nep-law New Economics Papers
on Law and Economics
Issue of 2018‒04‒02
twenty-one papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Prosecution and Conviction under Hindsight Bias in Adversary Legal Systems By Christmann, Robin
  2. Sovereign defaults in court By Schuhmacher, Julian; Trebesch, Christoph; Enderlein, Henrik
  3. Horizontal Mergers and Innovation By Jullien, Bruno; Lefouili, Yassine
  4. Quality of Judicial Institutions, Crimes, Misdemeanors, and Dishonesty By Naci H. Mocan; Samantha Bielen; Wim Marneffe
  5. Prices, Policing and Policy: The Dynamics of Crime Booms and Busts By Tom Kirchmaier; Stephen Machin; Matteo Sandi; Robert Witt
  6. Taxing Hidden Wealth: The Consequences of U.S. Enforcement Initiatives on Evasive Foreign Accounts By Niels Johannesen; Patrick Langetieg; Daniel Reck; Max Risch; Joel Slemrod
  7. Do Ban the Box Laws Increase Crime? By Joseph J. Sabia; Taylor Mackay; Thanh Tam Nguyen; Dhaval M. Dave
  8. Digital Disintermediation and Efficiency in the Market for Ideas By Christian Peukert; Imke Reimers
  9. Corruption in Russia - Historic Legacy and Systemic Nature By Günther G. Schulze; Nikita Zakharov
  10. Legal and Policy Implications of the Trans-Pacific Partnership Agreement: Focus on Intellectual Property By Vilchez, Ma. Gladys C.
  11. Constraints of Spanish Insolvency Law. A Predictive Bankruptcy Model for Spanish Industrial SMEs (2007-2015) By Salvador Ortí-Camallonga
  12. Raising the bar? Thoughts on the establishment of the European Public Prosecutor’s Office By Mitsilegas, Valsamis; Giuffrida, Fabio
  13. Is There a Role for Patents in the Financing of Innovative Firms? By Bronwyn H. Hall
  14. Race, Representation and Local Governments in the US South: the effect of the Voting Rights Act By Bernini, Andrea; Facchini, Giovanni; Testa, Cecilia
  15. Bid rigging and entry deterrence in public procurement: Evidence from an investigation into collusion and corruption in Quebec By Robert Clark; decio Coviello; Jean-Francois Gauthier; Art Shneyerov
  16. Medical Malpractice Reforms and the Location Decisions of New Physicians By Pinka Chatterji; Siyang Li; Gerald R. Marschke
  17. Behavioral Effects of Withholding Taxes on Labor Supply By Johannes Becker; Jonas Fooken; Melanie Steinhoff
  18. Does increasing compulsory education decrease or displace adolescent crime? New evidence from administrative and victimization datail By Ylenia Brilli; Marco Tonello
  20. Tax Evasion and Inequality By Alstadsaeter, Annette; Johannesen, Niels; Zucman, Gabriel
  21. Law and finance in emerging economies: Germany and Britain 1800-1913 By Gerner-Beuerle, Carsten

  1. By: Christmann, Robin
    Abstract: The plea bargaining mechanism in criminal procedure serves as a favorable screening device, separating between the guilty and the innocent. Previous literature ignored the impact of asymmetric information on prosecutor performance inside the adversarial court, which degrades his bargaining position. This paper presents a sequential prosecution game with endogenous courts, and shows that the successful conviction in court crucially depends on prosecutor´s beliefs and incentives. If the prosecutor is sufficiently convinced of the defendant´s guilt ex-ante, he can commit to trial, and the favorable semiseparating equilibrium is obtained. Applying the first formal model of a hindsight biased prosecutor, we find that the negative impact of uncertainty on prosecutor performance is partly mitigated by hindsight bias, and the self-selection of guilty defendants can even improve. Several caveats, like excessive charges, the nature of the case or the quality of investigations by the police force are discussed.
    Keywords: criminal procedure; plea bargainin; screening; courts; limited rationality
    JEL: D03 D83 K14 K41
    Date: 2018–02–27
  2. By: Schuhmacher, Julian; Trebesch, Christoph; Enderlein, Henrik
    Abstract: For centuries, defaulting governments were immune from legal action by foreign creditors. This paper shows that this is no longer the case. Building a dataset covering four decades, we find that creditor lawsuits have become an increasingly common feature of sovereign debt markets. The legal developments have strengthened the hands of creditors and raised the cost of default for debtors. We show that legal disputes in the US and the UK disrupt government access to international capital markets, as foreign courts can impose a financial embargo on sovereigns. The findings are consistent with theoretical models with creditor sanctions and suggest that sovereign debt is becoming more enforceable. We discuss how the threat of litigation affects debt management, government willingness to pay, and the resolution of debt crises.
    Keywords: sovereign default,enforcement,government financing,debt restructuring
    JEL: F34 G15 H63 K22
    Date: 2018
  3. By: Jullien, Bruno; Lefouili, Yassine
    Abstract: This paper discusses the effects of horizontal mergers on innovation. We rely on the existing academic literature and our own research work to present the various positive and negative effects of mergers on innovation. Our analysis shows that the overall impact of a merger on innovation may be either positive or negative and sheds light on the circumstances under which each of these scenarios is likely to arise. We derive a number of policy implications regarding the way innovation effects should be handled by competition authorities in merger control and highlight the differences with the analysis of price effects.
    Keywords: Innovation; Merger Policy; R&D Investments
    JEL: K21 L13 L40
    Date: 2018–03
  4. By: Naci H. Mocan; Samantha Bielen; Wim Marneffe
    Abstract: We investigate the extent to which the quality of judicial institutions has an impact on individuals’ propensity for criminal and dishonest behavior and on their views regarding the acceptability of dishonesty and law-breaking. We use micro data on residents of 25 European countries and employ alternative measures of judicial quality. Acknowledging that the quality of judicial institutions is endogenous, we employ as an instrument the procedures with which prosecutors and judges are appointed to their posts in each country. The results reveal that an increase in the quality of judicial institutions, such as an improvement in judicial independence or the impartiality of the courts, has a deterrent effect on dishonest and criminal acts. A higher quality judicial system makes individuals less likely to find acceptable a variety dishonest and illicit behaviors, suggesting that institutions help shape the beliefs of the society.
    JEL: H0 J0 K4 K42 P48 Z1
    Date: 2018–03
  5. By: Tom Kirchmaier; Stephen Machin; Matteo Sandi; Robert Witt
    Abstract: In many historical episodes, the extent of criminal activity has displayed booms and busts. One very clear example is the case of metal crime, where in the face of big increases in value driven by world commodity prices, the incidence of metal thefts in the UK (and elsewhere) rose very sharply in the 2000s. Early in the current decade, they fell sharply again. This paper studies the roles of prices, policing and policy in explaining these crime dynamics. The empirical analysis shows sizeable and significant metal crime-price elasticities, in line with the idea that changing economic returns do shape crime. However, the rapid upward and downward trends are not only due to price changes. Their temporal evolution is also explained by changes in policing and policy. On the former, a difference-in-differences approach is used to document an important role of policing as a consequence of an anti-metal crime operation introduced in 2012. On the latter, the introduction of the Scrap Metal Dealers Act 2013 is exploited to study the impact of policy on the economic activity of scrap metal dealers in England and Wales. Results from our difference-in-differences specification suggest that the tougher regulatory system introduced by the policy hindered the economic activity of pre-existing dealers, reflecting the reduced market size for potential metal criminals to sell what they have stolen.
    Keywords: metal crime, metal prices, commodity prices
    JEL: K42
    Date: 2018–03
  6. By: Niels Johannesen; Patrick Langetieg; Daniel Reck; Max Risch; Joel Slemrod
    Abstract: In 2008, the IRS initiated efforts to curb the use of offshore accounts to evade taxes. This paper uses administrative microdata to examine the impact of the enforcement efforts on taxpayers’ reporting of offshore accounts and income. Enforcement caused approximately 60,000 individuals to disclose offshore accounts with a combined value of around $120 billion. Most disclosures happened outside offshore voluntary disclosure programs by individuals who never admitted prior noncompliance. The disclosed accounts were concentrated in countries whose institutions facilitate tax evasion. The enforcement-driven disclosures increased annual reported capital income by $2.5-$4 billion corresponding to $0.7-$1.0 billion in additional tax revenue.
    JEL: H24 H26
    Date: 2018–03
  7. By: Joseph J. Sabia; Taylor Mackay; Thanh Tam Nguyen; Dhaval M. Dave
    Abstract: Ban-the-box (BTB) laws, which prevent employers from asking prospective employees about their criminal histories at initial job screenings, have been adopted by 25 states and the District of Columbia. Using data from the National Incident-Based Reporting System, the Uniform Crime Reports, and the National Longitudinal Survey of Youth 1997, this study is the first to estimate the effect of BTB laws on crime. We find some evidence that BTB laws are associated with an increase in property crime among working-age Hispanic men. This finding is consistent with employer-based statistical discrimination as well as potential moral hazard. A causal interpretation of our results is supported by placebo tests on policy leads and a lack of BTB-induced increases in crime for non-Hispanic whites and women. Finally, we find that BTB laws are associated with a reduction in property crime among older and white individuals, consistent with labor-labor substitution toward those with perceived lower probabilities of having criminal records (Doleac and Hansen 2017).
    JEL: J01 J08 K14 K31
    Date: 2018–03
  8. By: Christian Peukert; Imke Reimers
    Abstract: Digital technology has allowed inventors to circumvent traditional intermediaries and directly reach consumers, which may affect licensing outcomes and efficiency in the market for ideas. We study these impacts theoretically and empirically in the book publishing industry, where the number of new books available to consumers has almost doubled after the advent of digital self- publishing platforms. Using data on over 90,000 license deals between authors and publishers from 2002 to 2015, we identify disintermediation-related changes in this market from quasi-experimental variation across product types over time. Consistent with digital self-publishing improving an author’s bargaining position, we find that authors get substantially more favorable license deals. We further show that ex-ante license fees reflect ex-post demand more accurately. This is consistent with additional entry generating more information about a product type’s realized appeal. In markets in which product appeal is difficult to predict, such improvements in the information environment can have large impacts on efficiency and welfare.
    Keywords: disintermediation, innovation, book publishing, natural experiment
    JEL: D22 D83
    Date: 2018
  9. By: Günther G. Schulze; Nikita Zakharov
    Abstract: This paper argues that corruption in Russia is systemic in nature. Low wage levels of public officials provide strong incentives to engage in corruption. As corruption is illegal, corrupt officials can be exposed any time, which enforces loyalty towards the powers that be; thus corruption is a method of governance. We trace the systemic corruption back to the Mongolian empire and demonstrate its persistence to the current regime. We show the geographic distribution of contemporary corruption within Russia, survey the literature on the causes, consequences, and cures of corruption in Russia, and discuss entry points to fighting it.
    Keywords: corruption, governance, institutions, political economy, history, Russia
    JEL: D73 H11 H73 K42 N40 P37
    Date: 2018
  10. By: Vilchez, Ma. Gladys C.
    Abstract: As the Philippines participates in negotiations for new-generation free trade agreements (FTAs), it is crucial for the country to have a critical assessment of its readiness to meet the obligations set out therein. Among others, the legal and policy implications of particular new-generation FTA provisions must be carefully examined. This paper provides a study of the legal and policy implications of the intellectual property (IP) provisions of these new-generation FTAs through an analysis of the relevant IP provisions of the Trans-Pacific Partnership (TPP) Agreement. It also reviews the IP treaties and conventions ratified by the Philippines, the current IP laws and related laws enacted to implement these treaties, as well as the legal framework within which IP rights are protected and enforced, to assess their convergence with TPP obligations, draw out the gaps, and identify policy and regulatory changes and administrative actions that may be required for the Philippines to achieve readiness to join the TPP or similar FTAs.
    Keywords: Philippines, TPP, FTA, free trade agreement, Trans-Pacific Partnership Agreement, new-generation FTAs, intellectual property
    Date: 2018
  11. By: Salvador Ortí-Camallonga (Department of Finance, University of Valencia, Spain)
    Abstract: Why almost 90% of Spanish SMEs that declare insolvency end up in liquidation? Academic works on insolvency focus either on legal terms – normative bias, impact on business’ death rate, and contrast to internal restructuring processes, to name a few – or on financial aspects – especially bankruptcy predictive models – . This work argues that a combined approach could be elucidating. For this purpose, it configures a predictive model – inspired on Atlman’s z-score – for Spanish SMEs of industrial sectors for the period 2007-2015. This investigation argues that operative difficulties can be detected well in advance to official declaration of insolvency; and provides specific evidence of Spanish Law constrains.
    Keywords: Insolvency Proceedings, Spanish SMEs, Bankruptcy forecast, Logistic Regression, Financial Distress
    JEL: G34 G17 K10
    Date: 2018
  12. By: Mitsilegas, Valsamis; Giuffrida, Fabio
    Abstract: The creation of a European prosecuting authority is a historic achievement for the European Union, especially at a time when populism, as epitomised by Brexit, has undermined the process of integration. After nearly four years of negotiations and 20 years of academic and political debate, the Council Regulation setting up the European Public Prosecutor’s Office (EPPO) was approved in October 2017, in the framework of the enhanced cooperation established in April of this year. The EPPO Regulation is probably the most ambitious instrument of EU law adopted so far, since it creates the first EU body with direct powers regarding individuals in the field of criminal law. The Office will be empowered to investigate and prosecute crimes affecting the financial interests of the EU. Recent calls, including those from Commission President Juncker and French President Macron, for an extension of the EPPO’s powers to cases of cross-border terrorism bode well for the likely acceptance of this Office in the EU in years to come. Yet the final text of the Regulation raises several concerns, argue the authors, such as those relating to the impact of supranational investigations on human rights and, more generally, about the expected effectiveness of the Office, given its cumbersome and multi-layered architecture. This paper looks at the main provisions of the Regulation and the challenges it poses, focusing on the structure, powers, and competence of the EPPO. It also considers the judicial review of its acts, the protection of the rights of suspects and accused persons, and relations between the Office and its partners. The analysis shows that the Commission’s innovative vision of a centralised prosecution at EU level, with its echoes of federalism, has been watered down in negotiations in the Council and replaced with the usual intergovernmental, collegiate vision that underpins numerous EU judicial cooperation structures and instruments.
    Date: 2017–11
  13. By: Bronwyn H. Hall
    Abstract: It is argued by many that one of the benefits of the patent system is that it creates a property right to invention that enables firms to obtain financing for the development of that invention. In this paper, I review the reasons why ownership of knowledge assets might be useful in attracting finance and then survey the empirical evidence on patent ownership and its impact on the ability of firms to obtain further financing at different stages of their development, both starting up and after becoming established. Studies that attempt to separately identify the role of patent rights and the underlying quality of the associated innovation(s) will be emphasized, although these are rather rare.
    JEL: G24 G32 L26 O34
    Date: 2018–03
  14. By: Bernini, Andrea; Facchini, Giovanni; Testa, Cecilia
    Abstract: The Voting Rights Act of 1965 opened elective offices to blacks in the US South, but systematic evidence on its immediate effects remains scant. Using a novel data-set on black elected officials between 1964-1980, we assess the causal impact of the VRA on the racial make-up of local governments. Since the VRA mandated federal scrutiny (coverage) over a group of Southern counties, we deploy a differences-in-differences estimation strategy using non-covered counties as a comparison group. Our results show that coverage doubled the extent to which black enfranchisement led to gains in black office-holding, particularly among bodies controlling local public finances.
    Keywords: Black Representation; Local Elections; Public Good Provision; Voting Rights Act
    JEL: D72 J15 N92
    Date: 2018–03
  15. By: Robert Clark (Queen's University); decio Coviello (HEC Montreal); Jean-Francois Gauthier (Boston College); Art Shneyerov (Concordia University)
    Abstract: We study the impact of an investigation into collusion and corruption to learn about the organization of cartels in public procurement auctions. Our focus is on Montreal’s asphalt industry, where there have been allegations of bid rigging, market segmentation, complementary bidding and bribes to bureaucrats, and where, in 2009, a police investigation was launched. We collect procurement data and use a difference-in-difference approach to compare outcomes before and after the investigation in Montreal and in Quebec City, where there have been no allegations of collusion or corruption. We find that entry and participation increased, and that the price of procurement decreased. We then decompose the price decrease to quantify the importance of two aspects of cartel organization, coordination and entry deterrence, for collusive pricing. We find that the latter explains only a small part of the decrease.
    Keywords: Collusion, Corruption, Bid rigging, Entry deterrence
    JEL: L22 L74 D44 H57
    Date: 2018–02
  16. By: Pinka Chatterji; Siyang Li; Gerald R. Marschke
    Abstract: Spatial inequalities in access to physicians is a long-standing problem in the US, and it may be an important underlying cause of SES-related and racial/ethnic disparities in health outcomes. One important factor underlying spatial inequalities may be the enactment of state-level malpractice reforms, which could affect physician supply to a state, and/or lead to sorting among physicians across states along characteristics such as physician quality. In this study, we test whether state-level malpractice laws affect new physicians’ location decisions and sorting of physicians by quality measures across states. We use data from the New York State (NYS) Residents’ Exit Survey, which includes all exiting medical residents from hospitals in NYS, and includes the practice locations these new physicians have chosen. We focus on two malpractice reforms – caps on noneconomic damages and caps on punitive damages. Our findings suggest that both types of reforms are associated with an increased probability of new physicians locating in the state that passed the reform, but only the caps on noneconomic damages are statistically significant at conventional levels. Effects of the laws are stronger for physicians in specialties which tend to face the highest risk of malpractice awards, while the opposite is true for physicians in specialties with the lowest risk of malpractice awards, as well as for osteopathic physicians. Physicians entering solo practice and partnerships respond more to damage cap laws than physicians entering group practices, hospital-based practices and other practice settings. While we do not find that median MCAT scores in the medical schools attended (among physicians from medical schools in New York State (NYS)) interact with the effects of the laws, we do find that US citizens attending foreign medical schools, as well as international medical graduates more generally, respond more to damage caps laws compared to physicians trained only in the US. If we consider the degree of selectivity of the medical school to be a measure of physician ability, this finding may suggest that damage cap laws influence location choices more among lower-ability physicians.
    JEL: I1
    Date: 2018–03
  17. By: Johannes Becker (University of Muenster); Jonas Fooken (School of Economics, The University of Queensland); Melanie Steinhoff (University of Muenster)
    Abstract: Income tax collection in most advanced economies uses third-party reporting and withholding at the employer level before the employee receives her wage income. Since withholding taxes do not necessarily reflect the true effective tax burden, they may give false signals on the net-of-tax pay. We report results of laboratory experiments in which labor supply effects of such misperceptions are tested. Withholding taxes (and resulting tax refunds) should be behaviorally neutral in the experiment, but our results suggest that withholding taxes reduce effort and tax adjustments lead to adjustments of effort for our most relevant group of participants, those motivated by monetary incentives. This indicates that withholding taxes may be behaviorally relevant and deserve attention of policy-makers
    Keywords: Withholding taxes; experiment; tax perceptions
    JEL: H25 M41 G32
    Date: 2018–03–07
  18. By: Ylenia Brilli; Marco Tonello
    Abstract: This paper estimates the contemporaneous effect of education on adolescent crime by exploiting the implementation a reform that increases the school leaving age in Italy by one year. We find that the Reform increases the enrollment rate of all ages, but decreases the offending rate of 14-year-olds only, who are the age group explicitly targeted by the Reform. The effect mainly comes from natives males, while females and immigrants are not affected. The Reform does not induce crime displacement in times of the year or of the day when the school is not in session, but it increases violent crimes at school. By using measures of enrollment and crime, as well as data at the aggregate and individual level, this paper shows that compulsory education reforms have a crime reducing effect induced by incapacitation, but may also lead to an increase of crimes in school facilities plausibly due to a higher concentration of students.
    Keywords: adolescent crime; school enrollment; crime displacement; incapacitation
    Date: 2017
    Abstract: For a long time in history, Papal State was one of the most powerful state in all over Europe with the Pope as a head of state. But, the situation had changed after it lost its territory to Italy, which, as a consequnce, developed the problem of the status of Vatican under the principles of international law. At the time it continued to act as if it was a state, and some states promoted the very idea. This complex situation somehow eased by the conclusion of 1929 Lateran Treaty with Italy, in which a small territory was given to it and recognized its sovereignty over it. But, the question of status, as it would appear, has remained stand-still. In this respect, some jurists in doctrine challenges the status of Vatican as a state and acknowledges it as a sui generis subject of international law, while some recognizes it as a state. Hence, in this brief assessment the question of the legal status of Vatican will be analyzed.
    Keywords: Vatican, Holy See, Lateran Treaty (1929), Subjects of International Law, Papal State
    JEL: K33 F50
    Date: 2017–10
  20. By: Alstadsaeter, Annette; Johannesen, Niels; Zucman, Gabriel
    Abstract: This paper estimates the size and distribution of tax evasion. We combine random audits, tax amnesties, and leaks from offshore financial institutions matched to wealth records in Scandinavia. Tax evasion rises sharply with wealth: 3% of personal taxes are evaded on average, versus 25%–30% in the top 0.01% of the wealth distribution. A model of the supply of evasion services can explain this gradient. Taking tax evasion into account increases inequality substantially. After using tax amnesties, evaders do not seem to increase legal tax avoidance, suggesting that fighting evasion can allow governments to collect more taxes from the wealthy.
    Date: 2018–03
  21. By: Gerner-Beuerle, Carsten
    Abstract: By most standards, Britain in the 19th century was the world's leading financial nation, with more developed capital markets than any other country. An influential view in the law and finance literature argues that, holding macroeconomic factors constant, the different financial development can be attributed to more stringent disclosure regulation in Britain. Presenting a granular analysis of regulatory reform in Britain and Germany, this article shows that the level of disclosure regulation was largely comparable in both countries during the relevant period and that reform initiatives were not an exogenous stimulus of financial development, but evolved incrementally in response to changing market conditions. On the other hand, the legal regime governing the formation of stock corporations developed in diametrically opposed directions in the two countries as a result of concerted efforts by policy makers to change market conditions. The article argues that these rules, which were relevant to organisational choice and the availability of different sources of financing, stand out as the most striking difference between Germany and the UK.
    Keywords: law and finance; financial development; disclosure regulation; private enforcement; liability for incorrect disclosures
    JEL: N0 F3 G3
    Date: 2017–03–03

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