nep-law New Economics Papers
on Law and Economics
Issue of 2017‒09‒17
six papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The effect of horizontal mergers, when firms compete in prices and investments By Massimo Motta; Emanuele Tarantino
  2. Do Speed Cameras Save Lives? By Cheng Keat Tang
  3. Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism? By Friedrich Schneider
  4. Watching India's insolvency reforms: A New dataset of insolvency cases By Sreyan Chatterjee; Gausia Shaikh; Bhargavi Zaveri
  5. Partial Cartels and Mergers with Heterogeneous Firms : Experimental Evidence By Gomez Martinez, Francisco
  6. Debtor-in-possession financing and credit priority: the effects of the preferential status granted by law in a composition with creditors By Elisa Brodi; Luca Casolaro

  1. By: Massimo Motta; Emanuele Tarantino
    Abstract: It has been suggested that mergers, by increasing concentration, raise incentives to invest and hence are pro-competitive. To study the effects of mergers, we rewrite a game with simultaneous price and cost-reducing investment choices as one where firms only choose prices, and make use of aggregative game theory. We find no support for that claim: absent efficiency gains, the merger lowers total investments and consumer surplus. Only if it entails sufficient efficiency gains, will it be pro-competitive. We also show there exist classes of models for which the results obtained with cost-reducing investments are equivalent to those with quality-enhancing investments.
    Keywords: Horizontal mergers, innovation, investments, network-sharing agreements, competition.
    JEL: K22 D43 L13 L41
    Date: 2017–08
  2. By: Cheng Keat Tang
    Abstract: I evaluate whether speed enforcement cameras reduce the number and severity of traffic accidents by penalizing drivers for exceeding speed limits. Relying on micro data on accidents and speed cameras across Great Britain, I find that installing these devices significantly enhance road safety. Putting another 1,000 cameras reduce around 1130 collisions, 330 serious injuries, and save 190 lives annually, generating net benefits of around £21 million. However, these effects are highly localised around the camera and dissipate over distance, and there is suggestive evidence of more collisions away from the camera, illustrating the possible limitations associated with fixed speed cameras.
    Keywords: accidents, injuries, fatalities, speed camera, speeding
    JEL: H23 I18 R41
    Date: 2017–09
  3. By: Friedrich Schneider
    Abstract: This paper has four goals: First, the use of cash as a possible driving factor of the shadow economy is investigated. Second, the use of cash in crime, here especially in corruption, is also econometrically investigated. The influence is somewhat larger than on the shadow economy, but it is certainly not a decisive factor for bribery activities. Some figures about organized crime are also shown; the importance of cash is diminishing. Third, some remarks about terrorism are made and here a cash limit doesn’t prevent terrorism. Fourth, some remarks are made about the restriction or abolishment of cash on civil liberties, with the result that this will extremely limit them. The conclusion of this paper is that cash has a minor influence on the shadow economy, crime and terrorism, but potentially a major influence on civil liberties.
    Keywords: cash, cash limit, shadow economy, crime, corruption, transnational crime organizations, financial proceeds, money laundering, illegal cross-border flows, tax fraud figures.
    Date: 2017–04
  4. By: Sreyan Chatterjee (Indira Gandhi Institute of Development Research); Gausia Shaikh (Indira Gandhi Institute of Development Research); Bhargavi Zaveri (Indira Gandhi Institute of Development Research)
    Abstract: In this paper, we introduce a new dataset of orders passed by the National Company Law Tribunal (NCLT) in the insolvency cases under the Insolvency and Bankruptcy Code or IBC. We build this dataset to attempt an empirical analysis of the economic effect of the IBC and the performance of the judiciary under the IBC. There are 23 fields of information recorded in the dataset for each case. We analyse orders passed during the first six months of operationalisation of the provisions of the IBC to answer questions such as who are the initial users of the insolvency process under the IBC, what kind of evidence are they using to support their claims before the NCLT, what is the average time taken by the NCLT to dispose off insolvency cases, what is the outcome of the proceedings and is there variation between the benches. Within this limited dataset and within such a short time from the passing of the law, we find behavioural shifts among credit market participants. As the insolvency cases increase, this data set will too increase in scope and size and will form the foundation to answer questions relating to the impact of the IBC and the overall functioning of the Indian bankruptcy regime.
    JEL: K10 K40 K41 K42 Y10
    Date: 2017–08
  5. By: Gomez Martinez, Francisco
    Abstract: A usual assumption in the theory of collusion is that cartels are all-inclusive. In contrast, most real- world collusive agreements do not include all firms that are active in the relevant industry. This paper studies both theoretically and experimentally the formation and behavior of partial cartels. The theoretical model is a variation of Bos and Harrington's (2010) model where firms are heterogeneous in terms of production capacities and where individual cartel participation is endogenized. The experimental study has two main objectives. The first goal is examine whether partial cartels emerge in the lab at all, and if so, which firms are part of it. The second aim of the experiment is to study the coordinated effects of a merger when partial cartels are likely to operate. The experimental results can be summarized as follows. We find that cartels are typically not all-inclusive and that various types of partial cartels emerge. We observe that market prices decrease by 20% on average after a merger. Our findings suggest that merger analysis that is based on the assumption that only full cartels forms produces misleading results. Our analysis also illustrates how merger simulations in the lab can be seen as a useful tool for competition authorities to back up merger decisions.
    Keywords: Experiments; Mergers; Cartels; Bertrand oligopoly
    JEL: G34 L44 L41 L13 C92
    Date: 2017–08–01
  6. By: Elisa Brodi (Bank of Italy); Luca Casolaro (Bank of Italy)
    Abstract: The work evaluates from a legal and economic perspective a number of provisions designed to promote debtor-in-possession financing to firms involved in a composition with creditors (concordato preventivo). Since 2010, several reforms have progressively extended the scope of preferential status for such credits. The research focuses on loans granted by professional lenders to firms whose composition plans were approved by the courts between 2006 and 2014. The econometric analysis shows that the measures have reduced the credit restriction (by 2 percentage points) and lowered its cost (with interest rates falling on average by 40 basis points). This outcome is mostly due to the liquidity provided by lenders that were not previously exposed to the distressed firm. However, some legal obstacles – such as, for instance, the possibility of the preferential status being reversed if a bankruptcy proceeding is initiated – could prevent further funds from being provided.
    Keywords: composition with creditors, credit, public policy evaluation, business crisis, credit priority
    JEL: D78 G21 G33 K22
    Date: 2017–09

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