nep-law New Economics Papers
on Law and Economics
Issue of 2018‒10‒15
thirteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Contingent or conditional fee? On plaintiff preferences regarding methods of compensating lawyers By Tim Friehe; Yannick Gabuthy
  2. Ordered Leniency: An Experimental Study of Law Enforcement with Self-Reporting By Claudia M. Landeo; Kathryn E. Spier
  3. Optimal Law Enforcement with Ordered Leniency By Claudia M. Landeo; Kathryn E. Spier
  4. In the Shadow of Coase By Kevin Berry; Anthony R. Delmond; Rémi Morin Chassé; John C. Strandholm; Jason F. Shogren
  5. The Minimum Wage, EITC, and Criminal Recidivism By Amanda Y. Agan; Michael D. Makowsky
  6. Shaming for tax enforcement: Evidence from a new policy By Dwenger, Nadja; Treber, Lukas
  7. Organised Crime, Captured Politicians and the Allocation of Public Resources By Nicola Mastrorocco
  8. When does Product Liability Risk Chill Innovation? Evidence from Medical Implants By Alberto Galasso; Hong Luo
  9. Platform, Anonymity, and Illegal Actors: Evidence of Whac-A-Mole Enforcement from Airbnb By Jian Jia; Liad Wagman
  10. Competition, collusion and spatial sales patterns: Theory and evidence By Hunold, Matthias; Hüschelrath, Kai; Laitenberger, Ulrich; Muthers, Johannes
  11. The Impact of Employment Protection on the Industrial Wage Structure By Heywood, John S.; O'Mahony, Mary; Siebert, W. Stanley; Rincon-Aznar, Ana
  12. Do Equal Employment Opportunity Statements Backfire? Evidence From A Natural Field Experiment On Job-Entry Decisions By Andreas Leibbrandt; John A. List
  13. Is a Blockchain-based conveyance system the next step in the financialisation of housing? The case of Sweden By PROSKUROVSKA Anetta; DÖRRY Sabine

  1. By: Tim Friehe; Yannick Gabuthy
    Abstract: This paper analyzes a litigation contest in which the plaintiff’s lawyer and the defendant choose effort. The plaintiff selects the relative importance of contingent and conditional fees in her lawyer’s compensation to ensure lawyer participation and guide the lawyer’s decision-making. For our setup, we find that the plaintiff considers the conditional fee to be the relatively more desirable instrument in the light of its effort-inducing and cost characteristics. However, high levels of the lawyer’s outside utility may not allow for a relatively high conditional-fee component.
    Keywords: Litigation; Agency; Contest; Compensation.
    JEL: K42
    Date: 2018
  2. By: Claudia M. Landeo (University of Alberta); Kathryn E. Spier (Harvard Law School and NBER)
    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, Coordination 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
  3. By: Claudia M. Landeo; Kathryn E. Spier
    Abstract: This paper studies the design of enforcement policies to detect and deter harmful short-term activities committed by groups of injurers. With an ordered-leniency policy, the degree of leniency granted to an injurer who self-reports depends on his or her position in the self-reporting queue. By creating a "race to the courthouse," ordered-leniency policies lead to faster detection and stronger deterrence of illegal activities. The socially-optimal level of deterrence can be obtained at zero cost when the externalities associated with the harmful activities are not too high. Without leniency for self-reporting, the enforcement cost is strictly positive and there is underdeterrence of harmful activities relative to the first-best level. Hence, ordered-leniency policies are welfare improving. Our findings for environments with groups of injurers complement Kaplow and Shavell's (1994) results for single-injurer environments.
    JEL: C72 D86 K10 L23
    Date: 2018–09
  4. By: Kevin Berry (Institute of Social and Economic Reesarch, Department of Economics, University of Alaska Anchorage); Anthony R. Delmond (The University of Tennessee at Martin); Rémi Morin Chassé (University of Quebec at Chicoutimi); John C. Strandholm (University of South Carolina Upstate); Jason F. Shogren (Department of Economics, University of Wyoming)
    Abstract: We explore how three parties bargain over a public good created by development on only one party’s property. With strong property rights, parties secure equal payment. With weak rights, parties reimburse costs and divide surplus so the developer is indifferent.
    Keywords: public good, bargaining, experiment
    JEL: C7 C92 H41 D63
    Date: 2018–08
  5. By: Amanda Y. Agan; Michael D. Makowsky
    Abstract: For recently released prisoners, the minimum wage and the availability of state Earned Income Tax Credits (EITCs) can influence both their ability to find employment and their potential legal wages relative to illegal sources of income, in turn affecting the probability they return to prison. Using administrative prison release records from nearly six million offenders released between 2000 and 2014, we use a difference-in-differences strategy to identify the effect of over two hundred state and federal minimum wage increases, as well as 21 state EITC programs, on recidivism. We find that the average minimum wage increase of $0.50 reduces the probability that men and women return to prison within 1 year by 2.8%. This implies that on average the effect of higher wages, drawing at least some released prisoners into the legal labor market, dominates any reduced employment in this population due to the minimum wage. These reductions in returns to incarcerations are observed for the potentially revenue generating crime categories of property and drug crimes; prison reentry for violent crimes are unchanged, supporting our framing that minimum wages affect crime that serves as a source of income. The availability of state EITCs also reduces recidivism, but only for women.
    JEL: J08 J2 K31 K42
    Date: 2018–09
  6. By: Dwenger, Nadja; Treber, Lukas
    Abstract: Can public shaming increase tax compliance through social pressure? Many tax authorities make ample use of public shaming. However, empirical evidence from outside the laboratory on how a new shaming law affects overall compliance is lacking. We provide the first evidence from the field, exploiting comprehensive administrative tax data and the introduction of a novel naming-and-shaming policy in Slovenia in 2012. The policy aims to reduce outstanding tax debt among the self-employed and corporations. Our empirical strategy exploits the variation across taxpayers in ex ante exposure to the shaming policy. We find that taxpayers reduce their tax debt by 8.5% to avoid shaming, particularly in industries where reputational concerns are likely to be important. The publication of the first naming-and-shaming list further reduces tax debt among shamed taxpayers because of social learning. This effect, however, is marginal in terms of revenue and tapers off quickly.
    Keywords: compliance,tax debt,shaming,enforcement,social image concerns,penalty
    JEL: H26 D1 K34 K42 Z13
    Date: 2018
  7. By: Nicola Mastrorocco (Trinity College Dublin)
    Abstract: What is the impact of organised crime on the allocation of public resources and on tax collection? This paper studies the consequences of collusion between members of criminal organisations and politicians in Italian local governments. In order to capture the presence of organised crime, we exploit the staggered enforcement of a national law allowing for dissolution of a municipal government upon evidence of collusion between elected officials and the mafia. We measure the consequences of this collusion by using newly collected data on public spending, local taxes and elected politicians at the local level. Differences-in-differences estimates reveal that infiltrated local governments not only spend more on average on construction and waste management and less on police enforcement, but also collect fewer fiscal revenues. In addition, we uncover key elements of local elections associated with mafia-government collusion. In particular, Regression Discontinuity estimates show that infiltration is more likely to occur when right-wing parties win local elections.
    Keywords: Organized crime, Elections, Collusions, Public Spending, Italy.
    JEL: K42 H72 D72
    Date: 2018–09
  8. By: Alberto Galasso; Hong Luo
    Abstract: Liability laws designed to compensate for harms caused by defective products may also affect innovation. We examine this issue by exploiting a major quasi-exogenous increase in liability risk faced by US suppliers of polymers used to manufacture medical implants. Difference-in-differences analyses show that this surge in suppliers’ liability risk had a large and negative impact on downstream innovation in medical implants, but it had no significant effect on upstream polymer patenting. Our findings suggest that liability risk can percolate throughout a vertical chain and may have a significant chilling effect on downstream innovation.
    JEL: K13 O31 O32 O34
    Date: 2018–09
  9. By: Jian Jia (Stuart School of Business, Illinois Institute of Technology, 565 W Adams, 4th Flr, Chicago, IL 60661); Liad Wagman (Stuart School of Business, Illinois Institute of Technology, 565 W Adams, Suite 412, Chicago, IL 60661)
    Abstract: Airbnb, a prominent sharing-economy platform, offers dwellings for short-term rent. Despite restrictions, some sellers illegally offer their accommodations, taking advantage of a degree of anonymity proffered by the platform to hide from potential enforcement. We study the extent to which enforcement works in Manhattan, one of the most active short-term rental markets, by testing the effects of two recent enforcement events. We demonstrate that prices of entire-home listings in Manhattan increase and vacancies decrease following each enforcement event, suggesting that illegal entire-home listings are being withdrawn from the market, with these effects varying depending on neighborhood characteristics. We further demonstrate that a significant portion of withdrawn listings re-enter the market under the less-enforced listing category of private rooms.
    Keywords: enforcement; anonymity; short-term rentals; platform; illegal supply
    JEL: K42 L51 R52
    Date: 2018–09
  10. By: Hunold, Matthias; Hüschelrath, Kai; Laitenberger, Ulrich; Muthers, Johannes
    Abstract: This article studies competition in markets with transport costs and capacity constraints. We compare the outcomes of price competition and coordination in a theoretical model and find that when firms compete, they more often serve more distant customers who are closer to the competitor's plant. If firms compete, the transport distance also varies in the degree of overcapacity, but not if they coordinate their sales. Using a rich micro-level data set of the cement industry in Germany, we study a cartel breakdown to identify the effect of competition on transport distances. Our econometric analyses support the theoretical predictions.
    Keywords: capacity constraints,cartel,cement,spatial competition,transport costs
    JEL: K21 L11 L41 L61
    Date: 2018
  11. By: Heywood, John S. (University of Wisconsin, Milwaukee); O'Mahony, Mary (King's College London); Siebert, W. Stanley (University of Birmingham); Rincon-Aznar, Ana (National Institute of Economic and Social Research (NIESR))
    Abstract: This paper tests whether the job security offered by stricter employment protection legislation (EPL) undermines positive compensating wage differentials that would otherwise be paid. Specifically, we ask whether industries with relatively more need for layoffs and labour flexibility have lower wages in countries where stricter EPL protects workers from layoffs. We find this generally to be true for a large sample of industries in the major OECD countries over 1984-2005, particularly for wages of unskilled workers. However, we also find that where workers are well organised, they can take advantage of EPL to secure higher wages.
    Keywords: employment protection legislation, labour regulation, compensating wage differentials, education and inequality, labour organisation, layoffs
    JEL: I24 J31 J41 J50 J63 J83 K31 L51 M50
    Date: 2018–08
  12. By: Andreas Leibbrandt; John A. List
    Abstract: Labor force composition and the allocation of talent remain of vital import to modern economies. For their part, governments and companies around the globe have implemented equal employment opportunity (EEO) regulations to influence labor market flows. Even though such regulations are pervasive, surprisingly little is known about their impacts. We use a natural field experiment conducted across 10 U.S. cities to investigate if EEO statements in job advertisements affect the first step in the employment process, application rates. Making use of data from nearly 2,500 job seekers, we find considerable policy effects, but in an unexpected direction: the presence of an EEO statement dampens rather than encourages racial minorities’ willingness to apply for jobs. Importantly, the effects are particularly pronounced for educated job seekers and in cities with white majority populations. Complementary survey evidence suggests the underlying mechanism at work is “tokenism”, revealing that EEO statements backfire because racial minorities avoid environments in which they are perceived as regulatory, or symbolic, hires rather than being hired on their own merits. Beyond their practical and theoretical importance, our results highlight how field experiments can significantly improve policymaking. In this case, if one goal of EEO regulations is to enhance the pool of minority applicants, then it is not working.
    JEL: C93 J71 J82 J88 K31
    Date: 2018–09
  13. By: PROSKUROVSKA Anetta; DÖRRY Sabine
    Abstract: This paper investigates the social and economic mechanisms of a blockchain technology in the area of land administration. In particular, it focuses, first, on an emerging blockchain-based solution in Sweden to change and improve its land administration system (LAS), and, second, on the 'upgraded' LAS' potential impacts to create more complex financial derivatives based on land and the built environment. We investigate how these changes influence housing markets at the interface with financial markets and how these changes impact on the economic organisation of the different stakeholders involved in these processes. The argument is developed using the case of Sweden, where Lantmäteriet, a government agency, is pioneering the use of blockchain technology for real-estate conveyance.
    Keywords: Blockchain; land administration systems; conveyance workflow; housing; financialisation
    JEL: G28 I30 K11 L14 O43 O52
    Date: 2018–10

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