nep-law New Economics Papers
on Law and Economics
Issue of 2017‒11‒26
ten papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Challenges and Pitfalls in Cartel Policy and Fining By Marcel Boyer; Anne Catherine Faye; Rachidi Kotchoni
  2. Optimally Vague Contracts and the Law By Giacomo Ponzetto; Nicola Gennaioli
  3. The Effect of Social Connectedness on Crime: Evidence from the Great Migration By Evan Taylor; Bryan Stuart
  4. Is There a 1033 Effect? Police Militarization and Aggressive Policing By Ajilore, Olugbenga
  5. New Evidence on the Casual Effect of Traffic safety Laws on Drunk Driving and Traffic Fatalities By Wright, Nicholas Anthony; Lee, La-troy
  6. Until Taxes Do Us Part: Tax Penalties or Bonuses and the Marriage Decision By Barigozzi, Francesca; Cremer, Helmuth; Roeder, Kerstin
  7. Liability of Foreignness as a Boundary Condition for an Entry Mode Choice: a Case of Russian Companies on German Market By Panibratov, Andrei Yu.; Ribberink, Natalia; Veselova, Anna S.; Nefedov, Konstantin S.
  8. Problems and approaches in the legal regulation of the use of Bitcoin in Russia and in the world By Andrey Fedorovski; Rostislav Berlinskii; Vladislav Ashikhmin
  9. Motivations for Public Service in Corrupt States: Evidence from Post-Soviet Russia By Jordan Gans-Morse; Alexander S. Kalgin; Andrei V. Klimenko; Andrei A. Yakovlev
  10. On the Economics of Audit Partner Tenure and Rotation: Evidence from PCAOB Data By Brandon Gipper; Luzi Hail; Christian Leuz

  1. By: Marcel Boyer; Anne Catherine Faye; Rachidi Kotchoni
    Abstract: We analyze significant challenges and pitfalls faced by antitrust authorities in the implementation of competition policies particularly against naked cartels and propose measures principled in economic theory to circumvent these issues. We review leniency programs in different jurisdictions, the private versus public control of cartels, as well as the determination of cartel fines and other punishment instruments. Regarding cartel fines, we first discuss the sometimesconflicting objectives of restitution and deterrence, then the economic-based versus legal- and proportional-based punishment. Moreover, we assess the proper modeling of cartel dynamics including the probability of detection and conviction, the relevant cartel duration, and the estimation of but-for prices and cartel overcharges.
    Keywords: Competition Policy,Industrial Economics,Regulations,Cartels,Fines,Leniency,Antitrust,Dynamics,
    JEL: K21 K42 L22 L40
    Date: 2017–11–15
  2. By: Giacomo Ponzetto (CREI, U. Pompeu Fabra, IPEG, & Barcelona); Nicola Gennaioli (Bocconi University)
    Abstract: Many real-world contracts contain vague clauses despite the enforcement risk they entail. To study the causes and consequences of this phenomenon, we build a principal-agent model in which contracts can include vague clauses whose enforcement may be distorted by opportunistic litigants and biased judges. We find three results. First, the optimal contract is vague, even if courts are very imperfect. Second, the use of vague clauses is a public good: it promotes the evolution of precedents, so future contracts become more complete, incentives higher powered, and surplus larger. Third, as precedents evolve, vague contracts spread from sophisticated to unsophisticated parties, expanding market size. Our model sheds light on the evolution and diffusion of business-format franchising and equity finance.
    Date: 2017
  3. By: Evan Taylor (University of Chicago); Bryan Stuart (George Washington University)
    Abstract: This paper estimates the effect of social connectedness on crime across U.S. cities from 1960- 2009. Migration networks among African Americans from the South generated variation across destinations in the concentration of migrants from the same birth town. Using this novel source of variation, we find that social connectedness considerably reduces murders, robberies, assaults, burglaries, larcenies, and motor vehicle thefts, with a one standard deviation increase in social connectedness reducing murders by 13 percent and motor vehicle thefts by 9 percent. Our results appear to be driven by stronger relationships among older generations reducing crime committed by youth.
    Keywords: crime, social connectedness, Great Migration
    JEL: K42 N32 R23 Z13
    Date: 2017
  4. By: Ajilore, Olugbenga
    Abstract: Events in Ferguson and Baltimore in the United States in the past 3 years have brought to light issues related to the militarization of police and adverse police–citizen interactions. Through federal programs and grants, local law enforcement agencies have been able to acquire surplus military items to combat terrorism and drug activity. The acquisition of these items has accelerated over the past 10 years. These agencies acquired nearly $1 billion worth of property in 2014 alone through the Pentagon’s 1033 Program, a program that distributes excess military surplus to law enforcement agencies. This study seeks to determine whether the increased acquisition of these items has led to more police use-of-force incidents. We create a dataset merging administrative data from the Pentagon’s 1033 Program database and survey data from the Bureau of Justice Statistics. Using a binary treatment effects estimator, we show that there is little evidence of a causal link between general military surplus acquisition and documented use-of-force incidents. In fact, the acquisition of military vehicles leads to fewer use-of-force incidents. The results also show that more diverse departments have fewer incidents, while agencies with SWAT team have more incidents.
    Keywords: Police Militarization, Excessive Force, Law Enforcement Management and Administrative Statistics (LEMAS), 1033 Program, Treatment Effects
    JEL: H70 H76 K42
    Date: 2017–10–30
  5. By: Wright, Nicholas Anthony; Lee, La-troy
    Abstract: In the United States, about 28 lives are lost daily in motor vehicle accidents that involve an alcohol-impaired driver. The conventional wisdom is that these accidents can be prevented through the use of strict traffic laws that are robustly enforced, though no consensus exists on the causal impact of these laws in reducing motor vehicle-related fatalities. This paper exploits quasi-random variation in state-level driving and road safety restrictions to estimate the causal effect of select traffic laws on the number of fatal accidents and fatal accidents involving a drunk driver. In this paper, we employ the contiguous-border county-pair approach. This is causally identified from the discontinuities in policy treatments among homogeneous contiguous counties that are separated by a shared state border. This approach addresses the econometric issues created due to spatial heterogeneity that may have biased several studies in the literature. The analysis reveals that the laws related to accident prevention, such as having a good graduated licensing system, Pigovian beer taxes and primary seatbelt enforcement, are the most effective in reducing motor vehicle-related fatalities. Using these estimated coefficients, simple simulations suggest that policymakers have been utilizing existing traffic laws sub-optimally, saving only 17% of the lives lost to motor vehicle crashes.
    Keywords: traffic-fatalities, drunk-driving, traffic safety legislations
    JEL: I18 K10 R41
    Date: 2017–12
  6. By: Barigozzi, Francesca (University of Bologna); Cremer, Helmuth (Toulouse School of Economics); Roeder, Kerstin (University of Augsburg)
    Abstract: The tax regimes applied to couples in many countries including the US, France, and Germany imply either a marriage penalty or a marriage bonus. We study how they affect the decision to get married by considering two potential spouses who play a marriage proposal game. At the end of the game they may get married, live together without formal marriage, or split up. In this signaling game, proposing (or getting married) is costly but can indicate strong love. The striking property we obtain is that a marriage bonus may actually reduce the probability that a couple gets married. If the bonus is sufficiently large, the signaling mechanism breaks down, and only a pooling equilibrium in which fewer couples get married remains. Similarly, a marriage penalty may increase the marriage probability. Specifically, the penalty may lead to a separating equilibrium with efficiency enhancing information transmission, which was otherwise not possible. Our results also imply that marriage decisions in the laissez-faire are not necessarily privately optimal. In some cases a bonus or a penalty may effectively make the marriage decision more efficient; it may increase the number of efficient marriages that otherwise may not be concluded.
    Keywords: marriage penalty, marriage bonus, proposal game, signaling
    JEL: J12 D82 H31
    Date: 2017–10
  7. By: Panibratov, Andrei Yu.; Ribberink, Natalia; Veselova, Anna S.; Nefedov, Konstantin S.
    Abstract: In the paper we apply liability of foreignness (LOF) concept as a boundary condition for a choice of entry mode used by Russian companies while penetrating German market. In terms of an entry mode we differentiate between export and FDI and test how different aspects of LOF affect the choice between these two alternatives. The paper presents the results of a pilot study of 40 subsidiaries of Russian MNEs operating in different regions of Germany. Our results show that both exporter and companies who are involved in FDI experience significant negative effects from the lack of proper institutional and business knowledge about host market, though in various degrees. Legal consulting and personal market analysis are identified among effective instruments to mitigate these effects for both types of entry modes, however, cooperation with institutional agents, such as the Chamber of Commerce, is also of high value, especially, for companies involved in FDI.
    Keywords: liability of foreignness, entry mode, Russian companies, FDI, foreign direct investments, legal consulting, market analysis,
    Date: 2016
  8. By: Andrey Fedorovski (Immanuel Kant Baltic Federal University); Rostislav Berlinskii (Immanuel Kant Baltic Federal University); Vladislav Ashikhmin (Immanuel Kant Baltic Federal University)
    Abstract: The presentation is dedicated to problems and approaches in the legal regulation of the use of one of the cryptocurrencies - Bitcoin. Currently Bitcoin causes bigger interest among the world society, which is connected, in particular, with the highly increased exchange rate of this cryptocurrency. A number of countries have already formed a well-defined position and created a legal basis for development or for a complete or partial restriction of this cryptocurrency. But at the moment the most part of the world countries do not have a legal and regulatory framework of Bitcoin. In this presentation there is an analysis identifying pros and cons of this cryptocurrency and also the consequences of its further integration into the biggest world countries. Besides, our group has considered the experience of the number of countries in which the legal regulation of this cryptocurrency is established. The research offers a way for the further legal regulation of Bitcoin in Russia.
    Keywords: Bitcoin, cryptocurrency, legal regulation, world countries
    Date: 2017–10
  9. By: Jordan Gans-Morse (Northwestern University); Alexander S. Kalgin (National Research University Higher School of Economics); Andrei V. Klimenko (National Research University Higher School of Economics); Andrei A. Yakovlev (National Research University Higher School of Economics)
    Abstract: Throughout much of the world, corruption in the civil service undermines state capacity, impedes economic development, and saps citizens’ morale. But while its pernicious effects are widely recognized, the roots of corruption remain poorly understood. Whereas most studies on corruption’s origins focus on the incentives bureaucrats face once in office, this study contributes to a line of recently emerging research that considers the role of self-selection of citizens with a propensity for corruption into bureaucracies where corruption is known to be widespread. Drawing on a survey and experimental games conducted with students at an elite university in Moscow, Russia, we compare the attitudinal, behavioral, and demographic traits of students seeking public sector employment to the traits of their peers seeking jobs in the private sector. Contrary to studies conducted in other high-corruption contexts, such as India, we find surprising evidence that students who prefer a public sector career display lss willingness to cheat or bribe in experimental games as well as higher levels of altruism. One interpretation of these findings is that corruption in Russia results from the transformation of bureaucrats’ behavior and attitudes after entering the civil service, rather than through a process of corrupt self-selection
    Keywords: corruption, Russia, motivation, civil service, experimental games.
    JEL: D73 H83
    Date: 2017
  10. By: Brandon Gipper; Luzi Hail; Christian Leuz
    Abstract: This paper provides the first partner tenure and rotation analysis for a large cross-section of U.S. publicly listed firms over an extended period. We analyze the effects on audit quality as well as economic tradeoffs related to partner tenure and rotation with respect to audit hours and fees. On average, we find no evidence for audit quality declines over the tenure cycle and little support for fresh-look benefits after rotations. Nevertheless, partner rotations have significant economic consequences. We find increases in audit fees and decreases in audit hours over the tenure cycle, which differ by partner experience, client size, and competitiveness of the local audit market. More generally, our findings are consistent with efforts by the audit firms to minimize disruptions and audit failures around mandatory rotations. We also analyze special circumstances, such as audit firm switches and early partner rotations, and show that they are more disruptive than mandatory rotations, and also more likely to exhibit audit quality effects.
    JEL: G30 J44 J62 K22 L84 M21 M41 M42 M51 M54
    Date: 2017–11

This nep-law issue is ©2017 by Eve-Angeline Lambert. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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