nep-law New Economics Papers
on Law and Economics
Issue of 2018‒08‒27
fifteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Narratives, Imperatives and Moral Reasoning By Roland Bènabou; Armin Falk; Jean Tirole
  2. The Impact of the French Doctrine of Significant Imbalance on International Business Transactions By Restrepo-Amariles, David; Bassilana , Eva Mouial; Winkler, Matteo
  3. Racial Divisions and Criminal Justice: Evidence from Southern State Courts By Benjamin Feigenberg; Conrad Miller
  4. Differential Voting Right Shares in India - Legal and Valuation Perspective By Wadhwa, Manick; Wadhwa, Ankit
  5. Pre-emptive sovereign debt restructuring and holdout litigation By Anand, Kartik; Gai, Prasanna
  6. Effects of institutional history and leniency on collusive corruption and tax evasion By Johannes Buckenmaier; Eugen Dimant; Luigi Mittone
  7. Optimal timing of harzardous waste clean-up under an environmental bond an a strict liability rule By Sara Aghakazemjourabbaf; Margaret Insley
  8. Complex Disclosure By Ginger Zhe Jin; Michael Luca; Daniel J. Martin
  9. Why Does Education Reduce Crime? By Brian Bell; Rui Costa; Stephen Machin
  10. Estimating the Effect of an Increase in the Minimum Wage on Hours Worked and Employment in Ireland By McGuinness, Seamus; Redmond, Paul
  11. Fear and the Safety Net: Evidence from Secure Communities By Marcella Alsan; Crystal Yang
  12. State Substitution for the Trade Union Good: The Case of Paid Holiday Entitlements By Forth, John; Bryson, Alex
  13. The impact of multi-fibre agreement phase-out on Sub-Saharan Africa’s textiles and clothing exports By Ayoki, Milton
  14. Why Is the Practice of Levirate Marriage Disappearing in Africa? HIV/AIDS as an Agent of Institutional Change By Kudo, Yuya
  15. The textile and clothing industry in Lesotho in the wake of the multi-fibre agreement phase-out By Ayoki, Milton

  1. By: Roland Bènabou (Princeton University); Armin Falk (University of Bonn); Jean Tirole (Toulouse School of Economics)
    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.
    Keywords: moral behavior, prosocial behavior, narratives, imperatives, justifications, rules, Kantian reasoning, deontology, consequentialism, utilitarianism, norms, organizations
    JEL: D62 D64 D78 D83 D85 D91 H41 K42 L14 Z13
    Date: 2018–07
  2. By: Restrepo-Amariles, David; Bassilana , Eva Mouial; Winkler, Matteo
    Abstract: This article examines the concept of “significant imbalance” (SI) under French law and its impact on international business transactions. “Significant imbalance” is a legal standard meant to assess whether a contractual clause is unfair (abusive). Although initially restricted to consumer law, it has been extended to general contract law with the implementation of a reform entered into force on 1st October 2016. Previously, the Commercial Court of Paris in the ruling Ministry of Economy et al. v. Expedia, Inc. et al. (2015) had qualified SI as an “overriding mandatory provision” (loi de police) under EU Regulation No. 593/2008 on the applicable law to contractual obligations (Rome I). As a consequence, SI became operative in respect of international contracts despite an express choice of a foreign governing law made by the parties to the transaction. This article argues that, as a result of Expedia and the 2016 reform, French courts can interfere with international business transactions by striking down contractual terms that they deem unfair according to the SI standard. The analysis focuses on two key issues. On the one hand, notwithstanding recent judicial precedents, SI still fails to provide a reliable test for predicting which clauses or contracts are at risk of being deemed unfair. On the other hand, the legal arsenal supporting French legislator’s disapproval of SI allocates great power to French courts and the French government to pursue tort lawsuits against foreign companies allegedly oppressing their commercial partners with SI clauses. Empirical evidence shows that these actions are highly successful compared to those commenced by private actors. The article concludes that all these aspects, together with SI’s turbulent case-law throughout the years, will sprout uncertainty in international business transactions and may eventually disparage France in the global competition in such a field.
    Keywords: Contract; International Business Transactions; French Law; Conflict of Laws
    JEL: K22 K33
    Date: 2018–03–01
  3. By: Benjamin Feigenberg; Conrad Miller
    Abstract: The US criminal justice system is exceptionally punitive. We test whether racial heterogeneity is one cause, exploiting cross-jurisdiction variation in criminal justice practices in four Southern states. We estimate the causal effect of jurisdiction on initial charge outcome, validating our estimates using a quasi-experimental research design based on defendants that are charged in multiple jurisdictions. Consistent with a simple model of ingroup bias in electorate preferences, the relationship between local punitiveness and the black share of defendants follows an inverted U-shape. Heterogeneous jurisdictions are more punitive for both black and white defendants. By contrast, punishment norms are unrelated to local crime rates. Simulation results suggest that adopting the punishment norms of homogeneous jurisdictions would decrease the share of charges leading to an incarceration sentence and the black-white gap in this share by 16-19%.
    JEL: J15 K14 K41 K42
    Date: 2018–06
  4. By: Wadhwa, Manick; Wadhwa, Ankit
    Abstract: In India, a company can only issue DVR, a.k.a. Differential Voting Rights, shares that offer fewer voting rights than ordinary shares of the same company. The holders of the equity shares with differential rights enjoy all other rights such as bonus shares, rights shares etc., which the holders of ordinary equity shares are entitled to Ideally, the movement in the two shares, i.e. ordinary share and DVR share, should mirror each other. However in India, on an average, only 63.83% of the returns of DVR shares is explained by returns of the ordinary shares. The legal environment is the key factor in explaining differences across countries and the voting premium is smaller in countries with better legal protection for minority and non-voting stockholders and larger for countries without such protection. Considering the strict corporate governance requirements for Companies to list dual-class shares in India and the various laws protecting the rights of DVR shareholders against hostility, it can be argued that the discount of 35-45% for DVR shares is a bit excessive.
    Keywords: dual class shares; dvr; india; legal; valuation; voting vs non-voting shares
    JEL: G1 G14 K22
    Date: 2018–07
  5. By: Anand, Kartik; Gai, Prasanna
    Abstract: We offer an analytical framework for studying "pre-emptive" debt exchanges. Countries can tailor a sovereign bankruptcy framework by choosing provisions (or "haircuts") ex ante, but must contend with the market discipline of holdout litigation ex post. Secondary markets play a role in shaping the holdout costs facing the sovereign, and our results suggest that it is optimal to prioritise the rights of holdout creditors during litigation so that they are always paid in full. We clarify how macroeconomic and legal factors influence the choice of haircut. Our model contributes to the debate on sovereign debt restructuring by formalizing Bolton and Skeel's (2004) notion of a "Designer SDRM".
    Keywords: sovereign debt restructuring,holdout creditors,bankruptcy procedures,absolute priority
    JEL: F34 F55 G33 K4
    Date: 2018
  6. By: Johannes Buckenmaier; Eugen Dimant; Luigi Mittone
    Abstract: We investigate the effects of an institutional mechanism that incentivizes taxpayers to blow the whistle on collusive corruption and tax compliance. We explore this through a formal leniency program. In our experiment, we nest collusive corruption within a tax evasion framework. We not only study the effect of the presence of such a mechanism on behavior, but also the dynamic effect caused by the introduction and the removal of leniency. We find that in the presence of a leniency mechanism, subjects collude and accept bribes less often while paying more taxes, but there is no increase in bribe offers. Our results show that the introduction of the opportunity to blow the whistle decreases the collusion and bribe acceptance rate, and increases the collected tax yield. It also does not encourage bribe offers. In contrast, the removal of the institutional mechanism does not induce negative effects, suggesting a positive spillover effect of leniency that persists even after the mechanism has been removed.
    Keywords: Collusive bribery, institutions, tax compliance, leniency, spillover
    JEL: C92 D02 D73 H26 K42
    Date: 2018–08
  7. By: Sara Aghakazemjourabbaf (Department of Economics, University of Waterloo); Margaret Insley (Economics Department, University of Waterloo)
    Abstract: Inadequate site clean-up and restoration by resource extraction firms leave a toxic legacy which must be dealt with by governments. This study compares the impacts of an environmental bond and a strict liability rule on a firm's incentives for cleaning up hazardous waste during resource extraction and upon termination. The firm's problem is modelled as a stochastic optimal control problem that results in a system of Hamilton Jacobi Bellman equations. The model is applied to a typical copper mine in Canada. The resource price is modelled as a stochastic differential equation, which is calibrated to copper futures prices using a Kalman filtering approach. A numerical solution is implemented to determine the optimal abatement and extraction rates as well as the critical levels of copper prices that would motivate a firm to clean up the accumulated waste under each policy. The paper demonstrates that an environmental bond provides stronger waste abatement incentives, implying that the waste is more likely to be cleaned up under the bond than the liability. The strict liability rule imposes sunk costs on a firm upon termination which would motivate it to remain inactive as a way to escape clean-up costs. However, the environmental bond raises funds ex ante for future clean-up costs and thus encourages site restoration.
    JEL: C61 D81 K32 Q52 Q58
    Date: 2018–01–06
  8. By: Ginger Zhe Jin; Michael Luca; Daniel J. Martin
    Abstract: Disclosure policies have the potential to help consumers and make markets more efficient. Yet, the effectiveness of disclosure policies can be undermined if firms strategically make unfavorable information unnecessarily complicated to understand. To explore the incentives for using complexity in disclosure, we implement a game of mandatory disclosure where senders are required to report their private information truthfully, but can choose how complex to make their reports. We find that senders use complex disclosure over half the time, and most of this obfuscation is profitable because receivers make systematic mistakes in assessing complex reports. Stated beliefs suggest that receivers correctly infer the strategic implications of complexity, but are overconfident about their ability to assess complex reports.
    JEL: D8 D91 K2 L15
    Date: 2018–06
  9. By: Brian Bell; Rui Costa; Stephen Machin
    Abstract: Prior research shows reduced criminality to be a beneficial consequence of education policies that raise the school leaving age. This paper studies how crime reductions occurred in a sequence of state-level dropout age reforms enacted between 1980 and 2010 in the United States. These reforms changed the shape of crime-age profiles, reflecting both a temporary incapacitation effect and a more sustained, longer run crime reducing effect. In contrast to the previous research looking at earlier US education reforms, crime reduction does not arise solely as a result of education improvements, and so the observed longer run effect is interpreted as dynamic incapacitation. Additional evidence based on longitudinal data combined with an education reform from a different setting in Australia corroborates the finding of dynamic incapacitation underpinning education policy-induced crime reduction.
    Keywords: crime age profiles, school dropout, compulsory schooling laws
    JEL: I2 K42
    Date: 2018–08
  10. By: McGuinness, Seamus (Economic and Social Research Institute, Dublin); Redmond, Paul (ESRI, Dublin)
    Abstract: On the 1st of January 2016 the Irish National Minimum Wage increased from €8.65 to €9.15 per hour, an increase of approximately six percent. We use a difference-in-differences estimator to evaluate whether the change in the minimum wage affected the hours worked and likelihood of job loss of minimum wage workers. The results indicate that the increase in the minimum wage had a negative and statistically significant effect on the hours worked of minimum wage workers, with an average reduction of approximately 0.5 hours per week. The effect on minimum wage workers on temporary contracts was higher at 3 hours per week. We found a corresponding increase in part-time employment of 2 percentage points for all minimum wage workers and 10 percentage points for those on temporary contracts. We find no clear evidence that the increase in the minimum wage led to an in-creased probability of becoming unemployed or inactive in the six-month period following the rate change.
    Keywords: minimum wage, hours of work, employment, unemployment
    JEL: E24 J22 J23 J31 J42
    Date: 2018–06
  11. By: Marcella Alsan; Crystal Yang
    Abstract: This paper explores the impact of fear on the incomplete take-up of safety net programs in the United States. We exploit changes in deportation fear due to the roll-out and intensity of Secure Communities (SC), an immigration enforcement program that empowers the federal government to check the immigration status of anyone arrested by local police, leading to the forcible removal of approximately 380,000 immigrants. We estimate the spillover effect of SC on the take-up of federal means-tested programs by Hispanic citizens. Though not at personal risk of deportation, Hispanic citizens may fear their participation could expose non-citizens in their network to immigration authorities. We find significant declines in SNAP and ACA enrollment, particularly among mixed-citizenship status households and in areas where deportation fear is highest. The response is muted for Hispanic households residing in sanctuary cities. Our results are most consistent with network effects that perpetuate fear rather than lack of benefit information or stigma.
    JEL: I14 I3 K00
    Date: 2018–06
  12. By: Forth, John (National Institute of Economic and Social Research (NIESR)); Bryson, Alex (University College London)
    Abstract: The literature on the union wage premium is among the most extensive in labour economics but unions' effects on other aspects of the wage-effort bargain have received much less attention. We contribute to the literature through a study of the union premium in paid holiday entitlements, using large-scale survey data for the UK. We find that the union premium on paid holidays is substantially larger than the union premium on wages. However, the premium fell with the introduction of a statutory minimum entitlement to paid leave. This is indicative of the difficulties that unions have faced in protecting the most vulnerable employees, and symptomatic of their decreasing regulatory role in the UK labour market.
    Keywords: trade unions, holidays, vacation, working time
    JEL: J51 J32 K31
    Date: 2018–06
  13. By: Ayoki, Milton
    Abstract: This paper analyses exports of textiles and clothing (T&C) from Sub-Saharan African countries in the decade leading to and after a phase out of the Agreement on Textile and Clothing (ATC) (Multi-fibre Agreement restrictions on T&C export)—from 1990s to 2016 using WTO and World Bank data sets—to ascertain the initial effects of the end of quotas and other restrictions on global trade in textile and clothing. Our results show a fall in exports of African countries in the aftermath of the ATC, and a simultaneous and gradual shift of increasing T&C exports by Asian countries (Asia & Pacific) into African markets at a much faster rate than their increase into the U.S. and EU markets. To the U.S, the Asian countries continue to export post-ATC at about the same levels of textile and clothing that they did before ATC phase out. Taken together, there is no clear evidence that the termination of the ATC has been a major contributing factor to the decline of Sub-Saharan Africa’s T&C exports. The utilisation of safeguard mechanisms by the U.S. and the EU and the continued option to maintain tariffs and other non-tariff barriers make it difficult to trace the effects of the end of ATC, but also raise important issues that could be considered in the WTO negotiations on rules: trade remedies (safeguard and countervailing measures) since the end of ATC did not bring about “free trade” for clothing and textiles.
    Keywords: Multifibre Agreement (MFA), Agreement on Textile and Clothing (ATC), quota restrictions, rules negotiations, trade remedies, textile and clothing exports, Sub-Saharan Africa.
    JEL: F13 K33
    Date: 2017–11–23
  14. By: Kudo, Yuya
    Abstract: Levirate marriage, whereby a widow is inherited by male relatives of her deceased husband, has anecdotally been viewed as an informal safety net for widows who have limited property rights. This study investigates why this widespread practice in sub-Saharan Africa has recently been disappearing. A developed game-theoretic analysis reveals that levirate marriage arises as a pure strategy subgame perfect equilibrium when a husband's clan desires to keep children of the deceased within its extended family and widows have limited independent livelihood means. Female empowerment renders levirate marriage redundant because it increases widows' reservation utility. HIV/AIDS also discourages a husband's clan from inheriting a widow who loses her husband to HIV/AIDS, reducing her remarriage prospects and thus, reservation utility because she is likely to be HIV positive. Consequently, widows' welfare tends to decline (resp., increase) in step with the deterioration of levirate marriage driven by HIV/AIDS (female empowerment). By exploiting long-term household panel data drawn from rural Tanzania and testing multiple theoretical predictions relevant to widows' welfare and women's fertility, this study finds that HIV/AIDS is primarily responsible for the deterioration of levirate marriage. Young widows in Africa may need some form of social protection against the influence of HIV/AIDS.
    Keywords: cultural institution, female empowerment, HIV/AIDS, safety net, levirate marriage, widowhood protection
    JEL: J12 J13 J16 K11 Z13
    Date: 2018–08–08
  15. By: Ayoki, Milton
    Abstract: This paper examines the textile and clothing (T&C) industry in Lesotho to ascertain the initial effects of the end of quotas and other restrictions on global trade in textile and clothing. Results show a dramatic decline in Lesotho’s T&C exports, both in value terms and export share in major markets in industrialised countries: the U.S. and the EU in the aftermath of the Agreement on Textile and Clothing (ATC). The export decline for Lesotho and for Sub-Saharan African countries as a group has not been accompanied by simultaneous or rapid shift of increasing T&C exports by Asian developing countries, who continue to export post-ATC at about the same levels of textile and clothing that they did before ATC phase out. While T&C exports from Lesotho and other African countries continue to decline, post-ATC, it is unclear if the end of the ATC quotas has been the main cause of that decline. Results do not provide clear evidence that the termination of the ATC has been a major contributing factor to the decline of Lesotho’s and SSA Africa’s T&C exports. Instead, we find evidence of simultaneous and rapid shift of increasing T&C exports from China to Lesotho and other African markets. Compared to competition in export markets, the influx of Chinese products imposes worse threat to the textile and clothing sector in Lesotho and the rest of Africa. Further to these, the utilisation of safeguard mechanisms by the U.S. and the continued option to maintain tariffs and other non-tariff barriers means that the end of ATC did not fully bring about “free trade” for clothing and textiles. These results raise important policy issues that could be considered in the ongoing negotiations on rules: trade remedies, particularly those dealing with safeguard and countervailing measures.
    Keywords: Agreement on Textile and Clothing (ATC), Multifibre arrangement, global textile and clothing exports, quota restrictions, trade remedies, Sub-Saharan Africa, Lesotho
    JEL: F13 F14 K33
    Date: 2016–12–22

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