nep-law New Economics Papers
on Law and Economics
Issue of 2018‒08‒13
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. How does product liability risk affect innovation? Evidence from medical implants By Galasso, Alberto; Luo, Hong
  2. Insights into the Impact of Bankruptcy's Public Record on Entrepreneurial Activity: Evidence from Economic Experiments By Dulleck, Uwe; Howell, Nicola J.; Koessler, Ann-Kathrin; Mason, Rosalind F.
  3. Foreign-Law Bonds: Can They Reduce Sovereign Borrowing Costs? By Marcos Chamon; Julian Schumacher; Christoph Trebesch
  4. Deportations and the roots of gang violence in Central America By Ambrosius, Christian
  5. Federal Lands, Opportunity Costs, and Bureaucratic Management By Gary D. Libecap
  6. The persistent labor market effects of a criminal conviction and “Ban the Box” reforms By Joshua M. Congdon-Hohman
  7. Job Market Signaling through Occupational Licensing By Peter Q. Blair; Bobby W. Chung
  8. Narratives, Imperatives, and Moral Reasoning By Roland Bénabou; Armin Falk; Jean Tirole
  9. Case Selection and Judicial Decision-Making: Evidence from French Labor Courts By Claudine Desrieux; Romain Espinosa
  10. Courts' Decisions, Cooperative Investments, and Incomplete Contracts By Alessandro De Chiara
  11. Spillovers from regulating corporate campaign contributions By Fremeth, Adam; Richter, Brian; Schaufele, Brandon

  1. By: Galasso, Alberto; Luo, Hong
    Abstract: Liability laws designed to compensate for harms caused by defective products may also affect innovation incentives. This paper examines this issue, exploiting a major quasi-exogenous increase in liability risk faced by US suppliers of polymers used to manufacture medical devices implanted in human bodies. Difference-in-differences analyses suggest that the surge in liability risk had a large and negative impact on downstream innovation in medical implants but no significant effect on upstream polymer patenting. These findings show how tort laws may affect the development of new technologies and how liability risk may percolate through an industry's vertical chain.
    Keywords: Innovation; medical devices; product liability; tort; vertical foreclosure
    JEL: K13 O31 O32 O34
    Date: 2018–07
  2. By: Dulleck, Uwe; Howell, Nicola J.; Koessler, Ann-Kathrin; Mason, Rosalind F.
    Abstract: Many Anglo-American jurisdictions aim to provide debtors with a ‘fresh start’ after a personal bankruptcy. However, we query the extent to which debtors can achieve a fresh start if records of individual bankruptcies are publicly available, with no restrictions on their use. To inform the legal policy question of whether bankruptcy records should be publicly available, we study the effect of the availability of bankruptcy records, compared to their non-existence, in an economic experiment. The experiment allows us to identify empirically the effect that the exposure of bankruptcy history has on the behaviour of investors and debtors. Our exploratory research shows that the availability of bankruptcy records increases investment. Availability also increases repayment behaviour by debtors, but only if the debtor has no history of bankruptcy (non-return of payments). If, however, a debtor failed to return payments in the past, and this information is available, debtors show lower instances of return behaviour.
    Keywords: bankruptcy,investments,National Personal Insolvency Index,uncertainty,economic experiment,insolvency,public records
    JEL: K35 C90 K20
    Date: 2018
  3. By: Marcos Chamon; Julian Schumacher; Christoph Trebesch
    Abstract: Governments often issue bonds in foreign jurisdictions, which can provide additional legal protection vis-à-vis domestic bonds. This paper studies the effect of this jurisdiction choice on bond prices. We test whether foreign-law bonds trade at a premium compared to domestic-law bonds. We use the euro area 2006-2013 as a unique testing ground, controlling for currency risk, liquidity risk, and term structure. Foreign-law bonds indeed carry significantly lower yields in distress periods, and this effect rises as the risk of a sovereign default increases. These results indicate that, in times of crisis, governments can borrow at lower rates under foreign law.
    Keywords: sovereign debt, creditor rights, seniority, law and finance
    JEL: F34 G12 K22
    Date: 2018
  4. By: Ambrosius, Christian
    Abstract: El Salvador, Honduras and Guatemala count among today's most violent countries of the world. Qualitative research has claimed that large-scale deportations of Central American convicts have played an important role for the spread of gangs and rampant violence in the region. Using a novel identification strategy, this paper provides the first econometric evidence for this hypothesis from the case of El Salvador. Regarding the dependent variable, the policy experiment of a truce between rivaling gangs in 2012 allows to single out gang-related killings from overall homicide rates. The explanatory variable exploits subnational variation in the exposure of migrant communities to exogenous conditions in the host country. Violence spilled over to migrants' places of origin when migrant corridors developed around US destinations with high pre-existing levels of violent crime. The cross-sectional evidence is backed by panel data analysis dating back to 1999. The annual inflow of convicts translated into rising homicides mainly in those municipalities whose migrants were exposed to high pre-existing crime at destination, whereas deportations of non-convicts did not have the same effect. These finding are in line with evidence on the origin of Central American gangs in US cities and convicts' return to their places of birth after massive deportations since the mid-1990s.
    Keywords: Deportations,Gang Violence,Central America
    JEL: K42 O15 H8
    Date: 2018
  5. By: Gary D. Libecap
    Abstract: The federal government owns and administers 472, 892,659 acres or 21% of the land area of the lower US, making it both the country’s largest land owner and among the largest by a central government among western democracies. This condition is surprising, given that the US generally is viewed as more oriented toward private property rights and markets. The land largely is managed by the US Forest Service and the Bureau of Land Management, staffed by unelected, career civil servants who hold tenure to their positions. Access and use regulations are administered by agency officials who have wide latitude under all-purpose legislation passed by Congress. Their actions are influenced by bureaucratic incentives and by lobby groups seeking to influence federal land policy. General citizens have little information about how policies are determined and only costly recourse to challenge them. Other than the comparatively small, 27,400,000 acres in National Parks, most of the land has no important amenity values nor apparent major externalities associated with use. These lands were to be transferred to private claimants under 19th century land laws. This paper examines how this vast area came to be withheld by the federal government and the role of the environmental movement in the process. Market failure and externalities were asserted justifications, but there is no strong supportive evidence. Although externalities were possible, the most obvious solution was to define property rights more completely. This option was and remains rejected by politicians, agency officials, and those lobby groups that sought permanent management and control over federal lands. Sustained-yield was an overarching objective, but it is a biological and not an economic concept and the human welfare outcomes of bureaucratic management may be large.
    JEL: K11 N51 N52 Q15 Q24 Q28
    Date: 2018–06
  6. By: Joshua M. Congdon-Hohman (Department of Economics and Accounting, College of the Holy Cross)
    Abstract: Past literature has established that individuals who have been incarcerated face difculties reentering the work force following their release, while finding and keeping a job can significantly reduce recidivism amongst individuals with prior criminal convictions. In attempt to improve employment outcomes, many local and state governments in the United States have initiated "Ban the Box" regulations. These initiatives delay inquiries regarding criminal history on job applications. Versions of ban the box regulations covering public sector employment have been enacted in 31 states and more than 150 local governments. Ban the box laws have included private employers in eleven states and over 30 metropolitan areas including New York, Los Angeles, Chicago, Washington D.C, Philadelphia, San Francisco, and Seattle. This study uses biennial data from November CPS reports from 2004 through 2016 to estimate the impact of ban the box laws on labor market outcomes using a unique proxy to identify individuals with a criminal record. With a few exceptions, the results do not show the intended improvements in employment and other labor market measures for those with a criminal history.
    Keywords: Labor Demand, Labor Market Discrimination, Consequences of Incarceration
    JEL: J18 J78 K31
    Date: 2018–07
  7. By: Peter Q. Blair; Bobby W. Chung
    Abstract: A large literature demonstrates that occupational licensing is a labor market friction that distorts labor supply allocation and prices. We show that an occupational license serves as a job market signal, similar to education. In the presence of occupational licensing, we find evidence that firms rely less on observable characteristics such as race and gender in determining employee wages. As a result, licensed minorities and women experience smaller wage gaps than their unlicensed peers.
    JEL: D21 D82 D86 J24 J31 J70 K23 K31 L51
    Date: 2018–07
  8. By: Roland Bénabou; Armin Falk; Jean Tirole
    Abstract: By downplaying externalities, magnifying the cost of moral behavior, or suggesting not being pivotal, exculpatory narratives can allow individuals to maintain a positive image when in fact acting in a morally questionable way. Conversely, responsibilizing narratives can help sustain better social norms. We investigate when narratives emerge from a principal or the actor himself, how they are interpreted and transmitted by others, and when they spread virally. We then turn to how narratives compete with imperatives (general moral rules or precepts) as alternative modes of communication to persuade agents to behave in desirable ways.
    JEL: D62 D64 D78 D83 D91 H41 K42 L14 Z13
    Date: 2018–07
  9. By: Claudine Desrieux (CRED - Centre de Recherches en Economie et Droit - UP2 - Université Panthéon-Assas); Romain Espinosa (CNRS - Centre National de la Recherche Scientifique, CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Using a database on French labor courts between 1998 and 2012, we investigate case selection and judicial decision-making. In France, judges are elected at the labor court level on lists proposed by unions, and litigants can first try to settle their case before the judicial hearing. We show that the ideological composition of the court indirectly impacts the settlement behavior of the parties but has no influence on the decision made in court. In addition, parties have self-fulfilling behavior and adapt to institutional rules. When they anticipate long judicial procedures at court, they settle more frequently and only require judicial hearings for complex cases. The duration to decide these complex cases is longer, explaining why they observe (and build their anticipation on) long case duration. Our empirical strategy uses probit, ordered probit and triprobit estimations to control for case selection. JEL codes: K31, K41
    Keywords: Settlement,case duration,judicial proceedings,labor courts,unions
    Date: 2018
  10. By: Alessandro De Chiara
    Abstract: Buyers may try to motivate their sellers to make relationship-specific investments to reduce the probability that the design of the goods they procure is defective. In some countries, courts examine how much real authority the seller had in performing the work to assign liability for a design failure. I show that this courts’ approach induces the sellers to under-invest and the buyers to under-specify the design of the goods. I find that this approach can also make it harder to sustain optimal relational contracting, leading to the conclusion that it cannot be justified on efficiency grounds.
    Keywords: Cooperative Investments, Courts, Defective Specifications, Design Failure, Expectation Damages, Formal and Real Authority, Incomplete Contracts, Relational Contracts. JEL classifications: D23, D86, K12, L23, L24.
    Date: 2018–07–10
  11. By: Fremeth, Adam; Richter, Brian; Schaufele, Brandon
    Abstract: Populist clamor and recent Supreme Court decisions have renewed calls for increased regulation of corporate money in politics. Few empirical estimates exist, however, on the implications of existing rules on firms' political spending. Exploiting within firm-cycle cross-candidate variation and across firm-cycle variation, we demonstrate that the regulation of PAC campaign contributions generates large spillovers into other corporate political expenditures such as lobbying. Using both high dimensional fixed effects and regression discontinuity designs, we demonstrate that firms constrained by campaign contribution limits spend between $549,000 and $1.6M more on lobbying per election cycle, an amount that is more than 100 times the campaign contribution limit. This empirical results demonstrate that, similar to regulations in other domains of the economy, constraining specific corporate political activities often yields unintended effects.
    Keywords: Campaign finance regulation; corporate political activity; election law
    JEL: D72 D73 K39
    Date: 2018–06

This nep-law issue is ©2018 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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