nep-law New Economics Papers
on Law and Economics
Issue of 2018‒09‒24
ten papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Illegal Drugs and Public Corruption: Crack Based Evidence from California By Flamini, A.; Jahanshahia, B.; Mohaddes, K.
  2. The Present and Future of Judgement Aggregation Theory. A Law and Economics Perspective By Mongin, Philippe
  3. Costly Pre-Trial Agreements By Luca Anderlini; Leonardo Felli; Giovanni Immordino
  4. Legal Efficiency and Consistency By Luca Anderlini; Leonardo Felli; Alessandro Riboni
  5. Positional goods and legal orderings By Ugo Pagano; Massimiliano Vatiero
  6. Do Laws Shape Attitudes? Evidence from Same-Sex Relationship Recognition Policies in Europe By Aksoy, Cevat Giray; Carpenter, Christopher S.; De Haas, Ralph; Tran, Kevin
  7. Ordered Leniency: An Experimental Study of Law Enforcement with Self-Reporting By Landeo, Claudia; Spier, Kathryn
  8. Privacy Protection and Consumer Retention By Jullien, Bruno; Lefouili, Yassine; Riordan, Michael
  9. Legal Protection: Liability and Immunity Arrangements of Central Banks and Financial Supervisors By Ashraf Khan
  10. Unintended Consequences of Alcohol Prohibition Policies on Education: Evidence From India By Pullabhotla, H.

  1. By: Flamini, A.; Jahanshahia, B.; Mohaddes, K.
    Abstract: Do illegal drugs foster public corruption? To estimate the causal effect of drugs on public corruption in California, we adopt the synthetic control method and exploit the fact that crack cocaine markets emerged asynchronously across the United States. We focus on California because crack arrived here in 1981, before reaching any other state. Our results show that public corruption more than tripled in California in the first three years following the arrival of crack cocaine. We argue that this resulted from the particular characteristics of illegal drugs: a large trade-off between profits and law enforcement, due to a cheap technology and rigid demand. Such a trade-off fosters a convergence of interests between criminals and corrupted public officials resulting in a positive causal impact of illegal drugs on corruption.
    Keywords: Public corruption, crack cocaine, synthetic control, illegal drugs, and law enforcement
    JEL: C12 D73 K42
    Date: 2018–08–23
  2. By: Mongin, Philippe (GREGHEC; CNRS & HEC Paris - Economics & Decision Sciences)
    Abstract: This chapter briefly reviews the present state of judgment aggregation theory and tentatively suggests a future direction for that theory. In the review, we start by emphasizing the difference between the doctrinal paradox and the discursive dilemma, two idealized examples which classically serve to motivate the theory, and then proceed to reconstruct it as a brand of logical theory, unlike in some other interpretations, using a single impossibility theorem as a key to its technical development. In the prospective part, having mentioned existing applications to social choice theory and computer science, which we do not discuss here, we consider a potential application to law and economics. This would be based on a deeper exploration of the doctrinal paradox and its relevance to the functioning of collegiate courts. On this topic, legal theorists have provided empirical observations and theoretical hints that judgment aggregation theorists would be in a position to clarify and further elaborate. As a general message, the chapter means to suggest that the future of judgment aggregation theory lies with its applications rather than its internal theoretical development.
    Keywords: Judgment Aggregation Theory; Logical Aggregation Theory; Law and Economics; Doctrinal Paradox; Discursive Dilemma; Canonical Theorem of Judgment Aggregation Theory; Premiss-Based Versus Conclusion-Based Method; Collegiate Courts; Issue-Based Versus Case-Based Adjudication Method
    JEL: D70 D71 D79 K40 K41
    Date: 2018–07–01
  3. By: Luca Anderlini (Department of Economics, Georgetown University); Leonardo Felli (Department of Economics, London School of Economics); Giovanni Immordino (Dipartimento di Scienze Economiche e Statistiche, Università di Napoli Federico II)
    Abstract: Settling a legal dispute involves some costs that the parties have to incur ex-ante, for the pretrial negotiation and possible agreement to become feasible. Even in a full information world, if the distribution of these costs is sufficiently mismatched with the distribution of the parties' bargaining powers, a pretrial agreement may never be reached even though actual Court litigation is overall wasteful. Our results shed light on two key issues. First, a Plaintiff may initiate a lawsuit even though the parties fully anticipate that it will be settled out of Court. Second, the "likelihood" that a given lawsuit ends up in Court is unaffected by how trial costs are distributed among the litigants. The choice of fee-shifting rule can only affect whether the Plaintiff files a lawsuit in the first place. It does not affect whether it is settled before trial or litigated in Court.
    Keywords: Pre-Trial Agreements, Costly Negotiation, Court Litigation
    JEL: D23 D86 C79 K12 K13
    Date: 2018–09–12
  4. By: Luca Anderlini (Department of Economics, Georgetown University); Leonardo Felli (Department of Economics, London School of Economics); Alessandro Riboni (Département d'Économie, École Polytechnique)
    Abstract: We analyze the efficiency and consistency of courts’ decisions under common and civil law. As a motivating example, we study the enforcement of property rights in courts. Judges are of two types: some judges are conservative and mechanically follow the precedent or the statute, while others maximize social welfare. The civil law and common law traditions have different centers of authority (legislatures vs. judges), but they also differ with respect to the timing of legal decisions (ex-ante vs. ex-post). When legal decisions occur ex-post, law-makers are biased even if they are welfare-maximizers. Such an ex-post bias has implications on the relative efficiency and consistency of each legal system. If the economic environment is fixed, we find that legal certainty is lower under civil law than under common law. Common law achieves higher expected welfare than civil law regime when the proportion of conservative judges is neither too low nor too high, and judges are sufficiently forward-looking. In changing economic environments, civil law courts do not respond to economic shocks. Conversely, common law courts change the law only if shocks are persistent. Shock persistence is what makes common law more likely to dominate civil law because of its greater adaptability.
    Keywords: Property Right Protection, Legal Origin, Time-Inconsistency, Investment, Legal Adaptability.
    JEL: D23 D86 C79 K12 K13
    Date: 2018–09–13
  5. By: Ugo Pagano (Department of Economics, University of Siena, Italy); Massimiliano Vatiero (Law Institute (IDUSI) and Institute of Economics (IdEP), Faculty of Economics, Università della Svizzera italiana, Switzerland)
    Abstract: People consume because others consume, maintained Veblen in 1899. More recently, theoretical, empirical and experimental articles have argued that people constantly compare themselves to their environments and care greatly about their relative positions. Given that competition for positions may produce social costs, we adopt a Law and Economics approach (i) to suggest legal remedies for positional competition, and (ii) to argue that, because legal relations are characterized in turn by positional characteristics, such legal remedies do not represent free lunches.
    Keywords: Positional good, Conspicuous consumption, Legal ordering, Legal relations
    JEL: B41 D01 D62 K00
    Date: 2018–08
  6. By: Aksoy, Cevat Giray (European Bank for Reconstruction and Development); Carpenter, Christopher S. (Vanderbilt University); De Haas, Ralph (EBRD, London); Tran, Kevin (DIW Berlin)
    Abstract: Understanding whether laws shape or simply reflect citizens' attitudes is important but empirically difficult. We provide new evidence on this question by studying the relationship between legal same-sex relationship recognition policies (SSRRPs) and attitudes toward sexual minorities in Europe. Using data from the European Social Surveys covering 2002-2016 and exploiting variation in the timing of SSRRPs across countries, we show that legal relationship recognition is associated with statistically significant improvements in attitudes toward sexual minorities. These effects are widespread across demographic groups, emerge only after the policies are adopted, and are not observed for views on other social issues. Our results suggest that laws can exert a powerful influence in shaping societal attitudes.
    Keywords: public opinion, same-sex relationship recognition policies, LGBT attitudes
    JEL: F5 K36
    Date: 2018–08
  7. By: Landeo, Claudia (University of Alberta, Department of Economics); Spier, Kathryn (Harvard Law School)
    Abstract: This paper reports the results of an experiment designed to assess the ability of an enforcement agency to detect and deter harmful short-term activities committed by groups of injurers. With ordered-leniency policies, early cooperators receive reduced sanctions. We replicate the strategic environment described by Landeo and Spier (2018). In theory, the optimal ordered leniency policy depends on the refinement criterion applied in case of multiplicity of equilibria. Our findings are as follows. First, we provide empirical evidence of a "race-to-the-courthouse" effect of ordered leniency: Mild and Strong Leniency induce the injurers to self-report promptly. These findings suggest that the injurers' behaviors are aligned with the risk-dominance refinement. Second, Mild and Strong Leniency significantly increase the likelihood of detection of harmful activities. This fundamental finding is explained by the high self-reporting rates under ordered-leniency policies. Third, as a result of the increase in the detection rates, the averages fines are significantly higher under Mild and Strong Leniency. As expected when the risk-dominance refinement is applied, Mild Leniency exhibits the highest average fine.
    Keywords: Law Enforcement; Ordered Leniency; Self-Reporting; Experiments; Leniency; Co-ordination Game; Prisoners Dilemma Game; Risk Dominance; Pareto Dominance; Equilibrium Selection; Non-Cooperative Games; Harmful Externalities; Corporate Misconduct; White-Collar Crime; Securities Fraud; Insider Trading; Market Manipulation; Whistleblowers; Plea Bargaining; Tax Evasion; Environmental Policy Enforcement
    JEL: C72 C90 D86 K10 L23
    Date: 2018–09–19
  8. By: Jullien, Bruno; Lefouili, Yassine; Riordan, Michael
    Abstract: A website monetizes information it collects about its customers by charging third parties for targeted access to them. Allowing for third parties who are well-intentioned, a nuisance, or even malicious, the resulting consumer experiences might be good, bad, or neutral. As consumers learn from experience, the website especially risks losing those customers who suffer a bad experience. Customer retention thus motivates the website to be cautious about monetization, or to spend resources to screen third parties. We study the website's equilibrium privacy policy, its welfare properties, competition in the market for information, and the elusiveness of reliable welfare-improving regulations
    Keywords: Privacy Policy; Consumer Retention; Personal Data; Regulation
    JEL: D83 L15 L51
    Date: 2018–08
  9. By: Ashraf Khan
    Abstract: This paper argues that central bank legal protection contributes to safeguarding a central bank and its financial supervisor’s independence, especially for conducting monetary and financial stability policy. However, such legal protection also entails enhanced accountability. To this end, the paper provides a selected overview of legal protection for central banks and financial supervisors (if the supervisor is part of the central bank), focusing on liability, immunity, and indemnification arrangements, and based on the IMF’s Central Bank Legislation Database. The paper also uses data from the IMF’s Article IV and FSAP Database, and the IMF MCM’s Technical Assistance Database. It lists selected country cases for illustrative purposes. It introduces the concepts of “appropriate legal protection” and “function-specific legal protection” as topics for further research.
    Keywords: Central banking;Central banks and their policies;financial supervision, financial regulation, law, liability, immunity, technical assistance, General, Monetary Policy (Targets, Instruments, and Effects)
    Date: 2018–08–02
  10. By: Pullabhotla, H.
    Abstract: This paper examines the impact of alcohol prohibition policies on child educational outcomes using the variation in location, timing, and intensity of alcohol prohibition laws across different states in India. I find that the imposition of complete alcohol bans resulted in an increase of 0.28 years of schooling, while partial bans that prohibited only cheaper varieties of alcohol resulted in a reduction of -0.25 years on average among individuals who were exposed to these bans during in utero, infancy, preschool or school-going age (0 - 18 years of age). I find that the alcohol laws have an effect only on individuals who were exposed to these changes during their school-going age, but have no impact on the older cohorts . Finally, I use data from national consumption expenditure surveys to show that these results are driven by shifts in household budgetary allocation. Using a triple-difference strategy (exploiting the fact that Muslim households are not affected by alcohol policy changes due to religious rules that proscribe alcohol consumption), I find that households exposed to partial prohibition laws reduce their share of expenditure on education goods by nearly 17 percent relative to the sample mean, while complete prohibition shows no effect on educational investments.
    Keywords: Agricultural and Food Policy, Consumer/Household Economics, International Development
    Date: 2018–07

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.