nep-law New Economics Papers
on Law and Economics
Issue of 2017‒10‒15
nineteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Optimal Regulation with Exemptions By Louis Kaplow
  2. Tony Lawson's Theory of the Corporation: Towards a Social Ontology of Law By Simon Deakin
  3. Injunctions against false advertising By Baumann, Florian; Rasch, Alexander
  4. Entry and Merger Policy By Jaunaux, Laure; Lefouili, Yassine; Sand-Zantman, Wilfried
  5. The Law and Economics of List Price Collusion By Willem Boshoff; Johannes Paha
  6. Civil Asset Forfeiture, Crime, and Police Incentives: Evidence from the Comprehensive Crime Control Act of 1984 By Shawn Kantor; Carl Kitchens; Steven Pawlowski
  7. The Independence of Prosecutors and Government Accountability By Gutmann, Jerg; Voigt, Stefan
  8. Lowering the minimum age of criminal responsibility: Consequences for juvenile crime and education By Anna Piil Damm; Britt Østergaard Larsen; Helena Skyt Nielsen; Marianne Simonsen
  9. Minority share acquisitions and collusion: Evidence from the introduction of national leniency programs By Heim, Sven; Hüschelrath, Kai; Laitenberger, Ulrich; Spiegel, Yossi
  10. Democratic Involvement and Immigrants’ Compliance with the Law By Slotwinski, Michaela; Stutzer, Alois; Gorinas, Cédric
  11. An economic approach on imprisonment of second-instance convicts: the case of Brazil By Justus, Marcelo; Conti, Thomas Victor
  12. The application of competition policy vis-à-vis intellectual property rights: The evolution of thought underlying policy change By Anderson, Robert D.; Kovacic, William E.
  13. Bankruptcy and the Cost of Organized Labor: Evidence from Union Elections By Murillo Campello; Janet Gao; Jiaping Qiu; Yue Zhang
  14. Competition, collusion and spatial sales patterns: Theory and evidence By Hunold, Matthias; Hüschelrath, Kai; Laitenberger, Ulrich; Muthers, Johannes
  15. What past U.S. agency actions say about complexity in merger remedies, with an application to generic drug divestitures By Emch, Eric; Jeitschko, Thomas D.; Zhou, Arthur
  16. Does Efficiency Trump Legality? The Case of the German Constitutional Court By Christoph Engel
  17. Norms and Reform: Legalizing Homosexuality Improves Attitudes By Charles Kenny; Dev Patel
  18. Remarks on the German Regulation of Crowdfunding By Tröger, Tobias H.
  19. Is Pollution Value-Maximizing? The DuPont Case By Roy Shapira; Luigi Zingales

  1. By: Louis Kaplow
    Abstract: Despite decades of research on mechanism design and on many practical aspects of cost-benefit analysis, one of the most basic and ubiquitous features of regulation as actually implemented throughout the world has received little theoretical attention: exemptions for small firms. These firms may generate a disproportionate share of harm due to their being exempt and because exemption induces additional harmful activity to be channeled their way. This article analyzes optimal regulation with exemptions where firms have different productivities that are unobservable to the regulator, regulated and unregulated output each cause harm although at different levels, and the regulatory regime affects entry as well as the output choices of regulated and unregulated firms. In many settings, optimal schemes involve subtle effects and have counterintuitive features: for example, higher regulatory costs need not favor higher exemptions, and the incentives of firms to drop output to become exempt can be too weak as well as too strong. A final section examines the optimal use of output taxation alongside regulation, which illustrates the contrast with the mechanism design approach that analyzes the optimal use of instruments of a type that are not in widespread use.
    JEL: D61 D62 H23 J88 K20 K23 K32 K42 L51 Q58
    Date: 2017–09
  2. By: Simon Deakin
    Abstract: In his account of the corporation as a 'community', Tony Lawson advances a materialist theory of social reality to argue for the existence of emergent social structures based on collective practices and behaviours, distinguishing his position from John Searle's theory of social reality as consisting of declarative speech acts. Lawson's and Searle's accounts are examined for what they imply about the relationship between social structures and legal concepts. It is argued that legal concepts are themselves a feature of social reality and that a consequence of the law's recognition of the 'reality' of the corporation is to open up the activities of business firm to a distinct form of normative ordering.
    Keywords: social ontology, the corporation, legal evolution
    JEL: B52 K22
    Date: 2017–06
  3. By: Baumann, Florian; Rasch, Alexander
    Abstract: We consider a situation of duopolistic competition in which one firm may (falsely) advertise high product quality. Consumers are heterogeneous. One group forms rational beliefs about quality, whereas some consumers are naive and fully trust any advertisement. We compare two scenarios in which either the competitor or a government agency can file an injunction suit. From a welfare perspective, we show that it may be optimal either to have the competitor or the government agency as plaintiff.
    JEL: K41 K42 L13 L15
    Date: 2017
  4. By: Jaunaux, Laure; Lefouili, Yassine; Sand-Zantman, Wilfried
    Abstract: This note examines the optimal merger policy when competition authorities take into account the e¤ects of their policy on firms'entry decisions. We consider a model featuring ex ante uncertainty about profits and consumer surplus, and derive a simple rule governing the optimal policy in that context. More specifically, we show that the ratio between the loss in ex post consumer surplus and the gain in an entrant's profit induced by an ex post anticompetitive merger is a sufficient statistic to determine when competition authorities should be more lenient. Our findings imply in particular that competition authorities may find it optimal to commit to being more lenient towards successful, rather than unsuccessful, entrants.
    Keywords: Merger Policy; Entry; Uncertainty
    JEL: K21 L13 L40
    Date: 2017–10
  5. By: Willem Boshoff (Stellenbosch University); Johannes Paha (Justus-Liebig-University Giessen)
    Abstract: Firms sometimes violate competition laws by agreeing on increases of list prices. The economic effects of such list price collusion are far from clear because the cartel firms might deviate secretly from the elevated prices by granting their customers discounts. This article presents case evidence suggesting that agreements on list prices are not infrequently observed in cartel cases. It also reviews theoretical, empirical, and experimental literature in economics showing under what conditions such list price collusion causes the discounted transaction prices to rise. This is relevant for competition authorities in developing a theory of harm when prosecuting cartels, and also for the customers of the cartel firms when suing the conspirators for the repayment of damages.
    JEL: D43 K21 L41
    Date: 2017
  6. By: Shawn Kantor; Carl Kitchens; Steven Pawlowski
    Abstract: The 1984 federal Comprehensive Crime Control Act (CCCA) included a provision that permitted local law enforcement agencies to share up to 80 percent of the proceeds derived from civil asset forfeitures obtained in joint operations with federal authorities. This procedure became known as “equitable sharing.” In this paper we investigate how this rule governing forfeited assets influenced crime and police incentives by taking advantage of pre-existing differences in state level civil asset forfeiture law and the timing of the CCCA. We find that after the CCCA was enacted crime fell about 17 percent in places where the federal law allowed police to retain more of their seized assets than state law previously allowed. Equitable sharing also led police agencies to reallocate their effort toward the policing of drug crimes. We estimate that drug arrests increased by about 37 percent in the years after the enactment of the CCCA, indicating that it was profitable for police agencies to reallocate their efforts. Such a reallocation of effort, however, brought an unintended cost in the form of increased roadway fatalities, seemingly from reduced enforcement of traffic laws.
    JEL: K42
    Date: 2017–09
  7. By: Gutmann, Jerg; Voigt, Stefan
    Abstract: Prosecutors are immensely influential in every judicial system, yet very little is known about the impact of their organization. Here we ask two questions: (1) whether crimes committed by public officials are more likely to be prosecuted when prosecutors are independent, and (2) whether this effect depends on the integrity of the prosecutors themselves. We employ a novel indicator for prosecutorial independence based on data from the World Justice Project to answer these questions. We find that prosecutorial independence favors the prosecution of different types of public officials and this effect is conditional on the level of prosecutorial corruption. For police officers, we find that prosecutorial independence is not decisive, but prosecutorial corruption matters for whether suspected misconduct is likely to be prosecuted.
    Keywords: Prosecutorial Independence,Prosecutorial Corruption,Government Accountability
    JEL: D73 H11 K40 K42
    Date: 2017
  8. By: Anna Piil Damm (Department of Economics and Business Economics, Aarhus University, Denmark); Britt Østergaard Larsen (The Danish Centre for Applied Social Science); Helena Skyt Nielsen (Department of Economics and Business Economics, Aarhus University, Denmark); Marianne Simonsen (Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: This paper exploits a Danish policy reform combined with population-wide administrative registers to investigate whether being above the minimum age of criminal responsibility deters juveniles from crime. We study young individuals’ tendency to commit crime as well as their likelihood of recidivism by exploiting police records on offenses committed by the population of children and youth, including those below the minimum age of criminal responsibility. The reform lowered the minimum age of criminal responsibility from 15 to 14 years. We find that the reform did not deter 14-year-olds from committing crime. Moreover, conditional on committing crime in the first place, youths affected by the lower minimum age of criminal responsibility were more likely to recidivate and less likely to be enrolled in the 9th grade, just as they have lower grades at the 9th grade exit exam, conditional on participating. The latter results are consistent with labeling effects of processing in the criminal justice system.
    Keywords: Juvenile delinquency, sanctions, general deterrence, individual deterrence, labeling effects
    JEL: K14 K42 I21
    Date: 2017–10–12
  9. By: Heim, Sven; Hüschelrath, Kai; Laitenberger, Ulrich; Spiegel, Yossi
    Abstract: There is a growing concern that minority shareholding (MS) in rival firms may facilitate collusion. To examine this concern, we exploit the fact that leniency programs (LPs) are generally recognized as a shock that destabilizes collusive agreements and study the effect that the introduction of an LP has on horizontal MS acquisitions. Using data from 63 countries over the period 1990-2013, we find a large increase in horizontal MS acquisitions in the year in which an LP is introduced, especially in large rivals. The effect is present however only in countries with an effective antitrust enforcement and low levels of corruption and only when the acquisitions involve stakes of 10%-20%. These results suggest that MS acquisitions may stabilize collusive agreements that were destabilized by the introduction of the LP.
    Keywords: minority shareholdings,collusion,leniency programs,cartel stability
    JEL: G34 K21 L41
    Date: 2017
  10. By: Slotwinski, Michaela; Stutzer, Alois; Gorinas, Cédric
    Abstract: In the face of migration and concerns about integration, we investigate how the right to vote in local elections affects immigrants’ compliance with the law. In our study for Denmark, we exploit an institutional regulation that grants foreigners local voting rights after three years of stay. Relying on register data, we find causal evidence that the first possibility to vote considerably reduces the number of legal offenses of non-Western male immigrants in the time after elections.
    JEL: D02 K42 J15
    Date: 2017
  11. By: Justus, Marcelo; Conti, Thomas Victor
    Abstract: On October 5, 2016, the Brazilian Federal Supreme Court decided that imprisonment of convicts in second-instance before the res judicata does not affect article 283 of the Penal Code. The objective of this study is to analyze, without judging the constitutionality of the novel juridical act, the hypothesis that “the possibility of imprisonment of convicts in second instance was a correct decision to reduce crime and its social cost”. This hypothesis is not rejected pursuant to the economic theory of crime.
    Keywords: Deterrence effect; Law and economics; Social cost
    JEL: K4 K41 K42
    Date: 2017
  12. By: Anderson, Robert D.; Kovacic, William E.
    Abstract: This paper examines the evolution of national competition (antitrust) policies and enforcement approaches vis-à-vis intellectual property rights (IPRs) and associated anti-competitive practices in major jurisdictions over the past several decades. It focuses especially on the underlying process of economic learning that has, the authors suggest, driven relevant policy changes. Part 2 of the paper outlines the breakthroughs in understanding that have underpinned the evolution of competition policy approaches toward intellectual property licensing arrangements in the US, Canada and the EU. Part 3 elaborates the foundational insights that have motivated competition policy interventions with respect to 'newer' issues such as anti-competitive patent settlements and hold-ups in relation to standard setting processes, in addition to the modern focus on mergers that potentially lessen incentives for innovation and on abuse of dominance/single firm exclusionary practices in IP-intensive network industries. Part 4 outlines some of the core policy concerns and insights driving the increased emphasis that leading competition authorities now devote to policy advocacy and research in relation to the scope and definition of IP rights. Overall, the analysis suggests, firstly, that competition policy applications in the intellectual property sphere are matters of fundamental importance for economic advancement and prosperity, having a direct bearing on innovation, growth and the diffusion of new technologies. Indeed, the roles of IP and competition policy are now sufficiently intertwined and interdependent that neither can be well understood or applied in an optimal fashion in the absence of the other. Secondly, the thought evolution described herein implies that successful policy applications require careful study of market structure and behaviour, not in the abstract but with reference to the particular markets affected. Thirdly, it augurs favourably for the prospects of continuing gradual and incremental convergence in national approaches in this area, even spanning developed and developing countries, on the basis of continual learning and informed self-interest.
    Keywords: intellectual property,patents,international trade and competition policy,antitrust,innovation,mergers,anti-competitive settlements,standards,network industries,competition advocacy
    JEL: K21 L4 L41 L43 O3 O34
    Date: 2017
  13. By: Murillo Campello; Janet Gao; Jiaping Qiu; Yue Zhang
    Abstract: Unionized workers are entitled to special treatment in bankruptcy court. This can be detrimental to other corporate stakeholders in default states, with unsecured creditors standing to lose the most. Using data on union elections covering several decades, we employ a regression discontinuity design to identify the effect of worker unionization on bondholders in bankruptcy states. Closely won union elections lead to significant bond value losses, especially when firms approach bankruptcy, have underfunded pension plans, and operate in non-RTW law states. Unionization is associated with longer, more convoluted, and costlier bankruptcy court proceedings. Unions further depress bondholders' recovery values as they are assigned seats on unsecured creditors' committees.
    JEL: G32 G33 J51
    Date: 2017–09
  14. By: Hunold, Matthias; Hüschelrath, Kai; Laitenberger, Ulrich; Muthers, Johannes
    Abstract: We study competition in markets with significant transport costs and capacity constraints. We compare the cases of price competition and coordination in a theoretical model and find that when firms compete, they more often serve more distant customers that are closer to plants of competitors. By means of a rich micro-level data set of the cement industry in Germany, we provide empirical evidence in support of this result. Controlling for other potentially confounding factors, such as the number of production plants and demand, we find that the transport distances between suppliers and customers were on average significantly lower in cartel years than in non-cartel years.
    Keywords: capacity constraints,cartel,cement,transport costs
    JEL: K21 L11 L41 L61
    Date: 2017
  15. By: Emch, Eric; Jeitschko, Thomas D.; Zhou, Arthur
    Abstract: We consider merger remedies of the U.S. Department of Justice's Antitrust Division and the U.S. Federal Trade Commission between 2008 and 2017. Traditionally one distinguishes between structural and behavioral remedies' and structural remedies are generally considered to be more effective and easier to implement. Our analysis suggests that over time this distinction has become somewhat blurred and a better gradation of remedies may be tied to the complexity of the proposed remedy. Divestitures in the market for generic drugs, in particular, are particularly complex, even though the remedies are of a structural, and so their efficacy is hard to ascertain.
    Keywords: Antitrust,Mergers,Structural Remedies,Behavioral Remedies,U.S. Enforcement
    Date: 2017
  16. By: Christoph Engel (Max Planck Institute for Research on Collective Goods)
    Abstract: The US Supreme Court has the power of certiorari. It may pick its fights. As a beneficial side effect, the court may allocate its resources, in particular the time and energy the justices spend on a case, to worthy causes. In economic parlance, this discretion makes the court more efficient. Efficiency comes at a political cost, though. This discretion also gives the court political power. It may direct its verdict to causes that are politically most relevant, or it may put an issue on the political agenda. Officially German constitutional law does not have certiorari. The Constitutional Court must decide each and every case that is brought. Yet over time the court has crafted a whole arsenal of more subtle measures for managing the case load. This paper shows that it uses these tools to engage in its version of allocating resources to cases. It investigates whether the ensuing efficiency gain comes at the cost of biasing the court’s jurisprudence. The paper exploits a new comprehensive data set. It consists of all (mostly only electronically) published cases the court has heard in 2011. While the data is rich, in many technical ways it is demanding. The paper uses a factor analysis to create a latent variable: to which degree has the court taken an individual case seriously? It then investigates whether observed indicators for bias explain this latent variable. Since the paper essentially investigates a single (independent) case, in statistical terms the findings are to be interpreted with caution. The paper can only aim at finding smoking guns.
    Keywords: German Constitutional Court, Efficiency, Case Load, Discretion, Bias
    JEL: C10 C81 D73 H11 D78 K41
    Date: 2017–09
  17. By: Charles Kenny (Center for Global Development); Dev Patel (Center for Global Development)
    Abstract: This analysis examines the relationship between legal reform and social norms surrounding homosexuality. We document three main findings. First, about a fifth of the variation in individual preferences can be explained at a country level. Second, using a difference-in-differences strategy, legalizing homosexuality improves how individuals view the tone of their communities. Third, we provide further evidence supporting a legal origins argument by examining former colonies. Countries that were colonized by the British Empire have significantly worse legal rights for same-sex couples than those under other colonial powers. We conclude that adopting legal reform can improve societal attitudes.
    Keywords: Homosexuality, Legal Reform, Social Norms, Colonialism
    JEL: J16
  18. By: Tröger, Tobias H.
    Abstract: Crowdfunding is a buzzword that signifies a sub-set in the new forms of finance facilitated by advances in information technology usually categorized as fintech. Concerns for financial stability, investor and consumer protection, or the prevention of money laundering or funding of terrorism hinge incrementally on including the new techniques to initiate financing relationships adequately in the regulatory framework. This paper analyzes the German regulation of crowdinvesting and finds that it does not fully live up to the regulatory challenges posed by this novel form of digitized matching of supply and demand on capital markets. It should better reflect the key importance of crowdinvesting platforms, which may become critical providers of market infrastructure in the not too distant future. Moreover, platforms can play an important role in investor protection that cannot be performed by traditional disclosure regimes geared towards more seasoned issuers. Against this background, the creation of an exemption from the traditional prospectus regime seems to be a plausible policy choice. However, it needs to be complemented by an adequate regulatory stimulation of platforms' role as gatekeepers.
    Keywords: crowdinvesting,crowdfunding,fintech,financial stability,market infrastructure,investor protection
    JEL: G23 G28 G38 K22 K23
    Date: 2017
  19. By: Roy Shapira; Luigi Zingales
    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 polluting was a rational decision: under reasonable probabilities of detection, polluting was ex-ante optimal from the company’s perspective, even if the cost of preventing pollution was lower than the cost of the health damages produced. We then examine why different mechanisms of control – legal liability, regulation, and reputation – all failed to deter a behavior that was inefficient from a social point of view. 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.
    JEL: K32 L21 Q52
    Date: 2017–09

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