nep-law New Economics Papers
on Law and Economics
Issue of 2019‒01‒21
twenty-one papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Exploitative abuse and abuse of economic dependence: What can we learn from an industrial organization approach? By Bougette, Patrice; Budzinski, Oliver; Marty, Frédéric
  2. Machine Learning and Rule of Law By Chen, Daniel L.
  3. Uncertain Penalties and Compliance By Luengo, Carol; Caffera, Marcelo; Chávez, Carlos
  4. Judicial Analytics and the Great Transformation of American Law By Chen, Daniel L.
  5. On (intellectual) property and other legal frameworks in the digital economy: An economic analysis of the law By Rusche, Christian; Scheufen, Marc
  6. D and O Insurance and Arbitration By Katica Tomic
  7. International Migration Intentions and Illegal Costs: Evidence from Africa-to-Europe Smuggling Routes By Friebel, Guido; Manchin, Miriam; Mendola, Mariapia; Prarolo, Giovanni
  8. Dynamic Vertical Foreclosure By Chiara Fumagalli; Massimo Motta
  9. Competition Policy and Sector-Specific Regulation in the Financial Sector By Martin F. Hellwig
  10. Good intentions and unintended evil? Adverse effects of criminalizing clients in paid sex markets with voluntary and involuntary prostitution By Sonnabend, Hendrik; Stadtmann, Georg
  11. The Effect of Grade Retention on Adult Crime: Evidence from a Test-Based Promotion Policy By Ozkan Eren; Michael F. Lovenheim; Naci H. Mocan
  12. Can Reputation Discipline the Gig Economy? Experimental Evidence from an Online Labor Market By Benson, Alan; Sojourner, Aaron; Umyarov, Akhmed
  13. The deterrence effect of linear versus convex penalties in environmental policy: laboratory evidence By Caffera, Marcelo; Chávez, Carlos; Ardente, Analía
  14. Can Reduced Child Support Make Joint Custody Bad for Children? The Role of Economic Incentives in U.S. Divorce Law on Child Outcomes By Fernández-Kranz, Daniel; Roff, Jennifer Louise; Sun, Hugette
  15. The brave new world of digital personal assistants: Benefits and challenges from an economic perspective By Budzinski, Oliver; Noskova, Victoriia; Zhang, Xijie
  16. Learning Policy Levers: Toward Automated Policy Analysis Using Judicial Corpora By Ash, Elliott; Chen, Daniel L.; Delgado, Raul; Fierro, Eduardo; Lin, Shasha
  17. Attorney Voice and the U.S. Supreme Court By Chen, Daniel L.
  18. Motivated Reasoning in the Field: Partisanship in Precedent, Prose, Vote, and Retirement in U.S. Circuit Courts, 1800-2013 By Ash, Elliott; Chen, Daniel L.; Lu, Wei
  19. Scaring or scarring? Labour market effects of criminal victimisation By Bindler, Anna; Ketel, Nadine
  20. Automated Classification of Modes of Moral Reasoning in Judicial Decisions By Ash, Elliott; Chen, Daniel L.; Mainali, Nischal; Meier, Liam
  21. One-In, X-Out: Regulatory offsetting in selected OECD countries By Daniel Trnka; Yola Thuerer

  1. By: Bougette, Patrice; Budzinski, Oliver; Marty, Frédéric
    Abstract: This article conducts a detailed analysis of the concept of economic dependence and exploitative abuse based on how their treatment in competition law and economics and their enforcement in European case law have evolved. Although the theoretical roots of these concepts lie in economic theory, these issues have been ignored or considered only scantily in the context of competition law enforcement. An effects-based approach should take these problems into account and could provide insights into how to portray the impacts of these abuses. We draw on two examples - from the agri-food industries and the digital economy - of relevant economic dependence issues. This paper highlights the existence of a paradox: although industrial organization models provide relevant tools to characterize these abuses, assess their effects, and devise remedies, it seems that they are seldom used by competition law enforcers.
    Keywords: exploitative abuse,abuse of economic dependence,competition law,European Commission,effects-based approach,digital economy
    JEL: K21 L12 L40 L42
    Date: 2018
  2. By: Chen, Daniel L.
    Abstract: Predictive judicial analytics holds the promise of increasing the fairness of law. Much empirical work observes inconsistencies in judicial behavior. By predicting judicial decisions—with more or less accuracy depending on judicial attributes or case characteristics—machine learning offers an approach to detecting when judges most likely to allow extralegal biases to influence their decision making. In particular, low predictive accuracy may identify cases of judicial “indifference,” where case characteristics (interacting with judicial attributes) do no strongly dispose a judge in favor of one or another outcome. In such cases, biases may hold greater sway, implicating the fairness of the legal system.
    Date: 2018–12
  3. By: Luengo, Carol; Caffera, Marcelo; Chávez, Carlos
    Abstract: We present the results of a series of laboratory economic experiments designed to study compliance behavior of polluting firms when information on the penalty is uncertain. The experiments consist of a regulatory environment in which university students face emission standards and an enforcement mechanism composed of audit probabilities and penalties (conditional on detection of a violation). We examine how uncertainty on the penalty affects the compliance decision and the extent of violation under two enforcement levels: one in which the regulator induces perfect compliance and another one in which it does not. Our results suggest that in the first case, uncertain penalties increase the extent of the violations of those firms with higher marginal benefits. When enforcement is not sufficient to induce compliance, the uncertain penalties do not have any statistically significant effect on compliance behavior. Overall, the results suggest that a cost-effective design of emission standards should consider including public and complete information on the penalties for violations.
    Keywords: uncertainty, penalty, emission standard, economic experiment
    JEL: C91 K42 L51 Q58
    Date: 2018
  4. By: Chen, Daniel L.
    Abstract: Predictive judicial analytics holds the promise of increasing efficiency and fairness of law. Judicial analytics can assess extra-legal factors that influence decisions. Behavioral anomalies in judicial decision-making offer an intuitive understanding of feature relevance, which can then be used for debiasing the law. A conceptual distinction between inter-judge disparities in predictions and interjudge disparities in prediction accuracy suggests another normatively relevant criterion with regards to fairness. Predictive analytics can also be used in the first step of causal inference, where the features employed in the first step are exogenous to the case. Machine learning thus offers an approach to assess bias in the law and evaluate theories about the potential consequences of legal change.
    Keywords: Judicial Analytics; Causal Inference; Behavioral Judging
    Date: 2018–12
  5. By: Rusche, Christian; Scheufen, Marc
    Abstract: The significance of data as an economic good in the digital economy quickly raises the question of who owns the data. More specifically, within the context of a data marketplace in which data is being exchanged or traded and where different bundles of rights (property rights) are trans-ferred (contract law) - an answer regarding the genuine assignment of property rights for data seems important. From an economic standpoint, this paper investigates the need for an (new) intellectual prop-erty right for data. Firstly, an overview of the status quo of the literature on property rights for data will be provided. This will be followed by an analysis of the characteristics of data as a good, clarifying the circumstances under which a market failure can occur. Accordingly, only a market failure situation will authorise economic policy intervention. Lastly, we will derive specific policy implications, offering economic reasoning on a new intellectual property right for data and spe-cifically pointing to other forms of law that may be more applicable for reaching an efficient allocation of data resources.
    JEL: D23 K11 K12
    Date: 2018
  6. By: Katica Tomic (Rechtsanwalte BVM)
    Abstract: Directors and officers ("D&O") are required to act in a good faith and in the best interests of the corporation and to ensure that, the corporation is managed in accordance with the corporation's articles of incorporation and internal by-laws. D&O are personally liable for actions committed by the corporation within their scope of authority, and their own personal assets are at the risk in the event of a lawsuit against the corporation and its management or corporate insolvency. Today's complex business, legal and regulatory environment have increased the number of disputes involving the personal liability of D&O and D&O insurance, and the option of the more efficient, flexible, expert, and enforceable dispute resolution mechanisms, becomes the substantial interest of the parties involved. In this article, we discuss the general principles of D&O liability and D&O insurance, and relevant court cases concerning D&O liability and insurance coverage disputes in EU Law. Having in mind basic characteristics of modern insurance regulations, in particular, the need to protect a policyholders' interests and insurance customers and the premise that classic (commercial) arbitration is not a priori suitable for D&O insurance disputes, the author advocates introduction of specific integrated arbitration proceedings for D&O insurance cases. By assessing arbitration proceedings in D&O insurance, this analyze allows us to draw conclusion on whether the resolution of D&O insurance disputes by means of arbitration should be considered more often, or court litigation is more suitable for D&O insurance cases.
    Keywords: D&O liability insurance, EU Law, arbitration provisions, insurance companies, insurance coverage, integrated arbitration proceedings
    Date: 2018–11
  7. By: Friebel, Guido (Goethe University Frankfurt); Manchin, Miriam (University College London); Mendola, Mariapia (University of Milan Bicocca); Prarolo, Giovanni (University of Bologna)
    Abstract: Irregular migrants from Africa and the Middle East flow into Europe along land and sea routes under the control of human smugglers. The demise of the Gaddafi regime in 2011 marked the opening of the Central Mediterranean Route for irregular border - crossing between Libya and Italy. This resulted in the immediate expansion of the global smuggling network, which produced an asymmetric reduction in bilateral distance between country pairs across the Mediterranean sea. We exploit this source of spatial and time variation in irregular migration routes to estimate the elasticity of migration intentions to illegal moving costs proxied by distance. We build a novel dataset of geolocalized time-varying migration routes, combined with cross-country survey data on individual intentions to move from Africa (and the Middle East) into Europe. Netting out any country-by-time and pair-level confounders we find a large negative effect of distance along smuggling routes on individual migration intentions. Shorter distances increase the willingness to migrate especially for youth, (medium) skilled individuals and those with a network abroad. The effect is stronger in countries closer to Libya and with weak rule of law.
    Keywords: international migration, human smuggling, illegal migration, Libyan Civil War
    JEL: K23 K42
    Date: 2018–11
  8. By: Chiara Fumagalli (Università Bocconi, CSEF and CEPR); Massimo Motta (ICREA-Universitat Pompeu Fabra and Barcelona Graduate School of Economics)
    Abstract: This paper shows that vertical foreclosure can have a dynamic rationale. By refusing to supply an efficient downstream rival, a vertically integrated incumbent sacrifices current profits but can exclude the rival by depriving it of the critical profits it needs to be successful. In turn, monopolizing the downstream market may prevent the incumbent from losing most of its future profits because: (a) it allows the incumbent to extract more rents from an efficient upstream rival if future upstream entry cannot be discouraged; or (b) it also deters future upstream entry by weakening competition for the input and reducing the post-entry profits of the prospective upstream competitor.
    Keywords: Inefficient foreclosure, Refusal to supply, Scale economies, Exclusion, Monopolization
    JEL: K21 L41
    Date: 2019–01–14
  9. By: Martin F. Hellwig (Max Planck Institute for Research on Collective Goods)
    Abstract: Reforms of financial regulation after the crisis of 2007-2009 raise the question of what is the relation between financial regulators and competition authorities. Should competition authorities play a role in financial regulation? Should they co-operate with financial regulators? Or should they keep at a distance? The paper gives an overview over some of the issues that are involved in the discussion. Drawing on the experience of the network industries, the first part of the paper discusses the relation between competition authorities and sector-specific regulators more generally. Whereas competition policy involves the application of legal norms involving prohibitions that are formulated in abstract terms, sector-specific regulation involves authorities actually prescribing desired modes of behavior. The ongoing nature of relations makes regulators more prone to capture than competition authorities. In the financial sector, the potential for capture is particularly great because everyone is tempted by the idea that banks should fund their pet projects. Following an overview over the evolution of regulation and competition in the financial industry, the paper discusses various issues that are relevant for competition policy: Technological and regulatory barriers to entry, distortions of competition by explicit or implicit government guarantees, distortions of competition by bailouts making for artificial barriers to exit. Guarantees and bailouts in particular pose special challenges for merger control and for state aid control.
    Keywords: Financial Regulation, Competition Policy, Government Guarantees, Bank Bailouts, State Aid Control
    JEL: G28 K21 K23 L40 L50
    Date: 2018–07
  10. By: Sonnabend, Hendrik; Stadtmann, Georg
    Abstract: Internationally, there is no consensus concerning the legal and moral judgment of prostitution. Nevertheless, there is an overwhelming agreement on the need to fight sexual slavery. We analyze how a law - introduced to punish clients of commercial sex services - affects market outcomes. More specifically, we examine how the so-called "neo-abolitionism" or "Nordic" prostitution regime impacts sexual slavery. The theoretical analysis reveals that this effect is ambiguous and crucially depends on the size of the deterrence effect and on local properties of the market demand. In addition, we highlight the conditions under which the composition of clients changes towards more risk-seeking individuals. Policy implications that arise are identified and discussed.
    Keywords: Prostitution,Regulation,Forced Labor,Sexual Slavery
    JEL: K42 L51 D42 J3
    Date: 2018
  11. By: Ozkan Eren; Michael F. Lovenheim; Naci H. Mocan
    Abstract: This paper presents the first analysis in the literature of the effect of test-based grade retention on adult criminal convictions. We exploit math and English test cutoffs for promotion to ninth grade in Louisiana using administrative data on all public K-12 students combined with administrative data on all criminal convictions in the state. Our preferred models use the promotion discontinuity as an instrument for grade retention, and we find that being retained in eighth grade has large long-run effects on the likelihood of being convicted of a crime by age 25 and on the number of criminal convictions by age 25. Effects are largest for violent crimes: the likelihood of being convicted increases by 1.05 percentage points, or 58.44%, when students are retained in eighth grade. Our data allow an examination of mechanisms, and we show that the effects are likely driven by declines in high school peer quality, lowered non-cognitive skill acquisition, and a reduction in educational attainment. However, we find little effect on juvenile crime, which suggests the effects on adult criminal engagement are driven by worse job market prospects and non-cognitive skills that stem from lower educational investments by students. Using the method proposed by Angrist and Rokkanen (2015), we also estimate effects of grade retention away from the promotion cutoff and show that our results are generalizable to a larger group of low-performing students. Our estimates indicate that test- based promotion cutoffs lead to large private and social costs in terms of higher levels of long-run criminal convictions that are important to consider in the development and use of these policies.
    JEL: I21 J24
    Date: 2018–12
  12. By: Benson, Alan (University of Minnesota); Sojourner, Aaron (Federal Reserve Bank of Minneapolis); Umyarov, Akhmed (University of Minnesota)
    Abstract: Just as employers face uncertainty when hiring workers, workers also face uncertainty when accepting employment, and bad employers may opportunistically depart from expectations, norms, and laws. However, prior research in economics and information sciences has focused sharply on the employer’s problem of identifying good workers rather than vice versa. This issue is especially pronounced in markets for gig work, including online labor markets, where platforms are developing strategies to help workers identify good employers. We build a theoretical model for the value of such reputation systems and test its predictions in on Amazon Mechanical Turk, where employers may decline to pay workers while keeping their work product and workers protect themselves using third-party reputation systems, such as Turkopticon. We find that: (1) in an experiment on worker arrival, a good reputation allows employers to operate more quickly and on a larger scale without loss to quality; (2) in an experimental audit of employers, working for good-reputation employers pays 40 percent higher effective wages due to faster completion times and lower likelihoods of rejection; and (3) exploiting reputation system crashes, the reputation system is particularly important to small, good-reputation employers, which rely on the reputation system to compete for workers against more established employers. This is the first clean field evidence of the effects of employer reputation in any labor market and is suggestive of the special role that reputation-diffusing technologies can play in promoting gig work, where conventional labor and contract laws are weak.
    Keywords: Reputation; Labor; Job search; Screening; Contracts; Online ratings; Personnel; Online labor markets
    JEL: D82 J20 J41 K12 K42 L14 L86 M55
    Date: 2018–12–28
  13. By: Caffera, Marcelo; Chávez, Carlos; Ardente, Analía
    Abstract: We study the individual compliance behavior of polluting firms in an experimental setting under two different penalty functions (a linear and a strictly convex) and two different regulatory instruments (emission standards and tradable pollution permits). We find that a convex penalty, as compared to a linear penalty, increases the market price of pollution permits and the violation rate of firms. The effect of the structure of the fine on the price of permits operates through an increase in the ask-prices of sellers, not on the bids by suppliers. With convex penalties, sellers are not willing to sell a permit at a price as low as with linear penalties. We do not observe an effect of convex penalties on the compliance status of firms with emission standards. These results call for attention on the possible effect that the type of penalties may have on the cost-effectiveness of pollution control programs based on tradable pollution permits.
    Keywords: Environmental policy, enforcement, penalty structure, emissions standards, emissions trading, laboratory experiments
    JEL: C91 K42 L51 Q58
    Date: 2018
  14. By: Fernández-Kranz, Daniel (IE Business School, Madrid); Roff, Jennifer Louise (CUNY Graduate Center); Sun, Hugette (U.S. Bureau of Labor Statistics)
    Abstract: This paper examines the effect of economic incentives generated by U.S. divorce and custody law on a range of child health and human capital measures. State laws vary widely in the treatment of child support under joint custody. While some states require no child support in joint custody cases, other states require fathers with joint custody to pay the same child support as those without custody. Merging family and child data from the SIPP with state-level data on economic incentives for joint custody, we find that fathers' joint custody decisions are significantly affected by the incentives generated by reduced child support. These incentives have negative effects on children's human capital development and health, with economic incentives for joint custody leading to significantly lower educational attainment as well as worse attitudes toward school and child health. Parental characteristics and time use data suggest that economic incentives for joint custody may limit children's time spent with relatively high quality mothers, as fathers pursue joint custody in response to the policy.
    Keywords: joint custody, child support, divorce, child outcomes, human capital, health behavior
    JEL: J12 J13 J22 I12 I29 K36
    Date: 2018–12
  15. By: Budzinski, Oliver; Noskova, Victoriia; Zhang, Xijie
    Abstract: The paper applies economic theories to give an overview of the emerging phenomenon of digital personal assistants (DPAs). A DPA is an intelligent automated system that interacts with the user through a dialogue in natural language, and meanwhile applying third-party services to obtain information and perform various actions. We analyze the benefits of increasing usage of DPAs, such as reduction of transaction costs, enhanced organization efficiency, procompetitive effects, and boosting the e-commerce economy. Besides benefits, however, adopting DPA in life may also contain some risks and downsides, which may reduce the positive welfare effects or even lead to decreasing welfare: biased services, market power on the DPA market and economic dependence on a dominant DPA, potential leveraging of DPA suppliers' market power into neighboring markets, personalized data (ab)use and privacy, media bias and manipulation of public opinion.
    Keywords: digital personal assistant,DPA,platform economics,economics of privacy,imperfect competition,behavioral economics,antitrust,smart speaker,auto-mated assistant,virtual assistant,digital butler,digital helper,digital assistant,speech-based interface,agent-based assistant,algorithmic assistant,digitization,digital economy
    JEL: L86 L13 L40 D43 D90 D82 K21 O33
    Date: 2018
  16. By: Ash, Elliott; Chen, Daniel L.; Delgado, Raul; Fierro, Eduardo; Lin, Shasha
    Abstract: To build inputs for end-to-end machine learning estimates of the causal impacts of law, we consider the problem of automatically classifying cases by their policy impact. We propose and implement a semi-supervised multi-class learning model, with the training set being a hand-coded dataset of thousands of cases in over 20 politically salient policy topics. Using opinion text features as a set of predictors, our model can classify labeled cases by topic correctly 91% of the time. We then take the model to the broader set of unlabeled cases and show that it can identify new groups of cases by shared policy impact.
    Date: 2018–08
  17. By: Chen, Daniel L.
    Abstract: Using data from 1946–2014, we show that audio features of lawyers’ introductory statements improve the performance of the best prediction models of Supreme Court outcomes. We infer voice attributes using a 15-year sample of human-labeled Supreme Court advocate voices. Audio features improved prediction of case outcomes by 1.1 percentage points. Lawyer traits receive approximately half the weight of the most important feature from the models without audio features.
    Date: 2018–12
  18. By: Ash, Elliott; Chen, Daniel L.; Lu, Wei
    Abstract: We document motivated reasoning among U.S. judges. We employ a supervised learning approach to measure partisanship of text and citations of circuit court opinions. We find persistent but low partisanship of language overall, with the notable exception of civil rights and First Amendment, which liberals and conservatives have mobilized in certain periods. Citations display a significant level of partisanship and increase over time. We also document an increase in vote partisanship–dissenting only against judges appointed by the opposing party’s president. We show an increase in partisan retirement–strategically timing retirements that sclerotize the judiciary and stymie democratic churn. Finally, we show that motivated reasoning grows with judicial experience, but not age, and is more pronounced for Republican appointees.
    Date: 2018–06
  19. By: Bindler, Anna (; Ketel, Nadine (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: Little is known about the costs of crime to victims and their families. In this paper, we use unique and detailed register data on victimisations and labour market outcomes from the Netherlands to overcome data restrictions previously met in the literature and estimate event-study designs to assess the short- and long-term effects of criminal victimisation. Our results show significant decreases in earnings (6.6-9.3%) and increases in the days of benefit receipt (10.4-14.7%) which are lasting up to eight years after victimisation. We find shorter-lived responses in health expenditure. Additional analyses suggest that the victimisation can be interpreted as an escalation point, potentially triggering subsequent adverse life-events which contribute to its persistent impact. Heterogeneity analyses show that the effects are slightly larger for males regarding earnings and significantly larger for females regarding benefits. These differences appear to be largely (but not completely) driven by different offence characteristics. Lastly, we investigate spill-over effects on nonvictimised partners and find evidence for a spill-over effect of violent threat on the partner’s earnings.
    Keywords: Crime; victimisation; labour market outcomes; event-study design
    JEL: J01 J12 K14
    Date: 2019–01
  20. By: Ash, Elliott; Chen, Daniel L.; Mainali, Nischal; Meier, Liam
    Abstract: What modes of moral reasoning do judges employ? We construct a linear SVM classifier for moral reasoning mode trained on applied ethics articles written by consequentialists and deontologists. The model can classify a paragraph of text in held out data with over 90 percent accuracy. We then apply this classifier to a corpus of circuit court opinions. We show that the use of consequentialist reasoning has increased over time. We report rankings of relative use of reasoning modes by legal topic, by judge, and by judge law school.
    Date: 2018–12
  21. By: Daniel Trnka (OECD); Yola Thuerer (OECD)
    Abstract: Governments are increasingly trying to limit the costs of regulatory compliance. One of the approaches that has been gaining ground in the last five years is the “one-in, x-out rule”, or the offsetting of regulatory costs stemming from new regulations by reducing the existing regulatory stock. This paper presents examples of regulatory offsetting approaches in selected OECD countries. By comparing the different approaches and discussing their key features, the paper provides guidance to countries considering introducing regulatory offsetting. This paper finds that there are many methodological and implementation issues that need to be resolved before a government decides to use a one-in, x-out approach as part of its regulatory policy. Key suggestions for countries introducing regulatory offsetting include i) ensuring a solid methodology for calculating regulatory costs; ii) linking the responsibility for finding offsets to the “owners” of regulation; iii) setting up quality oversight mechanisms; iv) securing strong political commitment and support and v) implementing regulatory offsetting as a complement to other regulatory management tools.
    Keywords: Regulatory policy
    JEL: K2 K23 F5 F53 F59
    Date: 2019–01–21

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