both VC activity and the creation of successful startups, and has recently been surpassed by China. Few European countries have rates of VC activity commensurable to their deep finan­cial markets, strong legal institutions and high R&D spending. This paper points to the tax treatment of employee stock options as an important and neglected explanation. Innovative entrepreneurship is a complex activity that normally requires support structures and collaboration by actors providing financial and human capital to startups. As a response to high uncertainty and transaction costs, VC financiers developed a model where founders and key recruitments are compensated with stock options under complex contracts. While most countries tax stock options as labor earnings, the U.S. allow them to be taxed at a low capital gains tax rate. This has led to near universal use of stock options in U.S. VC deals, while this remains less common in Europe. There is a strong correlation between favorable tax treatment of employee stock options and VC activity. We discuss the interaction between tax policy and contract theory to show why employee stock options are a suitable solution to agency and incentive problems in this sector. A major advantage of this tax policy is that it narrowly targets entrepreneurial startups without requiring broad tax cuts.
    Keywords: Business taxation; Corporate governance; Entrepreneurship; Innovation; Institutions; Tax policy; Stock options; Venture capital
    JEL: H25 H30 K34 L26
    Date: 2017–05–12
  11. By: Cuiabano, Simone; Nicolini de Moraes, João Carlos; Pinha, Lucas
    Abstract: A key issue in the analysis of mergers in antitrust is the relevant market definition. The application of time-series techniques can be useful in this process, since only prices are required for the analysis, allowing for relatively rapid estimates. The objective of this work is to make an overview of the main time-series techniques used in the delineation of the relevant markets and make a qualitative analysis of the votes and technical notes of the cases involving the discussion of the application of time series in the relevant market definition submitted to the Brazilian Antitrust Authority (CADE). In this analysis, despite of its importance, there is a clear need for a careful assessment so the model can deliver robust and believable results. In addition, the importance of the hypothetical monopolist test and simulation methodologies for merger impact analysis are hardly replaced by time series techniques accordingly to Cade’s recent decisions.
    JEL: C22 K21 L40
    Date: 2017–05

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