nep-law New Economics Papers
on Law and Economics
Issue of 2017‒10‒01
fourteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Thou shalt not steal. Taking aversion with legal property claims By Marco Faillo; Matteo Rizzolli; Stephan Tontrup
  2. Contingent Judicial Deference: theory and application to usury laws By Bernardo Guimarae; Bruno Meyerhof Salama
  3. Exploring the Nexus between Certainty in Injury Compensation and Treatment Selection By Paola Bertoli; Veronica Grembi
  4. Did the establishment of specialised courts affect the frequency of business bankruptcy petitions in Spain? By Claudio Detotto; Laura Serra; Marco Vannini
  5. Abuse of Dominance and Antitrust Enforcement in the German Electricity Market By Tomaso Duso; Florian Szücs; Veit Böckers
  6. Search Engines and Data Retention: Implications for Privacy and Antitrust By Lesley Chiou; Catherine Tucker
  7. Is Pollution Value-Maximizing? The DuPont Case By Shapira, Roy; Zingales, Luigi
  8. Do Non-Compete Covenants Influence State Startup Activity? Evidence from the Michigan Experiment By Carlino, Gerald A.
  9. Arbitration and Renegotiation in Trade Agreements By Mostafa Beshkar; Jee-Hyeong Park
  10. Eliciting Guilt Sensitivity to Predict Real-World Behavior By Shoji, Masahiro
  11. Merger Paradox in a Network Product Market: A Horizontally Differentiated Three-Firm Model By Tsuyoshi Toshimitsu
  12. "Optimization of Exclusive Economic Zone to Maintain and Protect Marine Natural Resources for the Welfare of the People of Indonesia" By Indien Winarwati
  13. The Impact of State Medical Marijuana Laws on Social Security Disability Insurance and Workers' Compensation Benefit Claiming By Johanna Catherine Maclean; Keshar M. Ghimire; Lauren Hersch Nicholas
  14. Changes in Corporate Governance and Top Executive Turnover: The Evidence from Japan By Hideaki Miyajima; Ryo Ogawa; Takuji Saito

  1. By: Marco Faillo (University of Trento); Matteo Rizzolli (LUMSA University); Stephan Tontrup (New York University)
    Abstract: Abstract Some recent experimental literature on the taking game (a variation of the dictator game) suggests that human subjects may generally be taking averse, implying that the moral cost of taking exceeds the moral cost of not giving. In our experiment, our subjects could decide to take tangible objects (lottery scratchcards) brought from outside the lab and thus legally owned by other subjects. This legal treatment was compared with a more standard one where subjects earned their scratchcards inside the lab. Evidence is provided of a (weak) taking aversion that is greater when property is established inside the lab via an effort task than when it is pre-existing and legally enforceable outside the lab
    Keywords: property rights, dictator game, bully game, taking game, taking aversion, stealing, anonymity, effort, scratchcards.
    JEL: C91 D23 K11 P14 P26
    Date: 2017–09
  2. By: Bernardo Guimarae (Centre for Macroeconomics (CFM); Sao Paulo School of Economics); Bruno Meyerhof Salama (Sao Paulo School of Economics)
    Abstract: Legislation is less likely to be enforced when courts disagree with it. Building on this premise, we propose a model of Bayesian adjudicators that use their own prior knowledge to evaluate the appropriateness of legislation. The model yields a non-monotonic relation between written rules and effectively enforced rules. Hence the enactment of legislation prohibiting something raises the probability that courts will allow related things not expressly forbidden. Moreover, legal uncertainty is greater with legislation that commands little deference from courts than with legislation that commands none. We discuss examples of effects of legislated prohibitions (and, in particular, usury laws) that are consistent with the model.
    Keywords: Adjudication, Courts, Prohibitions, Interest rate cap
    JEL: K41 K22 K12 G21
    Date: 2017–09
  3. By: Paola Bertoli; Veronica Grembi
    Abstract: We study how legal and financial incentives affect medical decisions. Using patient-level data, we identify the effect of a change in medical liability pressure exploiting the geographical distribution of hospitals across court districts, where some districts improve the certainty of expected damages per injury while others do not. As certainty increases, unnecessary c-sections increase by 20%. This increase is higher for hospitals with lower quality, farther from consumers associations, facing lower expected damages, and paid more per c-section. Combining the difference-in- difference with a regression discontinuity design, we show that the effect is already detectable in the short-run.
    Keywords: scheduled damages; Cesarean sections; difference in difference
    JEL: K13 K32 I13
    Date: 2017–08
  4. By: Claudio Detotto (Laboratoire Lieux, Identités, eSpaces et Activités (LISA)); Laura Serra (IMIM (Hospital del Mar Medical Research Institute)); Marco Vannini (University of Sassari (Italy) & CRENoS (Italy))
    Abstract: Spanish small businesses rarely file for bankruptcy, and Spanish bankruptcy rates are among the smallest in the world. The historical inadequacy of the Spanish insolvency system has led most enterprises to rely on the de facto alternative mortgage system, which implies, among other things, overinvestment by debtors in fixed tangible assets. This latter effect can be particularly detrimental to the enabling environment of novel entrepreneurship. It is therefore of interest to examine whether the change in the bankruptcy regime that took place in Spain some ten years ago, with the establishment of specialised commercial courts (Juzgados de lo Mercantil), had any positive effect on bankruptcy rates. In this paper, the staggered timing of the new courts establishment is exploited in order to estimate an endogenous treatment model with a binary policy variable. The results support the direction of the reform, but the size of the estimated parameter suggests further efforts in that direction.
    Keywords: bankruptcy, commercial courts, endogenous treatment effects, Spain
    JEL: C31 C33 G33 K2
    Date: 2017–09
  5. By: Tomaso Duso; Florian Szücs; Veit Böckers
    Abstract: In 2008, the European Commission investigated E.ON, a large and vertically integrated electricity company, for the alleged abuse of a joint dominant position by strategically withholding generation capacity. The case was settled after E.ON agreed to divest 5,000 MW generation capacity as well as its extra-high voltage network. We analyze the effect of these divestitures on German wholesale electricity prices. Our identification strategy is based on the observation that energy suppliers have more market power during peak periods when demand is high. Therefore, a decrease in market power should lead to convergence between peak and off-peak prices. Using daily electricity prices for the 2006 - 2012 period and controlling for cost and demand drivers, we find economically and statistically significant convergence effects after the implementation of the Commission’s decision. Furthermore, the price reductions appear to be mostly due to the divestiture of gas and coal plants, which is consistent with merit-order considerations. Placebo regressions support a causal interpretation of our results.
    Keywords: Electricity, wholesale prices, EU Commission, abuse of dominance, ex post evaluation, E.ON
    JEL: K21 L41 L94
    Date: 2017
  6. By: Lesley Chiou; Catherine Tucker
    Abstract: This paper investigates whether larger quantities of historical data affect a firm's ability to maintain market share in Internet search. We study whether the length of time that search engines retained their server logs affected the apparent accuracy of subsequent searches. Our analysis exploits changes in these policies prompted by the actions of policymakers. We find little empirical evidence that reducing the length of storage of past search engine searches affected the accuracy of search. Our results suggest that the possession of historical data confers less of an advantage in market share than is sometimes supposed. Our results also suggest that limits on data retention may impose fewer costs in instances where overly long data retention leads to privacy concerns such as an individual's ``right to be forgotten."
    JEL: K21 K40
    Date: 2017–09
  7. By: Shapira, Roy; Zingales, Luigi
    Abstract: DuPont, one of the most respectable U.S. companies, caused environmental damage that ended up costing the company around a billion dollars. By using internal company documents disclosed in trials we rule out the possibilities that this bad outcome was due to ignorance, an unexpected realization, or a problem of bad governance. The documents rather suggest that the harmful pollution was a rational decision: under reasonable probabilities of detection, polluting was ex-ante optimal from the company's perspective, albeit a very harmful decision from a societal perspective. We then examine why different mechanisms of control - legal liability, regulation, and reputation - all failed to deter socially harmful behavior. One common reason for the failures of deterrence mechanisms is that the company controls most of the information and its release. We then sketch potential ways to mitigate this problem.
    Keywords: Environmental Regulation; Firm Objectives; pollution
    JEL: K32 L21 Q52
    Date: 2017–09
  8. By: Carlino, Gerald A. (Federal Reserve Bank of Philadelphia)
    Abstract: This paper examines how the enforceability of employee non-compete agreements affects the entry of new establishments and jobs created by these new firms. We use a panel of startup activity for the U.S. states for the period 1977 to 2013. We exploit Michigan’s inadvertent policy reversal in 1985 that transformed the state from a non-enforcing to an enforcing state as a quasi-natural experiment to estimate the causal effect of enforcement on startup activity. Our findings offer little support for the widely held view that enforcement of non-compete agreements negatively affects the entry rate of new firms or the rate of jobs created by new firms. In a difference-in-difference analysis, we find that a 10 percent increase in enforcement led to an increase of about 1 percent to about 3 percent in the startup job creation rate in Michigan and, in general, to essentially no change in the startup entry rate. Extending our analysis to consider the effect of increased enforcement on patent activity, we find that enforcement had differential effects across technological classifications. Importantly, increased enforcement had a positive and significant effect on the number of quality-adjusted mechanical patents in Michigan, the most important patenting classification in that state.
    Keywords: Startup activity; non-compete agreements; regional economic growth
    JEL: O30 O38 R11
    Date: 2017–09–21
  9. By: Mostafa Beshkar (Indiana University); Jee-Hyeong Park
    Abstract: We analyze a settlement bargaining game in which one player receives a private and noisy signal of another player’s private type, thereby generating second-order uncertainty. Specifically, we develop a pretrial settlement bargaining game on contingent protection between governments in the presence of random and private pressure for protection. When the bargaining is a signaling game, the divine equilibrium entails a fully separating and inefficient action combination. As the quality of noisy signal improves, the likelihood of litigation decreases and the settlement tariff pair moves toward the Paretoefficient frontier. If the noisy signal of types is known to both players prior to the settlement offer stage, eliminating the second-order uncertainty, then the informational value associated with the signal of types completely disappears. For the presence or absence of second-order uncertainty to drastically affect the equilibrium of a settlement bargaining game, the player with private type information should be the one to make an offer.
    Keywords: Dispute Settlement, Second Order Uncertainty
    Date: 2017–09
  10. By: Shoji, Masahiro
    Abstract: This study tests guilt aversion by experimentally eliciting guilt sensitivity of villagers in Bangladesh and evaluating its impact on real-world behavior. In a trust game with hidden action, villagers in this study are asked about their reciprocal behavior toward seven potential opponents with different levels of trusting belief. Guilt sensitivity is elicited from the threshold belief to switch from selfish to reciprocal behavior. It appears that males exhibit higher guilt sensitivity. I also find robust supporting evidence for guilt aversion but not for pure altruism or trustworthiness; guilt-averse villagers can borrow from and repay to community members after a disaster. Individuals also suffer less from property crime in villages with a higher guilt-sensitivity neighborhood. However, guilt sensitivity is uncorrelated with contribution to community events. A potential reason for the insignificant effect is discussed.
    Keywords: Guilt aversion; peer effects; antisocial behavior; experiment; Bangladesh
    JEL: C91 C93
    Date: 2017–09–19
  11. By: Tsuyoshi Toshimitsu (School of Economics, Kwansei Gakuin University)
    Abstract: Using a horizontally differentiated three-firm model, we reconsider the merger paradox and externalities, i.e., the profitability of a merger, in a network product market where network externalities and compatibilities between products exists. Investigating the effect of a merger on the profits of the insider (participant) and outsider (nonparticipant) firms, we demonstrate the conditions under which the merger paradox and externalities arise in the network product market. If the degree of the merger-related network compatibility is sufficiently large, the merger paradox never arises.
    Keywords: merger paradox; network externality; compatibility; horizontal product differentiation; quantity-setting game
    JEL: D43 K21 L13 L14 L15
    Date: 2017–09
  12. By: Indien Winarwati (Faculty of Law, Trunojoyo Madura University, Indonesia.)
    Abstract: "Objective – The purpose of the present study is to determine Indonesia’s efforts to maintain and protect the fishery resources. Methodology/Technique – The present study used the normative juridical research method by researching the literature available. Findings – As stipulated in UNCLOS, the coastal states have rights, jurisdiction and obligations in the exclusive economic zone. Those rights are the rights to exploration and exploitation, conservation and management of natural resources, both living and non-living, of its waters. Novelty – The present study employed the law approach by examining all laws and regulations relating to the legal issues studied. The study suggests that Indonesia can implement and provide legal certainty with regard to maintaining and protecting marine natural (fishery) resources to support the life of the world community, especially the people of Indonesia to achieve social welfare."
    Keywords: Indonesian Sea; Exclusive Economic Zone; Indonesia; Protection; Marine Natural Resources.
    JEL: K32 Q34
    Date: 2017–07–14
  13. By: Johanna Catherine Maclean; Keshar M. Ghimire; Lauren Hersch Nicholas
    Abstract: We study the effect of state medical marijuana laws (MMLs) on Social Security Disability Insurance (SSDI) and Workers' Compensation (WC) claiming. We use data on benefit claiming drawn from the 1990 to 2013 Current Population Survey coupled with a differences-in-differences design. We find that passage of an MML increases SSDI, but not WC, claiming on both the intensive and extensive margins. Post-MML the propensity to claim SSDI increases by 0.27 percentage points (9.9%) and SSDI benefits increase by 2.6%. We identify heterogeneity by age and the manner in which states regulate medical marijuana. Our findings suggest an unintended consequence of MMLs: increased reliance on costly social insurance programs among working age adults.
    JEL: I1 I12 I18 J22
    Date: 2017–09
  14. By: Hideaki Miyajima; Ryo Ogawa; Takuji Saito
    Abstract: We examine the turnover of top executives in Japanese firms throughout the period from 1990 to 2013. During this time, the presence of a main bank has been weakened, the ownership of institutional investors has dramatically increased, and independent outside directors have been introduced in many firms. We find that top executive turnover sensitivity to corporate performance has not changed, although return on equity (ROE) and stock returns displace return on assets (ROA) as performance indicators that turnover is most sensitive to. The evidence also indicates that instead of the main bank, foreign institutional investors have begun to play an important governance role in Japan. However, the main bank does not abandon its governance role. While the scope of the main bank’s authority may have substantially contracted, main banks continue to perform a certain role in disciplining management.
    JEL: G34 G38 K22
    Date: 2017–09

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