nep-law New Economics Papers
on Law and Economics
Issue of 2019‒03‒25
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Controlling Algorithmic Collusion: short review of the literature, undecidability, and alternative approaches By João E. Gata
  2. Lost Boys: Access to Secondary Education and Crime By Huttunen, Kristiina; Pekkarinen, Tuomas; Uusitalo, Roope; Virtanen, Hanna
  3. Understanding "Wage Theft": Evasion and Avoidance Responses to Minimum Wage Increases By Clemens, Jeffrey; Strain, Michael R.
  4. Slippery Fish: Enforcing Regulation under Subversive Adaptation By Gonzalez-Lira, Andres; Mobarak, Ahmed Mushfiq
  5. Sector Reforms and Institutional Corruption: Evidence from Electricity Industry in Sub-Saharan Africa By Mahmud I. Imam; Tooraj Jamasb; Manuel Llorca
  6. The Institution of the Prefect According to the Romanian Administrative Code By Berceanu, Bogdan
  7. Flexible Production and Entry: Institutional, Technological, and Organizational Determinants By Sharon Belenzon; Victor Manuel Bennett; Andrea Patacconi
  8. Credence Goods Markets and the Informational Value of New Media: A Natural Field Experiment By Kerschbamer, Rudolf; Neururer, Daniel; Sutter, Matthias
  9. The Market for Data Privacy By Ramadorai, Tarun; Uettwiller, Antoine; Walther, Ansgar
  10. Administrative Data Linking and Statistical Power Problems in Randomized Experiments By Sarah Tahamont; Zubin Jelveh; Aaron Chalfin; Shi Yan; Benjamin Hansen
  11. Is any benefit prohibited in Islam? By Abozaid, Abdulazeem

  1. By: João E. Gata
    Abstract: Algorithms have played an increasingly important role in economic activity, as they becoming faster and smarter.Together with the increasing use of ever larger data sets, they may lead to significant changes in the way markets work. These developments have been raising concerns not only over the rights to privacy and consumers’ autonomy, but also on competition. Infringements of antitrust laws involving the use of algorithms have occurred in the past. However, current concerns are of a different nature as they relate to the role algorithms can play as facilitators of collusive behavior in repeated games, and the role increasingly sophisticated algorithms can play as autonomous implementers of pricing strategies, learning to collude without any explicit instructions provided by humanagents. In particular, it is recognized that the use of ‘learning algorithms’ can facilitate tacit collusion and lead to an increased blurring of borders between tacit and explicit collusion. Several authors who have addressed the possibilities for achieving tacit collusion equilibrium outcomes by algorithms interacting autonomously, have also consideredsome form of ex-ante assessment and regulation over the type of algorithms used by firms. By using well-known resultsin the theory of computation, I showthat such option faces serious challenges to its effectivenessdue to undecidability results. Ex-post assessment may be constrained as well. Notwithstanding several challenges face by current software testing methodologies, competition law enforcement and policy have much to gain from an interdisciplinary collaboration with computer science and mathematics.
    Keywords: Collusion, Antitrust, Algorithms, Finite Automaton, Turing Machine, Church-Turing Thesis, Halting Problem, Recursiveness, Undecidability.
    JEL: D43 D83 K21 L41
    Date: 2019–03
  2. By: Huttunen, Kristiina; Pekkarinen, Tuomas; Uusitalo, Roope; Virtanen, Hanna
    Abstract: Abstract We study the effect of post-compulsory education on crime by exploiting a regression discontinuity design generated by admission cut-offs to upper secondary schools in Finland. We combine data on school applications with data on criminal convictions and follow individuals for 10 years. Our results show that successful applicants are less likely to commit crimes during the first five years after admission. Crime is reduced both during and outside the school year, indicating that the channel through which schooling affects crime cannot be explained by incapacitation alone. We find no effect on crime committed after 6 years from admission.
    Keywords: Crime, Education, School admission, Incapacitation, Human capital
    JEL: K42 I2
    Date: 2019–03–13
  3. By: Clemens, Jeffrey (University of California, San Diego); Strain, Michael R. (American Enterprise Institute for Public Policy Research)
    Abstract: A holistic assessment of the labor market effects of minimum wage regulation requires understanding employer compliance. The economics literature has paid little attention to this issue. We investigate how minimum wage increases and the strength of enforcement regimes affect the prevalence of subminimum wage payments. We find strong evidence that higher minimum wages lead to a greater prevalence of subminimum wage payments. We consistently estimate that increases in measured underpayment following minimum wage increases average between 10 and 25 percent of realized wage gains. We interpret this as evidence that minimum wage evasion and avoidance are an important reality in the low-wage labor market. Finally, we find that enforcement regimes play an important role in shaping both baseline compliance rates and the response of compliance to increases in minimum wages.
    Keywords: minimum wage, subminimum wage, compliance, noncompliance, enforcement
    JEL: J08 J38 K42
    Date: 2019–02
  4. By: Gonzalez-Lira, Andres (University of California, Berkeley); Mobarak, Ahmed Mushfiq (Yale University)
    Abstract: Attempts to curb illegal activity through regulation gets complicated when agents can adapt to circumvent enforcement. Economic theory suggests that conducting audits on a predictable schedule, and (counter-intuitively) at high frequency, can undermine the effectiveness of audits. We conduct a large-scale randomized controlled trial to test these ideas by auditing Chilean vendors selling illegal fish. Vendors circumvent penalties through hidden sales and other means, which we track using mystery shoppers. Instituting monitoring visits on an unpredictable schedule is more effective at reducing illegal sales. High frequency monitoring to prevent displacement across weekdays to other markets backfires, because targeted agents learn faster and cheat more effectively. Sophisticated policy design is therefore crucial for determining the sustained, longer-term effects of enforcement. A simpler demand-side information campaign generates two-thirds of the gains compared to the most effective monitoring scheme, it is easier for the government to implement, and is almost as cost-effective. The government subsequently chose to scale up that simpler strategy.
    Keywords: enforcement, regulation, law and economics, fisheries
    JEL: K42 O1 L51
    Date: 2019–02
  5. By: Mahmud I. Imam (Durham University Business School, Durham University); Tooraj Jamasb (Durham University Business School, Durham University); Manuel Llorca (Durham University Business School, Durham University)
    Keywords: electricity sector reform; corruption; Sub-Saharan Africa; panel data; dynamic GMM
    JEL: Q48 D02 K23 D73
    Date: 2018–05
  6. By: Berceanu, Bogdan
    Abstract: A code can be defined as a legislative act that includes in a unitary system the rules of a branch of law. In this respect, the Administrative Code regulates the general framework for the organization and functioning of the public administration authorities and institutions, the status of the personnel within them, the administrative responsibility, the public services, as well as the specific rules regarding the public and private property of the state and of the administrative-territorial units. The paper has as main research objective to make a qualitative analysis of the main amendments made to the Prefect institution by adopting in the Romanian Parliament the first Administrative Code after 1989. In this regard, we will analyze the important steps regarding the adoption of the Administrative Code, as well as the changes brought about in terms of roles, powers and occupation of the prefect institution.
    Keywords: Prefect, code, public administration, reform.
    JEL: K10 K19
    Date: 2018
  7. By: Sharon Belenzon; Victor Manuel Bennett; Andrea Patacconi
    Abstract: Academics, the media, and policymakers have all raised concerns about the implications of human workers being replaced by machines or software. Few have discussed the implications of the reverse: firms’ ability to replace capital with workers. We show that this flexibility can help new firms overcome uncertainty and increase entrepreneurial entry. We develop a simple real options model where permissive labor regulations allow firms to take advantage of capital-labor substitutability by replacing ‘rigid’ capital with ‘flexible’ labor. The model highlights institutional, technological, and organizational preconditions to using this flexibility. Using a large and comprehensive dataset on entry by standalone firms and group affiliates, we provide evidence in support of the model.
    JEL: K22 L22 L23
    Date: 2019–03
  8. By: Kerschbamer, Rudolf (University of Innsbruck); Neururer, Daniel (University of Innsbruck); Sutter, Matthias (Max Planck Institute for Research on Collective Goods)
    Abstract: Credence goods markets are characterized by pronounced informational asymmetries between consumers and expert sellers. As a consequence, consumers are often exploited and market efficiency is threatened. However, in the digital age, it has become easy and cheap for consumers to self-diagnose their needs using specialized webpages or to access other consumers' reviews on social media platforms in search for trustworthy sellers. We present a natural field experiment that examines the causal effect of information acquisition from new media on the level of sellers' price charges for computer repairs. We find that even a correct self-diagnosis of a consumer about the appropriate repair does not reduce prices, and that an incorrect diagnosis more than doubles them. Internet ratings of repair shops are a good predictor of prices. However, the predictive valued of reviews depends on whether they are judged as reliable or not. For reviews recommended by the platform Yelp we find that good ratings are associated with lower prices and bad ratings with higher prices, while non-recommended reviews have a clearly misleading effect, because non-recommended positive ratings increase the price.
    Keywords: credence goods, fraud, information acquisition, internet, field experiment
    JEL: C93 D82
    Date: 2019–02
  9. By: Ramadorai, Tarun; Uettwiller, Antoine; Walther, Ansgar
    Abstract: We scrape a comprehensive set of US firms' privacy policies to facilitate research on the supply of data privacy. We analyze these data with the help of expert legal evaluations, and also acquire data on firms' web tracking activities. We find considerable and systematic variation in privacy policies along multiple dimensions including ease of access, length, readability, and quality, both within and between industries. Motivated by a simple theory of big data acquisition and usage, we analyze the relationship between firm size, knowledge capital intensity, and privacy supply. We find that large firms with intermediate data intensity have longer, legally watertight policies, but are more likely to share user data with third parties.
    Keywords: data markets; privacy; third-party sharing; web tracking
    JEL: D8 K2 L1
    Date: 2019–03
  10. By: Sarah Tahamont; Zubin Jelveh; Aaron Chalfin; Shi Yan; Benjamin Hansen
    Abstract: The increasing availability of administrative data has led to a particularly exciting innovation in public policy research, that of the “low-cost” randomized trial in which administrative data are used to measure outcomes in lieu of costly primary data collection. Linking data from an experimental intervention to administrative records that track outcomes of interest typically requires matching datasets without a common unique identifier. In order to minimize mistaken linkages, researchers will often use “exact matching” (retaining an individual only if all their demographic variables match exactly in two or more datasets) in order to ensure that speculative matches do not lead to errors in an analytic dataset. We argue that when this approach is used to detect the presence of a binary outcome, this seemingly conservative approach leads to attenuated estimates of treatment effects, and critically, to underpowered experiments. For marginally powered studies, which are common in empirical social science, exact matching is particularly problematic. In this paper, we derive an analytic result for the consequences of linking errors on statistical power and show how the problem varies across different combinations of relevant inputs, including the matching error rate, the outcome density and the sample size. We conclude on an optimistic note by showing that machine learning-based probabilistic matching algorithms allow researchers to recover a considerable share of the statistical power that is lost to errors in data linking.
    JEL: C1 C12 K42
    Date: 2019–03
  11. By: Abozaid, Abdulazeem
    Abstract: It is a well-established rule in the Shariah (Islamic law) that a loan contract is of a charitable nature and as such the lender may not stipulate any excess or benefit from the borrower. However, it is also known in the Shariah that if the benefit from a loan comes to the lender voluntarily and it is not stipulated in the loan contract then it is permissible. This exception derives from some reports that the Prophet used to repay his debt with some increment, and to this effect he said: "The best amongst you are those who benevolently repay their debts”. Moreover, within Islamic law there exist some juristic opinions allowing the lenders to derive some indirect benefits from the loan contract, such as stipulating that the repayment of the debt is to be made in a place different from the one where the loan was first initiated, as this may save transfer costs and effort, or in utilizing, with conditions, the assets mortgaged against the loan. These exceptions may in principle nullify the general understanding that “any loan which results in a benefit is considered a form of usury” in Islam. The paper comes to define the prohibited benefits on a loan in Islam, thereby building the basis for addressing important questions, such as: i) are reciprocal loans prohibited in Islam? ii) is repaying the loan with excess to cater for inflation lawful? iii) is the benefit that pertains to the lender and does not harm or burden the borrower lawful? Answering these questions shall help set out the parameters for what constitutes unlawful benefits obtainable from a loan contract.
    Keywords: Loan, Interest, Islam, Benefit, Reciprocal Loans.
    JEL: A1 A19 G0 K1 Z1
    Date: 2018

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