nep-law New Economics Papers
on Law and Economics
Issue of 2017‒07‒16
sixteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Role of Precedents on Court Delay - Evidence from a civil law country By Berlemann, Michael; Christmann, Robin
  2. The Political Cost of Being Soft on Crime: Evidence from a Natural Experiment By Drago, Francesco; Galbiati, Roberto; Sobbrio, Francesco
  3. Hunting unicorns? Experimental evidence on predatory pricing policies By Aaron Edlin; Catherine Roux; Armin Schmutzler; Christian Thöni
  4. Do Age-of-Marriage Laws Work? Evidence from a Large Sample of Developing Countries - Working Paper 458 By Matthew Collin; Theodore Talbot
  5. Less Alimony after Divorce: Spouses' Behavioral Response to the 2008 Alimony Reform in Germany By Bredtmann, Julia; Vonnahme, Christina
  6. Diffusion of Legal Innovations: The Case of Israeli Class Actions By Christoph Engel; Alon Klement; Karen Weinshall Margel
  7. Votes at Work in Britain: Shareholder Monopolisation and the 'Single Channel' By Ewan McGaughey
  8. Prescription Drug Monitoring Programs on Oxycodone Prescriptions, Heroin Substitution, and Crime Rates By Justine Mallatt
  9. Takeover Law to Protect Shareholders: Increasing Efficiency or Merely Redistributing Gains? By Ying Wang; Henry Lahr
  10. The CBR-LRI Dataset: Methods, Properties & Potential of Leximetric Coding of Labour Laws By Zoe Adams; Parisa Bastani; Louise Bishop; Simon Deakin
  11. Pricing Labour Capacity: The Unexpected Effects of Formalizing Employment Contracts in China By Enying Zheng; Simon Deakin
  12. Immigration Enforcement and Foster Care Placements By Amuedo-Dorantes, Catalina; Arenas-Arroyo, Esther
  13. Do Environmental Regulations Effect FDI decisions? The Pollution Haven Hypothesis Revisited By Yoon, Haeyeon; Heshmati, Almas
  14. Law, Trust & Institutional Change in China: Evidence from Qualitative Fieldwork By Ding Chen; Simon Deakin; Mathias Siems; Boya Wang
  15. The Contribution of Labour Law to Economic Development & Growth By Simon Deakin
  16. Drivers of the Underground Economy around the Millienium: A Long Term Look for the United States By Goel, Rajeev K.; Saunoris, James W.; Schneider, Friedrich

  1. By: Berlemann, Michael; Christmann, Robin
    Abstract: Court delay frustrates economic behavior. Surprisingly, the impact of a coherent jurisdiction for the timely resolution of legal disputes has so far received little attention in civil law countries. Consequently, this paper examines the nexus between court delay and the availability of legal precedents. We model litigation as a two-stage rent seeking game, and find that precedents curb strategic behavior. Thus, the excessive use of party resources in litigation, such as time, is reduced if a precedent is applicable. Using judge-level data of a German trial court, we provide first empirical evidence on the role of precedents for case disposition time and the probability of reversal in a civil law country. Our results show that the availability of precedents significantly contributes to a reduction in delay, and also decreases the probability of reversal. Interestingly, we find no such influence for the citation of legal literature in verdicts.
    Keywords: judicial precedent, legal citation, jurisprudence constante, case resolution
    JEL: K40 K41
    Date: 2017–02–01
  2. By: Drago, Francesco (University of Naples Federico II); Galbiati, Roberto (CNRS); Sobbrio, Francesco (European University Institute)
    Abstract: We provide evidence about voters' response to crime control policies. We exploit a natural experiment arising from the Italian 2006 collective pardon releasing about one third of the prison population. The pardon created idiosyncratic incentives to recidivate across released individuals and municipalities. We show that municipalities where resident pardoned individuals have a higher incentive to recidivate experienced higher recidivism. Moreover, in these municipalities: i) newspapers were more likely to report crime news involving pardoned individuals; ii) voters held worse beliefs on the incumbent governments ability to control crime and iii) with respect to the previous elections, the incumbent national government experienced a worse electoral performance in the April 2008 national elections relative to the opposition coalition. Overall, our findings indicate that voters keep incumbent politicians accountable by conditioning their vote on the observed effects of their policies.
    Keywords: accountability, voting, natural experiment, crime, recidivism
    JEL: D72 K42
    Date: 2017–06
  3. By: Aaron Edlin; Catherine Roux; Armin Schmutzler; Christian Thöni
    Abstract: We study the anticompetitive effects of predatory pricing and the efficacy of three policy responses. In a series of experiments where an incumbent and a potential entrant interact, we compare prices, market structures and welfare. Under a laissez-faire regime, the threat of post-entry price cuts discourages entry, and allows incumbents to charge monopoly prices. Current U.S. policy (Brooke Group) does not help. A policy suggested by Baumol (1979) lowers post-exit prices, while Edlin’s (2002) proposal reduces pre-entry prices and encourages entry. While both policies show outcomes after entry that are less competitive than under Laissez-Faire, they nevertheless increase consumer welfare.
    Keywords: Predatory pricing, entry deterrence, firm strategy, antitrust law, experiment
    JEL: D21 K21 L12 L13 C91
    Date: 2017–06
  4. By: Matthew Collin; Theodore Talbot
    Abstract: Child marriage is associated with bad outcomes for women and girls. Although many countries have raised the legal age of marriage to deter this practice, the incidence of early marriage remains stubbornly high. We develop a simple model to explain how enforcing minimum age-of-marriage laws creates differences in the share of women getting married at the legal cut-off. We formally test for these discontinuities using multiple rounds of the Demographic and Health Surveys (DHS) in over 60 countries by applying statistical tests derived from the regression discontinuity literature. By this measure, most countries are not enforcing the laws on their books and enforcement is not getting better over time. Separately, we demonstrate that various measures of age-of-marriage discontinuities are systematically related to with existing, widely-accepted measures of rule-of-law and government effectiveness. A key contribution is therefore a simple, tractable way to monitor legal enforcement using survey data. We conclude by arguing that better laws must be accompanied by better enforcement and monitoring in to delay marriage and protect the rights of women and girls.
    Keywords: Child marriage, discontinuity tests, rule of law, legal effectiveness
    JEL: J12 K42
    Date: 2017–06–22
  5. By: Bredtmann, Julia (RWI); Vonnahme, Christina (RWI)
    Abstract: The 2008 alimony reform in Germany considerably reduced post-marital and caregiver alimony. We analyze how individuals adapted to these changed rulings in terms of labor supply, the intra-household allocation of leisure, and marital stability. We use the German Socio-Economic Panel (SOEP) and conduct a difference-in-difference analysis to investigate couples' behavioral responses to the reform. The results do not confirm theoretical expectations from labor supply and household bargaining models. In particular, we do not find evidence that women increase their labor supply as a result of the negative expected income effect. Neither do our results reveal that leisure is shifted from women to men as a response to the changed bargaining positions. In contrast, we find evidence that the reform has led to an increase in the probability to separate for married as opposed to non-married cohabiting couples.
    Keywords: alimony, marital instability, female labor supply, intra-household bargaining
    JEL: J12 J13 J22
    Date: 2017–06
  6. By: Christoph Engel (Max Planck Institute for Research on Collective Goods); Alon Klement (Buchman Faculty of Law, Tel Aviv University); Karen Weinshall Margel (Hebrew University of Jerusalem - Faculty of Law)
    Abstract: In law and economics, it is standard to model legal rules as an opportunity structure. The law’s subjects maximize expected profit, given these constraints. In such a model, the reaction to legal innovation is immediate. This is not what we observe after class action is introduced into Israeli law. For a long time, the new remedy is almost unused. Then the adoption process gains momentum. We discuss alternative options for theorizing the effect. We find that market entry is not only explained by the available information about profitability, but also by the adoption pattern of others. When deciding whether to bring further claims, law firms also react to the experiences they have made themselves. We thus explain the pattern by individual and social learning, and cannot exclude mere social imitation.
    Keywords: Legal Innovation, Diffusion, Imitation, Learning, Class Action
    JEL: D02 D21 D22 D83 K10 K41
    Date: 2017–06
  7. By: Ewan McGaughey
    Abstract: Why do shareholders monopolise voting rights in UK companies, and are trade unions the only way to get meaningful workplace representation? In 1967 a Labour Party policy document first coined the phrase that collective bargaining was – and should be – the 'single channel' of representation. Since then, it has been said the labour movement embraced an 'adversarial' rather than a 'constitutional' conception of corporations, neglecting legal rights to worker voice in enterprise governance. This article shows that matters were not so simple. It explains the substantial history of legal rights to vote in British workplaces, and the competition from the rival constitutional conception: employee share schemes. The UK has the oldest corporations – namely universities – which have consistently embedded worker participation rights in law. Britain has among the world's most sophisticated 'second channel' participation rights in pension board governance. Developing with collective bargaining, it had the world's first private corporations with legal participation rights. Although major plans in the 1920s for codetermination in rail and coal fell through, it maintained a 'third channel' of worker representatives on boards during the 20th century in numerous sectors, including ports, gas, post, steel, and buses. At different points every major political party had general proposals for votes at work. The narrative of the 'single channel' of workplace representation, and an 'adversarial' conception of the company contains some truth, but there has never been one size of regulation for all forms of enterprise.
    Keywords: Participation, labour law, corporate governance, codetermination, collective bargaining, labour law
    JEL: B15 J50 J58 K22 K31
    Date: 2017–03
  8. By: Justine Mallatt
    Abstract: In response to growing abuse of prescription opioid painkillers, 49 U.S. states have implemented electronic prescription drug monitoring programs which record patients into a state-wide system when a prescription opioid is received. In response to low prescriber utilization of the prescription monitoring databases, 12 states passed legislation that strengthened the prescription monitoring programs by legally requiring prescribers to use the systems. This paper uses a di erence-in-di erences regression framework and interactive xed e ects factor models to identify the e ect of the early prescription drug monitoring programs and subsequent legislation that strengthened the programs on the types and strengths of opioid painkiller prescriptions lled and on drug crime rates. The initial implementation of prescription drug monitoring databases caused a decrease in the amount of oxycodone and strong-dose oxycodone among the Medicaid population. PDMPs cause an increase in the number of crime incidents where an o ender is carrying heroin. PDMPs do not a ect the number of drug dealers selling heroin, suggesting a demand-side response, which indicates that abusers of high-dose pills substitute to heroin in response to the additional obstacles a PDMP imposes to obtaining prescription opioids. PDMPs have an ambiguous e ect on illegally obtained prescription opioids because the databases create opposing market forces. There is no evidence that a mandate requiring that prescribers use the PDMP reduces prescriptions further, and no evidence of the mandates a ecting drug crime rates.
    Date: 2017–04
  9. By: Ying Wang; Henry Lahr
    Abstract: We construct a dynamic takeover law index using hand-collected data on legal provisions and empirically examine the effect of takeover regulation to protect shareholders on shareholder wealth for bidders and targets in a multi-country setting. We find that a stricter takeover law increases combined wealth for bidders and targets, which suggests that stronger shareholder protection in the takeover bid process increases the efficiency of the takeover market. Contrary to our hypothesis, results show that stricter takeover law does not hurt bidders. Its effect on target announcement returns and takeover premiums is significantly positive and economically large. Our findings suggest that the mandatory bid rule and ownership disclosure increase synergistic gains in takeovers, whilst the fair-price rule and squeeze-out rights may reduce combined gains. Further results show that increased overall gains can be explained by greater competition in the market for corporate control and a shorter time to successful completion of a takeover under stricter takeover law.
    Keywords: Takeover laws, Mergers and acquisitions, Shareholder protection, Announcement returns, EU takeover directive
    JEL: G32 G34 G38 K22 O16
    Date: 2016–12
  10. By: Zoe Adams; Parisa Bastani; Louise Bishop; Simon Deakin
    Abstract: Leximetric data coding techniques aim to measure cross-national and inter-temporal variations in the content of legal rules, thereby facilitating statistical analysis of legal systems and their social and economic impacts. In this paper we explain how leximetric methods were used to create the CBR Labour Index (CBR-LRI), an index and related dataset of labour laws from around the world spanning the period from 1970 to 2013. Datasets of this kind must, we suggest, observe certain conventions of transparency and validity if they are to be usable in statistical analysis. The theoretical framework informing the construction of the dataset and the types of questions which it is are designed to answer should be made explicit. Then the choices involved in the selection of indicators, the definition of coding algorithms, and the aggregation and weighting of data to create composite measures, must be spelled out. In addition, primary legal sources should be referenced, and it should be clear how they were used to generate reported values. With these points in mind we provide an overview of the CBR-LRI dataset's main features and structure, discuss issues of weighting, and present some initial findings on what it reveals of global trends in labour regulation.
    Keywords: Empirical legal studies, quantitative labour law, leximetrics, index construction, construct validity
    JEL: C43 C82 J83 J88 K31
    Date: 2017–03
  11. By: Enying Zheng; Simon Deakin
    Abstract: This paper analyses the effects of recent laws formalising employment contracts in China, part of a wider policy to normalise features of an emerging market economy. Using a unique hand-collected dataset of 294 industrial injury claims handled by a labour dispute arbitration commission in 2010, we study the impact of having a formal contract on the amount of compensation paid to victims of workplace accidents. An inherent feature of the employment contract under a market economy is its incompleteness: because work-effort bargain and labour capacity cannot be accurately specified ex ante, the employer can expropriate the surplus from production ex post. The legally-driven formalisation of employment contracts is intended to redress this effect by holding the employer to the terms of the parties’ agreement and proving for third party enforcement. Our empirical analysis shows that having a written employment contract makes an injury claim more than twice likely to be arbitrated than mediated, in line with the intended effect of the law, but that it also leads to a reduction of around half in the amount of compensation awarded. Formalisation of employment contracts may reduce employer discretion during the course of the employment relationship, but it also makes it difficult for workers to invoke actual or customary wage levels for the purposes of putting a value on an accident compensation claim, in the face of the formal wage stated in the contract. Formalisation ends up reinforcing the hierarchical power of the employer which is a feature of capitalist work relations.
    Keywords: Contracts; labour valuation; emerging markets; China; injury compensation; wages
    JEL: J41 J83 K31 O43
    Date: 2016–06
  12. By: Amuedo-Dorantes, Catalina (San Diego State University); Arenas-Arroyo, Esther (Queen Mary, University of London)
    Abstract: Tougher immigration enforcement has been responsible for approximately 1.8 million deportations between 2009 and 2013 alone. Children enter the foster care system when their parents are apprehended, deported and unable to care for them. We find that the average increase in interior immigration enforcement over the 2001 through 2015 period contributed to raising the share of Hispanic children in foster care anywhere between 15 and 21 percent. The effects appear to be driven by the implementation of police-based local initiatives linked to deportations, as in the case of the Secure Communities program. Given the revival of police-based immigration enforcement by President Donald Trump, further analyses of its consequences on families are well warranted.
    Keywords: immigration enforcement, unauthorized immigration, foster care, United States
    JEL: J13 J15 K37
    Date: 2017–06
  13. By: Yoon, Haeyeon; Heshmati, Almas
    Abstract: In an attempt to verify the pollution haven hypothesis, this study investigates the impact of environmental regulations on foreign direct investment (FDI). We use Korean outward FDI data covering the manufacturing sector for 2009-15. The study not only considers the stringency but also the enforcement of environmental regulations when measuring the degree of the host country’s environmental regulations. Since the pollution haven’s effects indicate moving the polluting production stages from the home country to other (host) countries, we distinguish between investments in the ‘production’ part from that in the non-production part using location information about the host country. The main results of the estimation of a FDI model show that the stricter the regulations in host countries in Asia the lower the FDI both intensively and extensively to those countries. This supports the prevalence of the effects of pollution havens. However, before we separate the FDI into the production part, the effect of environmental regulations on FDI is hindered by the FDI in the non-production part. The results indicate that environmental regulations are determinants of FDI in the production part, while environmental regulations do not have a significant effect on FDI decisions when the entire FDI is considered.
    Keywords: Pollution haven hypothesis,environmental regulation,foreign direct investment
    JEL: F23 K32 L51 Q56
    Date: 2017
  14. By: Ding Chen; Simon Deakin; Mathias Siems; Boya Wang
    Abstract: China’s rapid growth in the absence of autonomous legal institutions of the kind found in the west appears to pose a problem for theories which stress the importance of law for economic development. In this paper we draw on interviews with lawyers, entrepreneurs and financial market actors to illustrate the complexity of attitudes to law and economic growth in contemporary China. In the case of product markets, business relations are increasingly characterised by a mix of trust-based transacting and legal formality which is not fundamentally different from practice in the west. Financial markets are less like their western counterparts, thanks to the preponderant role of government in asset allocation, and a lack of transparency in market pricing. However, in both sets of markets we find evidence of a transition from inter-personal trust (guanxi) to impersonal transacting, and of growing demands from business and legal groups for the impartial application of legal rules and market regulations. China’s experience does not suggest that law is irrelevant or unrelated to growth, but that legal and economic institutions coevolve in the transition from central planning to a market economy.
    Keywords: Chinese law; new institutional economics; law and finance; law and development; guanxi
    JEL: G38 K12 K22
    Date: 2016–12
  15. By: Simon Deakin
    Abstract: A review of theoretical, historical and quantitative empirical research on the economic effects of labour laws suggests that worker-protective labour regulation generates net positive outcomes for development and growth. Labour law should be seen as a developmental institution which has a symbiotic relationship to the rise of capitalism in the global north and is part of the transition to a market economy being experienced by today's low- and middle-income countries. Claims made for the desuetude of labour law's core mechanisms, including the standard employment relationship, are not borne about by recent evidence. The complex role played by labour regulation in the dynamics of capitalism would repay further investigation.
    Keywords: Labour law, development, growth, inequality, leximetrics
    JEL: J41 J83 K31 O43
    Date: 2016–03
  16. 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 analysis of the determinants of the shadow economy. Using data for the United States over the years 1870–2014 we examine economic and political factors driving the underground sector. Results show that among the economic factors, greater economic prosperity increased the shadow sector, while greater openness to trade and a bigger government reduced it, with the effects of inflation being statistically insignificant. Politically, the efficacy of presidential vetoes and the effect of congressional party homogeneity are statistically insignificant. Further, the U.S. shadow economy increased during both world wars, but was lower during the great depression. However, in the short run, the relationship between the shadow economy and its determinants exhibit some remarkable differences.
    Keywords: shadow economy, underground economy, determinants, taxation, inflation, openness, world war, great depression
    JEL: H26 K42
    Date: 2017–06

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