nep-law New Economics Papers
on Law and Economics
Issue of 2017‒11‒19
fifteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The effect of horizontal mergers, when firms compete in prices and investments By Motta, Massimo; Tarantino, Emanuele
  2. Compliance Programs, Signaling and Firms' Internal Coordination By Daniel Herold
  3. Less alimony after divorce: Spouses' behavioral response to the 2008 alimony reform in Germany By Bredtmann, Julia; Vonnahme, Christina
  4. Taxation and Corporate Risk-Taking By Dominika Langenmayr; Rebecca Lester
  5. The Impact of Incentive Pay on Corporate Crime By Daniel Herold
  6. Lobbying in Finance Industry: Evidence from US Banking System By Omer Unsal; M. Kabir Hassan; William J. Hippler
  7. Analyzing the Influence of Occupational Licensing Duration and Grandfathering on Labor Market Outcomes By Kleiner, Morris M.; Han, Suyoun
  8. Varieties of economization in competition policy: A comparative analysis of German and American antitrust doctrines, 1960-2000 By Ergen, Timur; Kohl, Sebastian
  9. On punishment institutions and effective deterrence of illicit behavior By Buckenmaier, Johannes; Dimant, Eugen; Posten, Ann-Christin; Schmidt, Ulrich
  10. Deviant or Wrong? The Effects of Norm Information on the Efficacy of Punishment By Cristina Bicchieri; Eugen Dimant; Erte Xiao
  11. The EU’s Investment Court System and Prospects for a New Multilateral Investment Dispute Settlement System By YANG, Hyoeun
  12. The Regulation of Public Service Broadcasters: Should there be more advertising on television? By Crawford, Gregory S.; Deer, Lachlan; Smith, Jeremy; Sturgeon, Paul
  13. Measuring Innovation with Patents when Patenting is Strategic By Jonathan F. Lee
  14. The Anatomy of Constitution Making: From Denmark in 1849 to Iceland in 2017 By Thorvaldur Gylfason
  15. Religious Issues in Russian Schools: Legal View By Nadezhda Knyaginina; Szymon Jankiewicz

  1. By: Motta, Massimo; Tarantino, Emanuele
    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 effciency gains, the merger lowers total investments and consumer surplus.Only if it entails suffcient effciency 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.
    JEL: K22 D43 L13 L41
    Date: 2017
  2. By: Daniel Herold (Justus-Liebig-University Giessen)
    Abstract: Fines imposed on firms for corporate infringements such as cartels reduce these infringement's profitability. When a manager knows when a violation is unprofitable he can prevent violations committed by an uninformed employee by investing in compliance programs (CPs). Investments can be interpreted as signals. The paper shows that there exists a separating equilibrium where high investments in CPs induce the employee to obey the law. However, if CPs are too expensive the signal is not credible. The manager can also show personal commitment to compliance ('tone-at-the-top'). Coordination on an efficient outcome will then be achievable if commitment is costly. Imposing high, individual sanctions on the manager disturbs a firm's internal coordination because he is unable to credibly signal that an infringement does not pay off for the firm. However, imposing sanctions on the employee unambiguously deters violation.
    Keywords: Bitcoin, Compliance, Crime, Tone-at-the-top
    JEL: D82 D86 L14 L22 K20 K21
    Date: 2017
  3. By: Bredtmann, Julia; Vonnahme, Christina
    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
  4. By: Dominika Langenmayr; Rebecca Lester
    Abstract: We study whether the corporate tax system provides incentives for risky firm investment. We analytically and empirically show two main findings: first, risk-taking is positively related to the length of tax loss periods because the loss rules shift some risk to the government; and second, the tax rate has a positive effect on risk-taking for firms that expect to use losses, and a weak negative effect for those that cannot. Thus, the sign of the tax effect on risky investment hinges on firm-specific expectations of future loss recovery.
    Keywords: corporate taxation, risk-taking, net operating losses
    JEL: H25 H32 G32
    Date: 2017
  5. By: Daniel Herold (Justus-Liebig-University Giessen)
    Abstract: This paper presents a moral hazard model analyzing the agent's incentive to commit corporate crime. The principal can only observe profits which the agent can increase by committing crime or exerting effort. It is shown how different incentive contracts, i.e., thresholdlinear, capped bonus and linear contracts, can be adjusted in order to promote agent's law abiding behavior. Any adjustment implies a loss in internal eciency which decreases in individual sanctions imposed on the agent.
    Keywords: moral hazard, incentive pay, corporate crime, cartels
    JEL: D82 D86 L14 L22 K20 K21
    Date: 2017
  6. By: Omer Unsal; M. Kabir Hassan; William J. Hippler
    Abstract: We examine the relationship between corporate lobbying, shareholder-based litigation outcomes, and firm value for financial firms. First, we show that political lobbying lowers the litigation likelihood for financial institutions. Secondly, lobbying firms experience a higher likelihood of having litigation dismissed, and the average settlement amount is significantly lower for lobbying institutions. In addition, shortly after a litigation announcement, lobbying firms experience significantly higher cumulative abnormal returns (CARs), compared to non-lobbying firms. Finally, we show that lobbying firms have higher long-run buy-and-hold abnormal stock returns (BHARs) following lobbying activities. Our results link financial institution lobbying activity with improved legal outcomes and increases in firm value, implying that lobbying may protect financial institutions from reduced firm value through the building of political capital and reducing litigation costs.
    Keywords: Corporate lobbying, corporate fraud, corporate governance
    JEL: G30 G32 G38 K41
    Date: 2016–12
  7. By: Kleiner, Morris M. (Federal Reserve Bank of Minneapolis); Han, Suyoun (Federal Reserve Bank of Minneapolis)
    Abstract: The length of time from the implementation of an occupational licensing statute (i.e., licensing duration) may matter in influencing labor market outcomes. Adding to or raising the entry barriers are likely easier once an occupation is established and has gained influence in a political jurisdiction. States often enact grandfather clauses and ratchet up requirements that protect existing workers and increase entry costs to new entrants. We analyze the labor market influence of the duration of occupational licensing statutes for 13 major universally licensed occupations over a 75-year period. These occupations comprise the vast majority of workers in these regulated occupations in the United States. We provide among the first estimates of potential economic rents to grandfathering. We find that duration years of occupational licensure are positively associated with wages for continuing and grandfathered workers. The estimates show a positive relationship of duration with hours worked, but we find moderately negative results for participation in the labor market. The universally licensed occupations, however, exhibit heterogeneity in outcomes. Consequently, unlike some other labor market public policies, such as minimum wages or direct unemployment insurance benefits, occupational licensing would likely influence labor market outcomes when measured over a longer period of time.
    Keywords: Occupational licensing; Duration and grandfathering effects on wage determination; Hours worked; Work force participation; Labor market regulation
    JEL: J38 K20 L12
    Date: 2017–10–23
  8. By: Ergen, Timur; Kohl, Sebastian
    Abstract: This paper explains the different trajectories of German and American competition policy and its permissiveness towards economic concentration in the last few decades. While the German political economy had moved to a stronger antitrust regime after 1945 and stuck to it even after the economic governance shifts of the 1980s, the traditional antitrust champion, the United States, has shed considerable parts of its basic governance toolkit against anticompetitive conduct since the 1960s. Drawing on theories of institutional change driven by bureaucratic and professional elites, the paper claims that different pathways of professional ideas in competition policy can account for the cross-country differences. In the 1960s and early 1970s, movements to strengthen competition policy in the direction of an active deconcentration of industry emerged in both countries. While German as well as American professionals reacted to the impending encroachment of societal concerns into antitrust with economized notions of the policies' goals, they did so in fundamentally different ways. Whereas US professionals proposed an effect-based approach in which consumer welfare and gains in efficiency may justify less competition, the more strongly law-based profession in Germany to a degree strengthened a form-based approach aiming at the preservation of competitive market structures. Such extrapolitical pathways of ideas, we argue, provide important guidelines for the implementation of competition policy by administrations and courts, whose decisions can have a far-reaching impact on industries and political economies as a whole.
    Keywords: competition,law,economization,professions,ideas,Wettbewerb,Recht,Ökonomisierung,Professionen,Ideen
    Date: 2017
  9. By: Buckenmaier, Johannes; Dimant, Eugen; Posten, Ann-Christin; Schmidt, Ulrich
    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.
    Date: 2017
  10. By: Cristina Bicchieri (University of Pennsylvania); Eugen Dimant (University of Pennsylvania); Erte Xiao (Monash University)
    Abstract: A stream of research examining the effect of punishment on conformity indicates that punishment can backfire and lead to suboptimal social outcomes. In such studies, the enforcement of a behavioral rule to cooperate originates from a single party. This feature may raise concern about the legitimacy of the rule and thereby make it easy for the agents to take a penalty and excuse their selfish behavior. We address the question of punishment legitimacy in our experiment by shedding light upon the importance of social norms and their interplay with punishment mechanisms. We show that the separate enforcement mechanisms of punishment and norms cannot achieve higher cooperation rates. In fact, conformity is significantly increased only in those cases when social norms and punishment are combined, but only when cooperation is cheap. Interestingly, when cooperation is expensive we find that the combination of punishment and empirical information about others conformity can also have traceable detrimental effects on conformity levels. Our results have important implications for researchers and practitioners alike.
    Keywords: Conformity, Experiments, Punishment, Social Norms, Trust Game
    Date: 2017
  11. By: YANG, Hyoeun (Korea Institute for International Economic Policy)
    Abstract: The EU’s proposal to establish a new Investment Court System during the TTIP negotiations has well represented the cumulative resentment of the public, governments, civil societies as well as academics in regard to the existing ISDS mechanism. Such issues as the lack of legitimacy, transparency, consistency, the absence of a review mechanism, and the high burden to public finance in the existing system have been criticized as undermining the sovereignty of the State and its right to regulate for legitimate policy objectives such as the environment, health, and safety. Despite the merits of the existing ISDS mechanism, the increasing demand for improved safeguards against abusive claims and discretionary power of private adjudicators should be adequately addressed in consideration of the democratic principles and the objectives of sustainable development goals. It is also noteworthy that the function of the traditional ISDS system, devised as a preferential instrument for foreign investors, has evolved over time as the distinction between capital-exporting and capital-importing countries became blurred and more attention is focused on the equality and balance of power among domestic and foreign businesses as well as between investors and the host States. In this vein, the establishment of a permanent tribunal and the public appointment of tribunal members with a fixed-term, as proposed by the EU in the new ICS, are indicative of the shifting paradigm in the discourse of treaty-based investor to State arbitration systems. Despite the fact that the system of ICS can hardly solve all of the problems, it may possibly improve the level of legitimacy by incorporating public features of the procedure. At the same time, it is noteworthy that the objective of improving the legitimacy and consistency of the dispute settlement system cannot be achieved without the prospect of establishing a multilateral dispute settlement mechanism with consolidated and harmonized standards of investment rules. Considering the difficulties of reaching a multilateral agreement on investment as witnessed in the past decades, the approach of the Mauritius Convention, which adopted an opt-in mechanism, would be useful as it reduces the risk of failure in negotiations while building a consensus among participants and allowing them to decide when to ratify the Convention in consideration of their domestic circumstances. Considering the extensive network of trade and investment agreements that Korea has concluded in the past decade, it is more than necessary for the Korean government to pay close attention to the recent development in this process and actively participate in discussions on the possibility of establishing a multilateral investment court and the key principles of investment protection and facilitation in international fora.
    Keywords: investor-State dispute settlement (ISDS); investment court system (ICS); multilateral investment court; TTIP; CETA; UNCITRAL Transparency Rules; Mauritius Convention
    JEL: F13 K33
    Date: 2017–10–12
  12. By: Crawford, Gregory S.; Deer, Lachlan; Smith, Jeremy; Sturgeon, Paul
    Abstract: Increased competition for viewers' time is threatening the viability of publicservice broadcasters (PSBs) around the world. Changing regulations regarding advertising minutes might increase revenues, but little is known about the structure of advertising demand. To address this problem, we collect a unique dataset on monthly impacts (quantities) and prices of UK television channels between 2002 and 2009 to estimate the (inverse) demand for advertising on both public and commercial broadcasters. We find that increasing PSB advertising minutes to the level permitted for non-PSBs would increase PSB and industry revenue by 10.5% and 6.7%.
    JEL: D2 L1 L5 M3
    Date: 2017–11
  13. By: Jonathan F. Lee
    Abstract: I model a firm's decision to create an invention and, separately, her decision to protect that invention with intellectual property (IP). Because external forces, such as industry characteristics or policy regimes, can affect the innovation and protection decisions differently, the model predicts that innovation measures based on IP usage, such as patent counts, may not correlate with innovative effort. For example, the threat of competition generally has an inverse-U shaped relationship with observed patenting but has a normal-U relationship with innovative effort. In this case, the average quality of a firm's patent portfolio is a better proxy for innovation. I derive general conditions under which various patent statistics, such as quality-adjusted patenting or average patent quality, are useful proxies for how innovation responds to external influences.
    JEL: K11 L24 O31 O34
    Date: 2017–11–09
  14. By: Thorvaldur Gylfason
    Abstract: This paper reviews aspects of the constitution making process in Iceland after the financial collapse of 2008, emphasizing the differences between the provisional constitution of 1944 when Iceland separated unilaterally from Nazi-occupied Denmark and Denmark’s 1849 constitution which served, with notable exceptions, as the prototype for Iceland’s 1944 constitution. The comparison and contrast between the Icelandic and Danish constitutions invites a comparison also between Iceland’s 1944 constitution with the new post-crash constitution from 2011 accepted by two thirds of the voters in a national referendum in 2012 and waiting to be ratified twice by a reluctant Parliament. Against this comparative background, the paper proceeds to discuss political and procedural aspects of Iceland´s constitutional reform project, and concludes by proposing lessons to be learned from Iceland´s experience thus far.
    Keywords: constitution making, democracy, Iceland, Denmark
    JEL: K10
    Date: 2017
  15. By: Nadezhda Knyaginina (National Research University Higher School of Economics); Szymon Jankiewicz (National Research University Higher School of Economics)
    Abstract: In different countries of the world the place of religion in education differs. In most of the European countries teaching of religion in public (or state-funded) school exists in one form or another. In Russia religious education can be received by the student at his or her own discretion or at discretion of the parents in the religious educational establishment. Education in public (state and municipal) organizations engaged in educational activity has a strictly secular nature. This principle is implemented in the Russian legislation and practice is most visible in disputes arising at the crossroad of religion and education as resolved by Russian courts. The most disputed issues concern the regulation of school uniform and the teaching of subjects ‘Fundamentals of Religious cultures and secular ethics’ and ‘Fundamentals of spiritual and moral culture of Russian nations’ as a compulsory subject in public schools. The court practice on the issue keeps developing, but it's analysis shows that the secular nature of education in Russia is not so undoubted as it may seem
    Keywords: education, secular character, religion, religious education, school uniform, Russia
    JEL: K30
    Date: 2017

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