nep-law New Economics Papers
on Law and Economics
Issue of 2018‒01‒15
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Signal-Tuning Function of Liability Regimes By Claude-Denys Fluet; Murat C. Mungan
  2. Vertical Foreclosure and Multi-Segment Competition By Jullien, Bruno; Reisinger, Markus; Rey, Patrick
  3. The Rise of Economics in Competition Policy: : A Canadian Perspective By Boyer, Marcel; Ross, Thomas W.; Winter, Ralph
  4. Contingent judicial deference: theory and application to usury laws By Guimaraesy, Bernardo; Meyerhof Salama, Bruno
  5. Voluntary Bankruptcy as Preemptive Persuasion By Dinev, Nikolay
  6. Understanding Judicial Delay at the Income Tax Appellate Tribunal in India By Datta, Pratik; Surya Prakash B.S.; Sane, Renuka
  7. The Effect of Changes in Border Regimes on Border Regions Crime Rates: Evidence from the Schengen Treaty By Malte Sandner; Pia Wassmann
  8. Collusive Benchmark Rates Fixing By Nuria Boot; Timo Klein; Maarten Pieter Schinkel
  9. Household Debt Restructuring : The Re-default Effects of Debt Suspensions By H. Fraisse
  10. On the interdependency of profit shifting channels and the effectiveness of anti-avoidance legislation By Nicolay, Katharina; Nusser, Hannah; Pfeiffer, Olena
  11. Job Search, Unemployment Protection and Informal Work in Advanced Economies By Iain W. Long; Vito Polito

  1. By: Claude-Denys Fluet; Murat C. Mungan
    Abstract: Fault-based liability regimes require an inquiry into the nature of the defendant’s conduct, whereas this type of inquiry is absent in strict liability regimes. Therefore, verdicts reached through fault-based liability regimes can convey superior information compared to verdicts reached through strict liability regimes. Further reflection reveals that this advantage is enjoyed by fault-based liability regimes only if the evidence related to the nature of defendants’ actions is such ciently informative. Otherwise, admitting such evidence can add noise to the information conveyed through verdicts. Therefore, liability regimes have a function of tuning signals conveyed on to third parties, which, in turn, causes deterrence effects by a¤ecting the informal sanctions imposed on defendants who are found liable. We construct a model wherein this function is formalized, and we identify the optimal liability regime and burden of proof as a function of various factors (e.g. the commonality of the harmful act, and the informativeness of the evidence).
    Keywords: Informal sanctions, reputational sanctions, fault-based liability, strict liability, burden of proof
    Date: 2017
  2. By: Jullien, Bruno; Reisinger, Markus; Rey, Patrick
    Abstract: This paper analyzes a supplier's incentives to foreclose downstream entry when entrants have stronger positions in different market segments, thus bringing added value as well as competition. We first consider the case where wholesale contracts take the form of linear tariffs, and characterize the conditions under which the competition-intensifying effect dominates, thereby leading to foreclosure. We then show that foreclosure can still occur with non-linear tari¤s, even coupled with additional provisions such as resale price maintenance.
    Keywords: Foreclosure; Vertical Contracting; Customer Segments; Downstream Competition
    JEL: D43 K21 L12 L42
    Date: 2017–12–15
  3. By: Boyer, Marcel; Ross, Thomas W.; Winter, Ralph
    Abstract: Competition policy in Canada and elsewhere has changed remarkably over the last fifty years – in large measure due to advances in economics. In this article we trace the impact of developments in industrial organization on the three central areas of competition policy: cartels, single firm conduct and mergers. We focus on Canadian competition policy, but draw comparisons with developments in the United States and Europe.
    JEL: K21 L40 L41
    Date: 2017–12
  4. By: Guimaraesy, Bernardo; Meyerhof Salama, Bruno
    Abstract: Legislation is less likely to be enforced when courts disagree with it. Building on this premise, we propose a model of Bayesian adjudicators that use their own prior knowledge to evaluate the appropriateness of legislation. The model yields a non-monotonic relation between written rules and effectively enforced rules. Hence the enactment of legislation prohibiting something raises the probability that courts will allow related things not expressly forbidden. Moreover, legal uncertainty is greater with legislation that commands little deference from courts than with legislation that commands none. We discuss examples of effects of legislated prohibitions (and, in particular, usury laws) that are consistent with the model.
    Keywords: adjudication; courts; prohibitions; interest rate cap.
    JEL: K12 K22 K41
    Date: 2017–09–01
  5. By: Dinev, Nikolay (Vienna Graduate School of Finance (VGSF))
    Abstract: This paper examines the phenomenon of management-initiated, court-supervised reorganization of companies in U.S. bankruptcy court. The proposed in-court persuasion mechanism reconciles excessive reorganizations of non-viable companies (and subsequent repeat failures) with management-initiated filings and a judge who aims to always take appropriate action. In the model, management makes a preemptive voluntary filing to retain control of the process, and thereby engage in a game of Bayesian Persuasion with asymmetric information vis-à-vis the judge. This mechanism endogenously results in the reorganization of some non-viable companies, and exclusively management-initiated (i.e., voluntary) bankruptcy filings. This paper, therefore, explains why non-viable companies could be permitted to reorganize and why there are repeat offender firms that enter bankruptcy multiple times.
    Keywords: Bayesian Persuasion, Bankruptcy, Chapter 11, Asymmetric Information
    JEL: C72 D21 D72 D82 D83 G33 K20 K40
    Date: 2017–12
  6. By: Datta, Pratik (University of Oxford); Surya Prakash B.S. (DAKSH, Bengaluru); Sane, Renuka (National Institute of Public Finance and Policy)
    Abstract: Most performance statistics using aggregate level data about courts in India show delays. There is limited analysis of the actual duration and trajectories of cases. In this paper, we create a de novo data-set using publicly available data on cases at the Indian Income Tax Appellate Tribunal (ITAT). We apply statistical techniques of hazard models to address questions around case duration at the Income Tax Appellate Tribunal (ITAT). We describe patterns in case life-span, compare these patterns among groups, and build statistical models of the risk of case completion over time. We find differences in the probability of case completion between the ITAT benches in Mumbai and Delhi. We also find that probability of case completion differs by case type. Our results point to the need to study case trajectories to better understand the causes of delays in order to design appropriate policy solutions to improve the performance of courts and tribunals.
    Keywords: hazard models ; tribunals ; India
    JEL: K49
    Date: 2017–10
  7. By: Malte Sandner (Institute for Employment Research (IAB)); Pia Wassmann (NRW.BANK)
    Abstract: In recent years many countries increased border controls, partly in response to public concerns that open borders are favoring cross-border crime. Despite these widespread concerns, empirical research on whether public fears are justi ed is still scarce. This article evaluates whether the abolishment of border controls at the eastern German and Austrian borders accompanying the implementation of the Schengen Treaty in December 2007 increased crime rates in border counties of these countries. Based on official crime statistics, conditional difference-in-differences estimation allows the evaluation of border controls in a causal way. Results show that in Germany and Austria only for burglaries a significant positive effect can be observed suggesting that for this type of criminal offense, public concerns proved to be justified. In contrast, for overall crime rates as well as for other common types of crime against property no significant effect can be observed, indicating that there is only little empirical evidence for the widespread concerns about public security.
    Keywords: Crime Rates, Border Regions, Schengen Treaty, Open Borders
    JEL: K42 R10
    Date: 2018–01
  8. By: Nuria Boot; Timo Klein; Maarten Pieter Schinkel
    Abstract: The fixing of the Libor and Euribor benchmark rates has proven vulnerable to manipulation. Individual rate-setters may have incentives to fraudulently distort their submissions. For the contributing banks to collectively agree on the direction in which to rig the rate, however, their interests need to be sufficiently aligned. In this paper we develop cartel theory to show how an interbank lending rates cartel can be sustained by preemptive portfolio changes. Exchange of information facilitates front running that allows members to reduce conflicts in their trading books. Designated banks then engage in eligible transactions rigging to justify their submissions. As the cartel is not able to always find stable cooperative submissions against occasional extreme exposure values, there is episodic recourse to non-cooperative quoting. Periods of heightened volatility in the rates may be indicative of cartelization. Recent reforms to broaden the class of transactions eligible for submission may reduce the level of manipulation, but can lead to more frequent collusive quoting.
    Keywords: Libor, Euribor, IRD, banking, cartel, insider trading
    JEL: E43 G14 G21 K21 L41
    Date: 2017
  9. By: H. Fraisse
    Abstract: When facing financial distress, French households can file a case to a “households’ over-indebtedness commission” (HDC). The HDC can order an immediate repayment or grant a debt suspension. Exploiting the random assignment of bankruptcy filings to managers, we show that a debt suspension has a very significant and negative effect on the likelihood to re-default but that this impact is only short-lived. Five years after the decision—conditionally on not having previously re-defaulted—the probability of re-default is the same whether or not the household benefits from the grace period.
    Keywords: Bankruptcy, Household Finance, Default, Debt Restructuring.
    JEL: G2 K35
    Date: 2017
  10. By: Nicolay, Katharina; Nusser, Hannah; Pfeiffer, Olena
    Abstract: The issue of base erosion and profit shifting has been on the international policy agenda for several years now. The aim of this paper is to examine how firms adjust their profit shifting mechanisms in a changing institutional environment. In particular, we test whether firms substitute one profit shifting strategy for another if respective costs change. To this end, we exploit changes in the strictness of transfer pricing regulations and thin capitalization rules over time in a panel of European multinational firms and study a quasi-experimental reform setting in France. We confirm existing evidence that tightening transfer pricing regulations reduces the tax sensitivity of earnings before interest and taxes (EBIT) substantially. Our results show, however, that this reduction includes both a reduction in profit shifting activity via the transfer pricing channel and a substitution with debt shifting. Moreover, firms using debt shifting to begin with rely more heavily on tax optimization of transfer prices when thin capitalization rules are strengthened. If transfer pricing regulations are also strict, the conditional reform effects show that the substitutive response is more pronounced for a subsample of firms with a high share of intangible property (IP). The difference-in-difference approach for the French tax reform illustrates an increase in profit shifting based on transfer prices for treated firms facing new restrictions on debt shifting. Again, the effect is stronger for IP intensive firms.
    Keywords: profit shifting channels,tax planning,corporate taxation,anti-avoidance legislation
    JEL: H25 F23 H26 H3
    Date: 2017
  11. By: Iain W. Long; Vito Polito
    Abstract: This paper investigates the incentives that may induce workers to supplement income from unemployment benefits by engaging in temporary informal work. Using a dynamic model of job-search with moral hazard that incorporates a stylised schedule of benefit payments, we describe how informal sector participation changes over the duration of unemployment, in turn affecting the incentive to search for formal employment. We find that increasing benefit generosity makes job seekers less reliant on informal work, enabling them to search more intensively. At the same time, when detection rates are low, informal work participation may decline as benefit exhaustion approaches, reinforcing this effect. From a policy perspective, the analysis identifies scope for reallocation of resources towards less generous programmes within unemployment protection, which would reduce the size of the informal sector and unemployment in the economy.
    Keywords: job-search, informal sector, unemployment insurance, moral hazard
    JEL: J64 J65 K42
    Date: 2017

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