nep-law New Economics Papers
on Law and Economics
Issue of 2018‒12‒24
thirteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Effect of Risk Assessment Scores on Judicial Behavior and Defendant Outcomes By Sloan, Carly Will; Naufal, George S; Caspers, Heather
  2. Legal Barriers to the Better Use of Health Data to Deliver Pharmaceutical Innovation By Cole, A.; Towse, A.
  3. Penalty-Point System, Deterrence and Road Safety: An Empirical Approach By Yolanda Rebollo-Sanz; Jesús Rodríguez-López; Nùria Rodríguez-Planas
  4. Cybersecurity in Finance: Getting the policy mix right! By Bouyon, Sylvain; Krause, Simon
  5. Perceived Fairness in the Taxation of a Digital Business Model By Greil, Stefan; Schwarz, Christian; Stein, Stefan
  6. Indian banks and the prevention of corruption Act: Freedom and discipline By Ashima Goyal
  7. Taxation and Market Power in the Legal Marijuana Industry By Hollenbeck, Brett; Uetake, Kosuke
  8. Firms’ Markup, Cost, and Price Changes when Policymakers Permit Collusion: Does Antitrust Immunity Matter? By Gayle, Philip; Xie, Xin
  9. Is changing the minimum legal drinking age an effective policy tool? By Nicolai Brachowicz Quintanilla; Judit Vall Castelló
  10. Hall of Mirrors: Corporate Philanthropy and Strategic Advocacy By Marianne Bertrand; Matilde Bombardini; Raymond Fisman; Bradley Hackinen; Francesco Trebbi
  11. The Dominium Mundi Game and the Case for Artificial Intelligence in Economics and the Law By Rodríguez Arosemena, Nicolás
  12. Competition policy questions in mobile network sharing By Pápai, Zoltán; Csorba, Gergely; Nagy, Péter; McLean, Aliz
  13. The Heterogeneous Effect of Affirmative Action on Performance By Anat Bracha; Alma Cohen; Lynn Conell-Price

  1. By: Sloan, Carly Will (Texas A&M University); Naufal, George S (Texas A&M University); Caspers, Heather (Texas A&M University)
    Abstract: The use of risk assessment scores as a means of decreasing pretrial detention for low-risk, primarily poor defendants is increasing rapidly across the United States. Despite this, there is little evidence on how risk assessment scores alter criminal outcomes. Using administrative data from a large county in Texas, we estimate the effect of a risk assessment score policy on judge bond decisions, defendant pretrial detention, and pretrial recidivism. We identify effects by exploiting a large, sudden policy change using a regression discontinuity design. This approach effectively compares defendants booked just before and after the policy change. Results show that adopting a risk assessment score leads to increased release on non-financial bond and decreased pretrial detention. These results appear to be driven by poor defendants. We also find risk assessment scores did not increase violent pretrial recidivism, however there is some suggestive evidence of small increases in non-violent pretrial recidivism.
    Keywords: pretrial detention, bail, risk assessment, recidivism, regression, discontinuity
    JEL: D81 K14 K42 L88
    Date: 2018–11
  2. By: Cole, A.; Towse, A.
    Abstract: The proliferation of health data in our ever more digitalised world of health care creates opportunities for better research around – and delivery of – pharmaceutical innovation. However, these opportunities may be constrained around the legal barriers to the use of health data for these purposes, which are poorly understood, particularly in relation to the new General Data Protection Regulation (GDPR). In this consulting report, sponsored by the European Federation of Pharmaceutical Industries and Associations (EFPIA), we summarise research evaluating the main legal barriers to the better use of health data for pharmaceutical innovation. Issues are evaluated according to barriers arising in utilising data to support six key activities across the lifecycle of a medicine - Epidemiology and pharmacoepidemiology - Identifying unmet need; Pharmacogenetics; Interventional studies; Non-interventional studies; Pharmacovigilance, and; Managed entry agreements. We conclude that the GDPR does not create new legal barriers, and that most issues identified are in fact uncertainties rather than barriers per se. There is a strong case for industry to deal proactively with the uncertainties, sharing good practice and engendering trust by co-creating a code of conduct, and promoting a shared understanding of the value to society of pharmaceutical research.
    Keywords: Economics of innovation; Measuring and valuing outcomes
    JEL: I1
    Date: 2018–12–01
  3. By: Yolanda Rebollo-Sanz (Universidad Pablo de Olavide); Jesús Rodríguez-López (Universidad Pablo de Olavide); Nùria Rodríguez-Planas (Queens College - CUNY)
    Abstract: Using a quasi-experimental approach, we study the causal effect of introducing a penalty-point system (PPS) on drivers, accidents, injuries and fatalities. We find that the PPS decreased the number of traffic offenders by 13.8%. In addition, the deterrence effect was directly related to the size of the point loss. The PPS reform also curbed PPS-related accidents, injuries and fatalities by 14,2%, 15.1% and 16.1%, respectively. These findings are robust to a battery of tests, including a placebo test with a fictitious reform date. Crucially, the timing of the PPS implementation had no effect on road incidents unrelated to PPS regulations.
    Keywords: Road safety, law enforcement, driving license, and discontinuity-based model.
    JEL: K32 K41 R41
    Date: 2018–12
  4. By: Bouyon, Sylvain; Krause, Simon
    Abstract: In the midst of several large cyberattacks in 2017, the European Commission adopted its multi-sector cybersecurity package in September of that same year. Whereas this initiative can be expected to contribute to strengthening the cyber-resilience and response of EU financial firms, several policy issues and unanswered questions remain. In order to analyse the issues that are considered to be relevant to financial fields (retail banking, corporate banking, capital markets, financial infrastructure and insurance), CEPS-ECRI organised a Task Force between September 2017 and May 2018 with a group of experts from the financial industry, tech industry, national supervisors and European institutions, as well from a consumer association and a law firm. In this Final Report, the Task Force members identify the following nine policy issues that need to be further addressed in order to bolster the financial industry’s cyber-resilience against current and future threats. Main policy recommendations 1. Convergence in the taxonomies of cyber-incidents is needed. 2. The framework for incident reporting needs to be significantly improved to fully contribute to the cyber-resilience of financial firms. 3. Authorities should assess how and to what extent the data held by the centralised hub should be shared with supervisors, firms and clients. 4. Ambitious policies are needed to develop consistent, reliable and exploitable statistics on cyber-trends. 5. Best practices for cyber-hygiene should be continuously enhanced by regulators and supervisors. 6. The European Cybersecurity Certification Scheme needs to be strengthened to contribute better to cybersecurity, cyber-risk management and capability. 7. In order to improve the processes of attribution and extradition, the reinforcement of cross-border cooperation and legal convergence remains a priority, both within the EU and more widely. 8. Best practices in remedies in case of cyberattacks need to be further encouraged. 9. Policy-makers should further assess the pros, cons and feasibility of creating an emergency fund in case of large cyberattacks.
    Date: 2018–06
  5. By: Greil, Stefan (University of Hamburg); Schwarz, Christian (Department of Economics of the Duesseldorf University of Applied Sciences); Stein, Stefan (Quantum Steuerberatungsgesellschaft mbH)
    Abstract: The “fair” taxation of digital business models is challenging. One of the key aspects – both policy makers and the public opinion consider as most pressuring – is the determination of intragroup transfer prices for intangibles used in digital business models. In this paper, we address the issue of a “perceived fair” taxation of the digital economy in the light of the arm’s length principle based on a survey with transfer pricing experts. The aim of the survey is not to estimate arm’s length profit allocations but rather to elicit fairness considerations in different transfer pricing related scenarios. In a digital economy framework where arm’s length profits are distributed extremely inequitably, subjects perceive this distribution of profits as most unfair compared to more balanced scenarios. Consequently, subjects propose a “fair” distribution of profits that substantially differs from the exogenously given arm’s length allocation. In scenarios with a more balanced arm’s length allocation of profits, we find that the perceived fairness for the expert groups increases while a control group of business students is almost not influenced by the arm’s length allocation of profits.
    Abstract: Die „faire“ Besteuerung digitaler Geschäftsmodelle ist herausfordernd. Einer der Schlüsselaspekte ist dabei die Ermittlung konzerninterner fremdvergleichskonformer Verrechnungspreise für immaterielle Vermögenswerte, die verstärkt in digitalen Geschäftsmodellen genutzt werden. Dieser Beitrag beschäftigt sich mit der „wahrgenommenen“ Fairness bei der Besteuerung digitaler Geschäftsmodelle vor dem Hintergrund des Fremdvergleichsgrundsatz. Grundlage hierfür ist eine Umfrage unter Verrechnungspreis-Experten (Finanzbeamte und Steuerberater). Wir finden, dass wenn der Fremdvergleichsgrundsatz zu einer sehr ungleichen Verteilung des Steuersubstrats führt, die Teilnehmer diese Gewinnverteilung im Vergleich zu ausgewogeneren Szenarien als unfair erachten. Dementsprechend zeigen unsere Ergebnisse, dass zwar der Fremdvergleichsgrundsatz als Referenzpunkt für Fairness Überlegungen dient. In Bezug auf die individuell vorgeschlagene faire Gewinnverteilung können aber erhebliche Unterschiede zur fremdvergleichskonformen Gewinnverteilung bestehen.
    Keywords: arm's length principle, corporate income tax, fairness, profit-shifting, Fremdvergleichsgrundsatz, Gewinnverlagerung, Unternehmensbesteuerung, digitale Geschäftsmodelle
    JEL: H26 H25 K34 D90 F23
  6. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: Selfless activists like Mr. Pai teach us the importance of continuously interrogating the functioning of our democracy. The NPA issue has persisted for almost a decade. It has eroded the profitability of banks, and is a problem for depositors, although sovereign guarantee mitigates concerns. Since large infrastructure loans were made to private firms, there were fears of private enrichment at the expense of the tax-payer. The institutions to curb corruption were geared to a control regime, and in the post-reform market-based system did not make the crucial distinction between crime and risk-taking. Their actions paralyzed decision-making and delayed resolution. The Prevention of Corruption Act has recently been amended, but partly because the differing requirements of a control and market-based system are not well-understood some have criticized it as being too soft on corruption while others see it as continuing to hurt decision-making. After examining the combination of discipline and freedom a market-based system requires we assess the 2018 amendment on those criteria. We also more broadly examine changes in incentives and social norms that are likely to reduce corruption as well as resolution delays.
    Keywords: Public sector banks, Non-performing Assets, Prevention of Corruption Act
    JEL: D73 D71 G38
    Date: 2018–09
  7. By: Hollenbeck, Brett; Uetake, Kosuke
    Abstract: In 2012 the state of Washington created a legal framework for production and retail sales of marijuana. Nine other U.S. states and Canada have followed. These states hope to generate tax revenue for their state budgets while limiting harms associated with marijuana consumption. We use a unique administrative dataset containing all transactions in the history of the industry in Washington to evaluate the effectiveness of different tax and regulatory policies under consideration by policymakers and study the role of imperfect competition in determining these results. We examine 3 main research questions. First, how effective is Washington’s excise tax at raising revenue? With the nation’s highest tax rate on marijuana, is Washington maximizing revenue or potentially overtaxing, leading to reduced legal sales and lower tax revenue. Second, what is the incidence of taxes in this industry? Finally, most states have restricted entry, resulting in firms with substantial market power. What is the role of imperfect competition in studying these basic questions on tax policy? We combine structural methods and a reduced form sufficient statistic approach to show a number of results. First, Washington’s 37% excise tax is still on the upward sloping portion of the Laffer curve and state revenue could be substantially higher with a higher tax rate. The amount of revenue generated by a tax increase is significantly larger due to retailer market power than it would be under perfect competition. In addition, these taxes are primarily borne by consumers and not by firms, and there is a large social cost associated with each dollar raised.
    Keywords: tax incidence, marijuana, pass-through, imperfect competition, regulation
    JEL: D22 H21 H22 L13 L51 L81
    Date: 2018–11–12
  8. By: Gayle, Philip; Xie, Xin
    Abstract: Airlines wanting to cooperatively set prices for their international air travel service must apply to the relevant authorities for antitrust immunity (ATI). Whether consumers, on net, benefit from a grant of ATI to partner airlines has caused much public debate. This paper investigates the impact of granting ATI to oneworld alliance members on their price, markup, and various measures of cost. The evidence suggests that implementation of the oneworld alliance without ATI did not have a statistically significant impact on the markup of products offered by the members, and there is no evidence that the subsequent grant of ATI to various members resulted in higher markups on their products. We find evidence suggesting that the grant of ATI facilitated a decrease in partner carriers’ marginal and fixed costs. Furthermore, member carriers’ price did not increase (decreased) in markets where their services do (do not) overlap, implying that consumers, on net, benefit from the grant of ATI in terms of price changes.
    Keywords: Airline Competition; Strategic Alliances; Antitrust Immunity
    JEL: L13 L40 L93
    Date: 2018–11–09
  9. By: Nicolai Brachowicz Quintanilla (Center for Research in Health and Economics (CRES-UPF) & Universitat Pompeu Fabra); Judit Vall Castelló (Universitat de Barcelona & Institut d’Economia de Barcelona (IEB))
    Abstract: In year 1991 regional governments in Spain started a period of implementation of a law that rose the Minimum Legal Drinking Age from 16 to 18 years old. This process was fully completed in year 2015. To evaluate the effects of this change on consumption of legal drugs and its related morbidity outcomes, we construct a regional panel dataset on alcohol consumption and hospital entry registers and compare variation in several measures of prevalence between the treatment group (16-18 years old individuals) and the control group (20-22 years old individuals). Our findings show important differences by gender. Firstly, our main result regarding overall drinking prevalence show reductions ranging from -11.57% for the subsample including both genders to -14.31% for the subsample of males. Secondly, effects on males are driven mainly by reductions in beer with alcohol consumption (-8.98%). Thirdly, effects on wine and/or cava drinking prevalence range from -12.62% for the subsample including both genders to -9.65% for the subsample of females. No effects regarding overall smoking prevalence are found. Fourthly, we do not find evidence that these reductions in alcohol consumption are translated into hospitalizations related to alcohol overdose. To our knowledge, this is the first paper providing evidence on gender-based differences to policies aimed at reducing alcohol consumption. Our results have important policy implications for countries currently considering changes in the Minimum Legal Drinking Age.
    Keywords: Evaluation of Public Policies, Health Economics, Minimum Legal Drinking Age, Differences in Differences, Drug Consumption
    JEL: H22 H75 I18 J19
    Date: 2018
  10. By: Marianne Bertrand; Matilde Bombardini; Raymond Fisman; Bradley Hackinen; Francesco Trebbi
    Abstract: Politicians and regulators rely on feedback from the public when setting policies. For-profit corporations and non-pro t entities are active in this process and are arguably expected to provide independent viewpoints. Policymakers (and the public at large), however, may be unaware of the financial ties between some firms and non-profits - ties that are legal and tax-exempt, but difficult to trace. We identify these ties using IRS forms submitted by the charitable arms of large U.S. corporations, which list all grants awarded to non-pro fits. We document three patterns in a comprehensive sample of public commentary made by firms and non-profits within U.S. federal rulemaking between 2003 and 2015. First, we show that, shortly after a firm donates to a non-profit, the grantee is more likely to comment on rules for which the firm has also provided a comment. Second, when a firm comments on a rule, the comments by non-profits that recently received grants from the firm's foundation are systematically closer in content similarity to the firm's own comments than to those submitted by other non-profits commenting on that rule. This content similarity does not result from similarly-worded comments that express divergent sentiment. Third, when a firm comments on a new rule, the discussion of the final rule is more similar to the firm's comments when the firm's recent grantees also comment on that rule. These patterns, taken together, suggest that corporations strategically deploy charitable grants to induce non-pro fit grantees to make comments that favor their benefactors, and that this translates into regulatory discussion that is closer to the firm's own comments.
    JEL: K2 P16 P48
    Date: 2018–12
  11. By: Rodríguez Arosemena, Nicolás
    Abstract: This paper presents two conjectures that are the product of the reconciliation between modern economics and the long-standing jurisprudential tradition originated in Ancient Rome, whose influence is still pervasive in most of the world's legal systems. We show how these conjectures together with the theory that supports them can provide us with a powerful normative mean to solve the world's most challenging problems such as financial crises, poverty, wars, man-made environmental catastrophes and preventable deaths. The core of our theoretical framework is represented by a class of imperfect information game built completely on primitives (self-interest, human fallibility and human sociability) that we have called the Dominium Mundi Game (DMG) for reasons that will become obvious. Given the intrinsic difficulties that arise in solving this type of models, we advocate for the use of artificial intelligence as a potentially feasible method to determine the implications of the definitions and assumptions derived from the DMG's framework.
    Keywords: Game Theory; Artificial Intelligence; Dynamic Programming Squared; Imperfect Information Games; Law and Economics
    JEL: C7 C73 D6 K0
    Date: 2018–12–15
  12. By: Pápai, Zoltán; Csorba, Gergely; Nagy, Péter; McLean, Aliz
    Abstract: Network sharing agreements have become increasingly widespread in mobile telecommunications markets. They carry undeniable advantages to operators and consumers alike, but also the potential for consumer harm. Not all NSAs are created equal: the assessment of the balance of harm and benefits to customers due to an NSA is a complex endeavour. In this paper, we present a framework for the competitive assessment of NSAs, detailing the possible concerns that may arise, the main factors that influence their seriousness, ways to mitigate the concerns and the principles of assessing efficiency benefits.
    Keywords: mobile markets,network sharing,competition,competition assessment
    Date: 2018
  13. By: Anat Bracha; Alma Cohen; Lynn Conell-Price
    Abstract: This paper experimentally investigates the effect of gender-based affirmative action (AA) on performance in the lab, focusing on a tournament environment. The tournament is based on GRE math questions commonly used in graduate school admission, and at which women are known to perform worse on average than men. We find heterogeneous effect of AA on female participants: AA lowers the performance of high-ability women and increases the performance of low-ability women. Our results are consistent with two possible mechanisms—one is that AA changes incentives differentially for low- and high-ability women, and the second is that AA triggers stereotype threat.
    JEL: C91 I28 J16 J78 K19 K31
    Date: 2018–12

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