nep-law New Economics Papers
on Law and Economics
Issue of 2017‒11‒12
sixteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Marginal Deterrence at Work By Rosario Crinò; Giovanni Immordino; Salvatore Piccolo
  2. Dark web: the economics of online drugs markets By V. Bhaskar; Robin Linacre; Stephen Machin
  3. Can there be benefits from competing legal regimes? The impact of legal pluralism in post-conflict Sierra Leone By Pedro Naso; Erwin Bulte; Tim Swanson
  4. Salience of Law Enforcement: A Field Experiment By Robert Dur; Ben Vollaard
  5. Compensation for Loss of Work Income in Personal Injury Cases By Leif Danziger; Eliakim Katz
  6. Efficient Institutions and Effective Deterrence: On Timing and Uncertainty of Punishment By Johannes Buckenmaier; Eugen Dimant; Ann-Christin Posten; Ulrich Schmidt
  7. Crime and Violence: Desensitization in Victims to Watching Criminal Events By Rafael Di Tella; Lucía Freira; Ramiro H. Gálvez; Ernesto Schargrodsky; Diego Shalom; Mariano Sigman
  8. Taxing high-income earners: Tax avoidance and mobility By Alejandro Esteller-Moré; Amedeo Piolatto; Matthew D. Rablen
  9. Personal Bankruptcy Law and Entrepreneurship By Geraldo Cerqueiro; María Fabiana Penas; Robert Seamans
  10. Exposition to Corruption and Political Participation: Evidence from Italian Municipalities By Tommaso Giommoni
  11. Employment protection legislation andmismatch: evidence from a reform By Fabio Berton; Francesco Devicienti; Sara Grubanov-Boskovice
  12. Laws and Norms: Experimental Evidence with Liability Rules By Bruno Deffains; Claude Fluet; Romain Espinosa
  13. Strategic Default Among Private Student Loan Debtors: Evidence from Bankruptcy Reform By Darolia, Rajeev; Ritter, Dubravka
  14. Patterns of entry and exit in the deregulated German interurban bus industry By Dürr, Niklas S.; Hüschelrath, Kai
  15. Flying Below the Radar: The Harmful Impact of Ontario’s Business Property Tax By Adam Found
  16. An experimental test of reporting systems for deception By Sascha Behnk; Iván Barreda-Tarrazona; Aurora García-Gallego

  1. By: Rosario Crinò; Giovanni Immordino; Salvatore Piccolo
    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 combine 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. Consistent with the theory of marginal deterrence, we show that sentence length is increasing in maximum penalty and decreasing in monitoring cost. We also provide evidence that steeper sanctions are associated with less severe crimes, consistent with marginal deterrence being e¤ective. Overall, these findings favor the marginal deterrence framework over competing theories of justice.
    Keywords: marginal deterrence, enforcement policies, individual-level data, death penalty
    JEL: K14 K40
    Date: 2017
  2. By: V. Bhaskar; Robin Linacre; Stephen Machin
    Abstract: The online market for buying and selling drugs is resilient and seems to bounce back rapidly after the exit of a large platform like Silk Road. That is one of the findings of research by Stephen Machin and colleagues, who have collected and analysed information on around 1.5 million drugs transactions on the so-called 'dark web' to understand the economic functioning of these markets. The researchers also find that only a small minority of online drugs deals receive bad ratings from buyers; and sellers that do receive bad ratings typically experience significant sales reductions. The study concludes that in the 'war on drugs', law enforcement needs more resources and better means to tackle drug buying and selling in the cyber domain.
    Keywords: dark web, drugs
    Date: 2017–10
  3. By: Pedro Naso; Erwin Bulte; Tim Swanson
    Abstract: We investigate the impact of competition between legal regimes on the number of authoritative acts and amount of fines occurring in rural Sierra Leone. We model state and traditional legal systems as competing authorities with a potential for overlap in their jurisdictions. We are interested in the sign and magnitude of the legal pluralism externality in this region of overlapping authority. We then test the model and estimate the size of the externality coefficient in the context of post-conflict Sierra Leone. Our results show a negative externality between regimes for civil disputes—that is, an increase in the cost of apprehending a person. We also show that there is a reduction in the amount of fines per dispute collected in this shared space. Overall, this indicates that a potential benefit to the local people from multiple competing regimes is a reduction in expected authoritative expropriation.
    Keywords: Legal Dualism; Enforcement Externalities; CivilWar; Africa.
    JEL: O17 H11 P48 K42
    Date: 2017–10–27
  4. By: Robert Dur; Ben Vollaard
    Abstract: We conduct a field experiment to examine whether the deterrent effect of law enforcement can be strengthened by making law enforcement activities more salient. Our focus is on illegal disposal of household garbage in residential areas. At a random subset of 56 locations in a city in the Netherlands, law enforcement officers supplemented their regular enforcement activities by the practice of putting bright warning labels on illegally disposed garbage bags saying that the item was “Found by law enforcement; fine minimally 90 euros†. We find evidence for a substantial reduction in illegal disposal of garbage as a result of the treatment at locations with garbage disposal containers, but not at locations with glass/paper disposal containers. Overall, the estimated treatment effect is negative, but imprecisely estimated.
    Keywords: law enforcement, deterrence, perception, salience, disorder
    JEL: C93 K42
    Date: 2017
  5. By: Leif Danziger; Eliakim Katz
    Abstract: What is the appropriate lump-sum compensation for loss of work income in personal injury cases? Since generally future work income is not known with certainty, compensation for its loss must be based on statistical considerations. Typically, courts have based awards on mean or median work income, but apparently without meaningful grounding in economics. We use economic theory to address this issue. We find that the relation between the appropriate compensation and the mean and median work income depends on the uncertainties of work income and of consumption facilitated by the lump-sum compensation awarded, as well as the degree of risk aversion. Since the consumption uncertainty associated with compensation generally exceeds that associated with work income, we conclude that the lump-sum compensation should exceed mean and therefore median work income.
    Keywords: law and economics, personal injury, income loss, compensation, uncertainty, risk aversion
    JEL: K13
    Date: 2017
  6. By: Johannes Buckenmaier; Eugen Dimant (Philosophy, Politics and Economics, University of Pennsylvania); Ann-Christin Posten; Ulrich Schmidt
    Abstract: Reducing criminal acts in society is a crucial duty of governments. Establishing punishment structures to attain this goal involves high costs. Typically, both theorists and practitioners resort to the adjustment of severity and/or certainty of punishment as effective deterrents of criminal behavior. One more cost effective, but scientifically understudied mechanism for effective deterrence is the swiftness of punishment. We carry out the first controlled economic experiment to study the effectiveness of swiftness of punishment along the following two dimensions: the timing of punishment and the timing of the resolution of uncertainty regarding punishment. Our results indicate an inverted u-shaped relation between the delay of punishment, the delay of uncertainty resolution regarding the detection of deviant behavior, and any resulting deterrence. In fact, institutions that either reveal detection and impose punishment immediately or maintain uncertainty about the state of detection and impose punishment sufficiently late deter individuals at equal rates. We conclude that the same institutional settings that are capable of reducing recidivism are also the ones deterring deviant behavior in the first place. Our results yield strong policy implications for designing effective institutions in mitigating misconduct and reducing recidivism.
    Keywords: Experiment, Illicit Behavior, Institutions, Punishment, Uncertainty
    JEL: C91 D02 D81 K42
    Date: 2017–10
  7. By: Rafael Di Tella (Harvard Business School, Business, Government and the International Economy Unit); Lucía Freira (Universidad Torcuato Di Tella); Ramiro H. Gálvez (Universidad Torcuato Di Tella); Ernesto Schargrodsky (Universidad Torcuato Di Tella); Diego Shalom (Universidad Torcuato Di Tella); Mariano Sigman (Universidad Torcuato Di Tella)
    Abstract: We study desensitization to crime in a lab experiment by showing footage of criminal acts to a group of subjects, some of whom have been previously victimized. We measure biological markers of stress and behavioral indices of cognitive control before and after treated participants watch a series of real, crime-related videos (while the control group watches non-crime-related videos). Not previously victimized participants exposed to the treatment video show significant changes in cortisol level, heart rate, and measures of cognitive control. Instead, previously victimized individuals who are exposed to the treatment video show biological markers and cognitive performance comparable to those measured in individuals exposed to the control video. These results suggest a phenomenon of desensitization or habituation of victims to crime exposure.
    Keywords: crime, biological markers, experiment, victimization, desensitization
    JEL: K42
    Date: 2017–07
  8. By: Alejandro Esteller-Moré (IEB, Universitat de Barcelona); Amedeo Piolatto (IEB, Universitat de Barcelona); Matthew D. Rablen (University of Sheffield)
    Abstract: The taxation of high-income earners is of importance to every country and is the subject of a considerable amount of recent academic research. Such high-income earners contribute substantial amounts of tax and generate significant positive spillovers, but are also highly mobile: a 1% increase in the top marginal income tax rate increases outmigrations by around 1.5 to 3%. We review research into taxation of high-income earners to provide a synthesis of existing theoretical and empirical understanding. We offer various avenues for potential future theoretical and empirical research.
    Keywords: High-income earners, mobility, tax avoidance
    JEL: H26 H31 K34 K42
    Date: 2017–11
  9. By: Geraldo Cerqueiro; María Fabiana Penas; Robert Seamans
    Abstract: We study the effect of debtor protection on firm entry and exit dynamics. We find that more lenient personal bankruptcy laws lead to higher firm entry, especially in sectors with low entry barriers. We also find that debtor protection increases firm exit rates and that this effect is independent of firm age. Our results overall indicate that changes in debtor protection affect firm dynamics.
    Keywords: Debtor Protection, Personal Bankruptcy, Entrepreneurship
    Date: 2017–01
  10. By: Tommaso Giommoni
    Abstract: The aim of this paper is to study the effect of local corruption on political participation which is mediated by the press. Focusing on Italy, we generate a daily measure of exposition to local corruption screening articles of main Italian press agency. Applying an event-study methodology on local elections, two results emerge. First, corruption exposition reduces citizens participation: voter turnout decreases but characteristics of elected politicians are not affected; second, politicians participation modifies: number of candidates lowers along with proportion of running freshmen. These results suggest that corruption exposition produces resignation rather than retaliation in terms of political participation.
    Keywords: corruption, media, turnout, political selection, electoral competition
    JEL: D72 D73 H70 K42
    Date: 2017
  11. By: Fabio Berton (University of Torino); Francesco Devicienti (University of Torino); Sara Grubanov-Boskovice (University of Torino)
    Abstract: Liberalization of temporary contracts has been a hallmark of labor market reforms during the last decades. More recently, factors like the sovereign debt crisis pushed the most indebted countries to unprecedented reductions of employment protection legislation (EPL) also on open-ended contracts. These policies are justified under the assumption that EPL harms the allocation of workers on the jobs where they are most productive. How EPL affects the quality of job matches is nonetheless an underexplored issue. In this paper, we provide new evidence that exploits exactly one of these recent reforms, the so-called Fornero Law, introduced in Italy in 2012 in the background of austerity reforms. Results show that good matches have increased. Further, the reduction in EP favored labor reallocation. Eventually, it was also followed by an increase in productivity, albeit small. While the results are consistent with the economic theory that informed deregulation, we highlight caveats and limitations.
    Keywords: Employment Protection Legislation, Turnover, Mismatch, Productivity, Fornero Law, Difference-in-differences
    JEL: J24 J63
    Date: 2017–11
  12. By: Bruno Deffains; Claude Fluet; Romain Espinosa
    Abstract: We conduct an experiment where participants choose between actions that provide private benefits but may also impose losses on strangers. Three legal environments are compared: no law, strict liability for the harm caused to others and an efficiently designed negligence rule where damages are paid only when the harmful action causes a net social loss. Legal obligations are either perfectly enforced (Severe Law) or only weakly so (Mild Law), i.e.,material incentives are then nondeterrent. We investigate how legal obligations and social norms interact. Our results show that liability rules strengthen pro-social behavior and suggest that strict liability has a greater effect than the negligence rule.
    JEL: C91 K13 D03
    Date: 2017–10–30
  13. By: Darolia, Rajeev (Federal Reserve Bank of Philadelphia); Ritter, Dubravka (Federal Reserve Bank of Philadelphia)
    Abstract: Bankruptcy reform in 2005 restricted debtors’ ability to discharge private student loan debt. The reform was motivated by the perceived incentive of some borrowers to file bankruptcy under Chapter 7 even if they had, or expected to have, sufficient income to service their debt. Using a national sample of credit bureau files, we examine whether private student loan borrowers distinctly adjusted their Chapter 7 bankruptcy filing behavior in response to the reform. We do not find evidence to indicate that the moral hazard associated with dischargeability appreciably affected the behavior of private student loan debtors prior to the policy.
    Keywords: student loans; bankruptcy; bankruptcy reform
    JEL: D14 G21 I22 K35
    Date: 2017–11–02
  14. By: Dürr, Niklas S.; Hüschelrath, Kai
    Abstract: We study patterns of entry and exit in the German interurban bus industry in the first three years after its deregulation in January 2013. Using a comprehensive data set of all firm and route entries and exits, we find that the industry grew much quicker than originally expected - with particularly a few new entrants being most successful in quickly extending their route networks from regional to national coverage. Although the clear majority of routes is operated on a monopoly basis, competition does play a key role on routes with a sufficiently large base of (potential) customers. From a spatial perspective, three years after deregulation, the entire interurban bus network connects 60 percent of all 644 larger German cities - with the intensity of entry being dependent on the number of inhabitants, average income, the share of under 24 years old and the presence of intermodal competition by intercity railway services.
    Keywords: deregulation,interurban bus services,entry,exit,competition
    JEL: L11 L41 L43 L92 K21 K23
    Date: 2017
  15. By: Adam Found (Trent University)
    Abstract: Ontario should abolish its harmful business property tax to remove an invisible, heavy burden on business, according to a report from the C.D. Howe Institute. In “Flying Below the Radar: The Harmful Impact of Ontario’s Business Property Tax,” author Adam Found assesses the damage the tax does to business investment and the broader Ontario economy.
    Keywords: Fiscal and Tax Policy
    JEL: H2 H7
    Date: 2017–11
  16. By: Sascha Behnk (Department of Banking and Finance, University of Zurich, Switzerland); Iván Barreda-Tarrazona (LEE and Economics Department, Universitat Jaume I, Castellón, Spain); Aurora García-Gallego (LEE and Economics Department, Universitat Jaume I, Castellón, Spain)
    Abstract: We use a repeated sender-receiver game in which sender behavior is revealed to future counterparts by (i) standardized computer reports or by (ii) individual reports composed by the receivers, representing a common form of consumer feedback. Compared to our baseline without reporting, computer reports reduce deception in all payoff scenarios while the effect of individually written reports is lower and in some scenarios only marginal. This comparably weaker impact can be explained by the senders’ anticipation of a high number of missing or deficient receiver reports that we find. We conclude that the precision of a reporting system has a higher importance for reducing deception than its personal character via individual feedback. Surprisingly, the reliability of computer reports is not correctly anticipated by receivers, who trust individually written reports more in the beginning and hence seem to back the wrong horse initially.
    Keywords: deception, trust, reporting systems, reputation, experiment
    JEL: D03 D63 K42
    Date: 2017

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