nep-law New Economics Papers
on Law and Economics
Issue of 2017‒12‒03
twelve papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Property rights in sequential exchange By Benito Arruñada; Giorgio Zanarone; Nuno Garoupa
  2. Law, Human Capital and the Emergence of Free City-States in Medieval Italy By Marianna Belloc; Francesco Drago; Roberto Galbiati
  3. Less Alimony after Divorce – Spouses’ Behavioral Response to the 2008 Alimony Reform in Germany By Julia Bredtmann; Christina Vonnahme
  4. Adjudicator Compensation Systems and Investor-State Dispute Settlement By David Gaukrodger
  5. Until taxes do us part: tax penalties or bonuses and the marriage decision By Barigozzi, Francesca; Cremer, Helmuth; Roeder, Kerstin
  6. How Bargaining in Marriage drives Marriage Market Equilibrium By Robert A. Pollak
  7. Four cases in sports competition policy: Baseball, judo, football, and motor racing By Budzinski, Oliver
  8. Globalization of commodification: legal process outsourcing and Indian lawyers By Noronha, Ernesto; D'Cruz, Premilla; Kuruvilla, Sarosh
  9. Market-internal financial regulation in sports as an anticompetitive institution By Budzinski, Oliver
  10. Resisting Persuasion By Elias Tsakas; Nikolas Tsakas; Dimitrios Xefteris
  11. Impact of Comprehensive Smoking Bans on the Health of Infants and Children By Kerry Anne McGeary; Dhaval M. Dave; Brandy J. Lipton; Timothy Roeper
  12. Experimental Social Planners: Good Natured, but Overly Optimistic By Christoph Engel; Svenja Hippel

  1. By: Benito Arruñada; Giorgio Zanarone; Nuno Garoupa
    Abstract: We analyze the “sequential exchange” problem in which traders have incomplete information on earlier contracts. We show that under sequential exchange, it is in general not possible to simultaneously implement two key features of markets – specialization between asset ownership and control, and impersonal trade. In particular, we show that in contrast with the conventional wisdom in economics, strong property rights—enforceable against subsequent buyers—may be detrimental to impersonal trade. Finally, we provide conditions under which a mechanism that overcomes the tradeoff between specialization and impersonal trade exists, and we characterize such mechanism. Our results provide an efficiency rationale for how property rights are enforced in business, company and real estate transactions, and for the ubiquitousness of “formalization” institutions that the literature has narrowly seen as entry barriers.
    Keywords: Property rights, enforcement, contracts, incomplete information, impersonal exchange
    JEL: D23 D83 K11 K22
    Date: 2017–11
  2. By: Marianna Belloc; Francesco Drago; Roberto Galbiati
    Abstract: In this paper, we study how the birth of the first universities in Italy affected the emergence of the Italian free cities-states (the commune) in the period 1000-1300 a.d. Exploiting a panel dataset of 121 cities, we show that after the foundation of a new university the distance between each city in the sample and the university negatively predicts the timing of the birth of communal institutions in the city. Our evidence is consistent with the idea that universities in the Middle Ages provided the necessary juridical knowledge and skills to build legal capacity and develop broader-based institutions.
    Keywords: institutional change, education, human capital accumulation, communal movement
    JEL: I20 I23 K00 N33
    Date: 2017
  3. By: Julia Bredtmann; Christina Vonnahme
    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: David Gaukrodger (OECD)
    Abstract: Compensation for adjudicators is generally considered as a core issue for judicial independence and for attracting good judges in the institutional design for courts. This paper examines compensation systems for adjudicators and dispute settlement administrators in investor-state dispute settlement (ISDS). The paper uses in part a comparative perspective based on approaches in domestic courts in advanced economies, an approach rarely taken in analysing investor-state arbitration. The first section of the paper provides historical context and examines the reform of remuneration of judges to replace private litigant fees with salaries in colonial America and the United States, France and England in the 18th and early 19th centuries. Subsequent sections address debates over the impact of compensation systems on adjudicators; contemporary approaches to the compensation of judges in advanced economies; the co-existence in advanced economies of national courts with salaried judges since the early 19th century with generally strong support for commercial arbitration based on ad hoc fee-based remuneration; and similarities and differences between commercial arbitration and investment arbitration, focusing how the largely similar compensation systems may have different effects and be differently perceived by the public. Annexes to the paper report on discussions about adjudicator compensation at the 2016 OECD Investment Treaty Conference and gather some preliminary facts about adjudicator and dispute administrator compensation in investor-state arbitration as well as the investment court system included in the recent EU-Canada CETA trade and investment agreement.
    Keywords: Alexander Hamilton, arbitrator compensation, bilateral investment treaties, comparative law, conflicts of interest, court fees, dispute settlement, domestic courts, economic incentives, foreign investment, international commercial arbitration, international economic law, international investment, international investment agreements, international investment law, investment arbitration, investment treaties, investment treaty policy, investor protection, investor-state dispute settlement, ISDS, Jeremy Bentham, judicial compensation, legal history, litigant fees, Voltaire
    JEL: H4 J3 J33 J44 K23 K33 K41 L33 N20 N4
    Date: 2017–11–24
  5. By: Barigozzi, Francesca; Cremer, Helmuth; Roeder, Kerstin
    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 bonus; marriage penalty; proposal game; signaling
    JEL: D82 H31 J12
    Date: 2017–10
  6. By: Robert A. Pollak
    Abstract: This paper investigates marriage market equilibrium under the assumption that Bargaining In Marriage (BIM) determines allocation within marriage. Prospective spouses, when they meet in the marriage market, are assumed to foresee the outcome of BIM and rank prospective spouses on the basis of the utilities they foresee emerging from BIM. Under these assumptions, the marriage market is the first stage of a multi-stage game – in the simplest case, a two-stage game – that must be solved by backwards induction. The marriage market determines both who marries and, among those who marry, who marries whom. Bargaining in the second and any subsequent stages determines allocation within each marriage. When BIM determines allocation within marriage, the appropriate framework for analyzing marriage market equilibrium is the Gale-Shapley matching model. In contrast, the standard model of marriage market equilibrium assumes that prospective spouses make Binding Agreements in the Marriage Market (BAMM) that determine allocation within marriage. If we assume BAMM and transferable utility, then the appropriate framework for analyzing marriage market equilibrium is the Koopmans-Beckmann-Shapley-Shubik assignment model. BIM and BAMM have different implications not only for allocation within marriage but also for who marries, who marries whom, the number of marriages, and the Pareto efficiency of marriage market equilibrium.
    JEL: D1 J12 K36
    Date: 2017–11
  7. By: Budzinski, Oliver
    Abstract: Practices and conducts in professional and even amateur sports can be subject to competition laws as soon as commercial activities are involved. From an economic perspective, this implies that both directly commercial activities like the sale of broadcasting/media rights and indirectly commercial activities like defining and enforcing the rules of the games can be hit by competition policy interventions. Setting and enforcing the rules of the game is an activity with commercial effects because it influences attractiveness and marketability of the sports in question. After discussing fundamental issues, this contributions reviews selected landmark cases in sports competition policy from an economic perspective. This includes the U.S. baseball antitrust exemption, access rules to Judo tournaments, sale systems of media rights in European football as well as a unique combination of long-run exclusivity contracts, skewed allocation of common revenues, and special influences on rule-setting by some competitors in Formula One motor racing. Eventually, the areas of state aid to football clubs and mergers in Danish football are sketched.
    Keywords: sports economics,antitrust,competition policy,baseball,judo,football,soccer,motor racing,formula one,media rights,sports broadcasting,competitive balance,cartels,abuse of dominance
    JEL: K21 L40 L83 L82
    Date: 2017
  8. By: Noronha, Ernesto; D'Cruz, Premilla; Kuruvilla, Sarosh
    Abstract: egal process outsourcing (LPO) refers to the contracting of legal work from regions where it is costly to perform, such as the US to areas where it can be performed at a significantly decreased cost. LPO has been made possible by the disaggregation of the legal processes into discrete units, each of which can then outsourced to cheaper service providers. Anecdotal evidence suggests a variety of benefits such as financial gains, opportunities to perform “global” work in a corporate atmosphere and acquisition of important skills and training that enhances the prestige of the host country lawyers. In India, which has played a significant role, LPO firms are viewed as important catalysts in the transformation of the country’s highly stratified legal profession based on social identities. This qualitative study, based on 38 interviews, concludes that the corporate culture was an attractive proposition for lawyers from non-elite backgrounds; however, the commodification of offshored work led to a deprofessionalisation of lawyers, reducing them to “glorified clerks.” As a result, LPO firms only provided parallel avenues for career mobility but did not destabilise the local legal market which at its core remains socially networked.
    JEL: R14 J01 L81
    Date: 2016–03–09
  9. By: Budzinski, Oliver
    Abstract: Financial regulation in sports is usually discussed in the context of representing an instrument against "financial doping". Notwithstanding the merits of this discussion, this paper takes the opposite perspective and analyses how market-internal financial regulation itself may anticompetitively influence sporting results. Virtually every regulative financial intervention distorts sporting competition to some extent and creates beneficiaries and losers. Sometimes, the actual winners and losers of financial regulation stand in line with the (legitimate) goals of the regulation like limiting financial imbalances or preventing distortive midseason insolvencies of teams. However, financial regulation may also display unintended side-effects like protecting hitherto successful teams from new challengers, cementing the competitive order, creating foreclosure and entry barriers, or serving vested interests of powerful parties. All of these effects may also be hidden agendas by those who are implementing and enforcing market-internal financial regulation or influencing it. This paper analyses various types of budget caps (including salary caps) with respect to potentially anticompetitive effects. UEFA's so-called Financial Fair Play Regulations are highlighted as an example. Furthermore, the paper discusses allocation schemes of common revenues (like from the collective sale of broadcasting rights) as another area of financial regulation with potentially anticompetitive effects. Eventually, the effects of standards for accounting, financial management, and auditing are discussed.
    Keywords: sports economics,financial regulation,budget caps,salary caps,financial fair play,financial doping,collective sale of media rights,sports broadcasting rights,revenue sharing
    JEL: L40 L83 K21
    Date: 2017
  10. By: Elias Tsakas; Nikolas Tsakas; Dimitrios Xefteris
    Abstract: Agents that are subject to persuasion attempts often employ strategies that allow them to effectively resist. In the context of Bayesian Persuasion (Kamenica and Gentzkow, 2011), we argue that if appropriate action-contingent payoff adjustments are available to the subject of persuasion, then payoff improvements are achieved. Remarkably, payoff-improving resistance strategies need not involve adding benefits to any action. We characterize the optimal resistance strategy when only costly payoff adjustments are allowed and we show that it induces a perfectly informative signal and a substantial increase in the agent’s welfare.
    Keywords: Bayesian persuasion; Resistance; Uncertainty; Public commitment
    JEL: D72 D82 D83 K40 M38
    Date: 2017–11
  11. By: Kerry Anne McGeary; Dhaval M. Dave; Brandy J. Lipton; Timothy Roeper
    Abstract: As evidence of the negative effects of environmental tobacco smoke (ETS) has mounted, an increasingly popular public policy response has been to impose restrictions on smoking through 100% smoke-free bans. Yet sparse information exists regarding the impact these smoking bans at the state and local levels have on the health of children and infants. A rationale for expansion of smoke-free laws implicitly presumes that potential public health gains from reducing adult cigarette consumption and declines in adult ETS exposure extend to children. However, if smokers compensate by shifting their consumption of cigarettes from public venues that impose a 100% smoke free ban to smoking at home, then these policies may have a harmful effect on children and infants. This study provides comprehensive estimates of how 100% smoke-free regulations impact the venue of smoking, smoking behaviors, and the health of children and infants. Using models that exploit state- and county-level changes to smoking ban legislation over time, estimates suggest that smoking bans have improved the health of both infants and children, mainly through implementation of more comprehensive bans. Further, we find no evidence of compensatory behaviors among smokers (both smokers with and without children in the household), and actually find that the bans had a positive spillover effect in terms of reducing smoking inside the home – an effect which may further explain the improvement in infant and children’s health.
    JEL: D1 H0 I1 K0
    Date: 2017–11
  12. By: Christoph Engel (Max Planck Institute for Research on Collective Goods); Svenja Hippel (Max Planck Institute for Research on Collective Goods)
    Abstract: Public goods are dealt with in two literatures that neglect each other. Mechanism design advises a social planner that expects individuals to misrepresent their valuations. Experiments study the provision of the good when preferences might be non-standard. We introduce the problem of the mechanism design literature into a public good experiment. Valuations for the good are heterogeneous. To each group we add a participant with power to impose a contribution scheme. We study four settings: the authority has no personal interest and (1) valuations are common knowledge or (2) active participants may misrepresent their types; the authority has a personal interest (3) and must decide before learning her own valuation or (4) knows her own valuation. Disinterested social planners predominantly choose a payment rule that gives every group member the same ?nal payoff, even if misrepresentation is possible. Authorities are overly optimistic about truth telling. Interested social planners abuse their power, except if the opportunity cost of a more balanced rule is small.
    Keywords: Public Good, Social Planner, Truthtelling, Experiment
    JEL: C91 D02 D03 D61 D62 D64 H23 K12
    Date: 2017–11

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