nep-law New Economics Papers
on Law and Economics
Issue of 2019‒04‒08
twelve papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Vicarious and Contingent Consequences of Adolescent Police Exposure By Kristin Turney
  2. Tax Morale and Fairness in Conflict - An Experiment By Christoph Engel; Luigi Mittone; Azzurra Morreale
  3. Abuse of Power – An experimental investigation of the effects of power and transparency on centralized punishment By Leonard Hoeft; Wladislaw Mill
  4. Unintended Consequences: Protective State Policies and the Employment of Fathers with Criminal Records By Allison Dwyer Emory
  5. Endogenous choice of minority shareholdings: Effects on product market competition By Samuel de Haas
  6. Contract law and Contract theory. A survey and some considerations By Daniel Danau
  7. The Economics of Extortion: Theory and Evidence on the Sicilian Mafia By Luigi Balletta; Andrea Mario Lavezzi
  8. The Effect of Direct and Vicarious Police Contact on the Educational Achievement of Urban Teens By Aaron Gottlieb; Robert Wilson
  9. How to make crowdfunding work in Europe By Dmitry Chervyakov; Jörg Rocholl
  10. How to Modernise the Working of Courts and Tribunals in India. By Datta, Pratik; Hans, Mehtab; Mishra, Mayank; Patnaik, Ila
  11. Market structure and cartel duration: Evidence from detected EU cartel cases By Swoboda, Sandra Maria
  12. Burden of Inspection Costs and Effectiveness of Environmental Regulations By Keisaku Higashida

  1. By: Kristin Turney (University of California, Irvine)
    Abstract: Police stops are a pervasive form of criminal justice contact among adolescents that have adverse repercussions for mental health. Yet the mental health consequences of adolescent police stops likely proliferate, vicariously, to parents of adolescents exposed to this form of criminal justice contact. In this article, I conceptualize adolescent police stops as a stress or, drawing on the stress process perspective to examine how and under what conditions adolescent police stops damage the mental health of adolescents’ mothers. The results, based on data from the Fragile Families and Child Wellbeing Study, suggest three conclusions. First, the mental health consequences of adolescent police stops proliferate vicariously, increasing depression and anxiety among adolescents’ mothers. This relationship persists across a series of modeling strategies that progressively adjust for observed confounders, including potentially endogenous adolescent characteristics including delinquency, substance use, and other forms of criminal justice contact. Second, the relationship between adolescent police stops and mothers’ mental health is contingent, especially concentrated among mothers with prior exposure to the criminal justice system (either via themselves or their adolescents’ fathers). Third, mothers’ emotional support buffers the relationship between adolescent police stops and mothers’ mental health. Taken together, this research highlights the role of police exposure as a stressor with both vicarious and contingent consequences and, accordingly, documents the expansive and proliferating repercussions of police contact.
    JEL: K42
    Date: 2019–01
  2. By: Christoph Engel (Max Planck Institute for Research on Collective Goods); Luigi Mittone (University of Trento); Azzurra Morreale (LUT University, Finland)
    Abstract: Arguably, for many citizens the perceived expected disutility from sanctions is smaller than the monetary gain from tax evasion. Nevertheless most people pay their taxes most of the time. In a lab experiment, we show that the willingness to pay taxes even absent enforcement is indeed pronounced. Yet voluntary compliance is reduced if participants learn that income is heterogeneous. The effect is driven by participants with the lowest income. The reduction obtains irrespective of the tax regime. If the tax is proportional to income, or progressive, participants become more skeptical about the willingness of participants with high income to comply.
    Keywords: tax evasion, tax morale, heterogeneity, income inequality, lump sum tax, proportional tax, progressive tax, beliefs, path model
    JEL: C30 C91 D01 D02 D31 D63 D91 H26 K34 K42
    Date: 2019–02
  3. By: Leonard Hoeft (Max Planck Institute for Research on Collective Goods, Bonn); Wladislaw Mill (International Max Planck Research School on Adapting Behavior in a Fundamentally Uncertain World, School of Economics and Business Administration, Jena)
    Abstract: We investigate power abuse of a single punisher in a public-goods-game subject to variations in punishment power and contribution transparency. We find a high amount of abuse across all conditions. More power led to more abuse over time, while transparency could only curb abuse in the high power conditions. These findings highlight the dangers of power centralization, but suggest a more complex relation of power and transparency
    Keywords: Punishment, Public-Goods-Game, Designated Punishment, Abuse, Transparency, Power
    JEL: H41 C92 K42
    Date: 2017–07
  4. By: Allison Dwyer Emory (Rutgers University)
    Abstract: Criminal records contribute to worse employment outcomes, an association with serious implications for the collateral consequences of criminal justice involvement for families. To address these employment challenges, many states have adopted policies to regulate the use of criminal records during the hiring and licensing processes. Recent studies have questioned whether such policies exacerbate statistical discrimination. Using panel data from the Fragile Families study merged with longitudinal data on state-level policies protecting the employment of individuals with records, this study investigates the association between protective state policies and the employment of fathers both with and without criminal records. Findings indicate that state policies regulating the use of records are negatively associated with the employment of fathers with records. Consistent with statistical discrimination, this negative association is particularly strong for black fathers both with and without criminal records. Instead of mitigating inequality, these policies appear to exacerbate the mark of criminal records.
    JEL: K42
    Date: 2019–01
  5. By: Samuel de Haas (Justus-Liebig-University Giessen)
    Abstract: Non-controlling minority shareholdings in rivals (NCMS) lower the sustainability of collusion under a wide variety of circumstances. Nevertheless, NCMS are sometimes deemed to facilitate collusion, in particular if the level of NCMS is exogenous. The present paper endogenizes firms' choice of NCMS and answers the question: Would colluding firms find it rational to acquire NCMS in rivals? The study of the acquisition reveals that firms have an incentive to acquire NCMS which are accompanied by a shift from collusive to competitive behaviour.
    Keywords: Collusion, Coordinated Effects, Minority Shareholdings, Merger Control, Unilateral Effects
    JEL: G34 K21 L41
    Date: 2019
  6. By: Daniel Danau (Normandie Univ, UNICAEN, CNRS, CREM, F-14000 Caen, France)
    Abstract: In this study we parallel Contract theory and Contract law and over a few considerations about the link between the two literatures. First, we highlight that studies in Contract theory can be classi ed in analyses of principal agent relation-ships and analyses of speci c investment problems, and that Contract law mainly focuses on the latter, in general. This leaves aside the analysis of the potential role of the law, for instance, in containing the contractual costs of asymmetric information. Second, we try and clarify under what legal rules the parties fully commit with the contract, or they do not, taking into account that the notions of full and limited commitment are very common in Contract theory whereas they are not in Contract law. This further allows us to provide a uni ed presentation of the literature, based on the features of the contractual environment: complete versus incomplete contracting, full versus limited commitment. Third, we point out that, unlike studies in Contract law, studies in Contract theory devote little attention to the litigation process. For this reason, there is no uni ed analysis of optimal contracts accounting for the transaction costs that appear in the various stages of a contractual relationship.
    Keywords: Contract law, Contract theory, Law and economics, Incomplete contracts
    JEL: D82 K12
    Date: 2019–03
  7. By: Luigi Balletta; Andrea Mario Lavezzi
    Abstract: This paper studies extortion of firms operating in legal sectors by a profit-maximizing criminal organization. We develop a simple principal-agent model under asymmetric information to find the Mafia-optimal extortion as a function of firms' observable characteristics, namely size and sector. We test the predictions of the model on a unique dataset on extortion in Sicily, the Italian region where the most powerful criminal organization, the Mafia, operates. In line with our theoretical model, our empirical findings show that extortion is strongly concave in firm's size and highly regressive. The percentage of profits appropriated by Mafia ranges from 40% for small firms to 2% for large firms. We derive some implications of these findings on market structure and economic development.
    Keywords: Organized Crime, Economic Structure, Sicilian Mafia, Asymmetric Information, Principal-Agent Theory
    JEL: C72 D86 K42
    Date: 2019–03–01
  8. By: Aaron Gottlieb (University of Illinois At Chicago); Robert Wilson (University of Illinois At Chicago)
    Abstract: In response to changes in policing practices, scholarship has increasingly begun to explore whether police contact has negative implications for youth. A small subset of scholarship has examined the implications of police contact for educational outcomes. This research has generally focused on serious police contact (arrest, court involvement, and incarceration) and has found that police contact is associated with worse educational outcomes. In this paper, we build on this research in three ways: 1) By differentiating between arrests and stops that do not result in arrest; 2) By examining the implications of vicarious police contact; and 3) By examining the pathways through which experiencing arrest, experiencing a police stop without an arrest, and vicariously experiencing police contact may impact educational achievement. Using data from the Fragile Families and Child Wellbeing Study, we find that arrest, police contact that does not result in arrest, and vicarious police contact are all associated with reductions in educational achievement. We also find that these associations are mediated at least in part by the impact of police contact on teen delinquency, teen attitudes towards teachers, and teen mental health.
    JEL: K42 I21
    Date: 2018–10
  9. By: Dmitry Chervyakov; Jörg Rocholl
    Abstract: Crowdfunding markets around the world have experienced significant growth rates in recent years. With an aggregate amount of almost €50 billion raised worldwide between 2010 and 2017, crowdfunding has attracted increasing economic, political and regulatory attention on the international level. However, many questions remain open on the proper design, implementation and feasibility of these markets, of which there are four general types - debt, rewards, equity, and charity (ranked by their respective volumes). The first three types of crowdfunding are comparable to existing sources of traditional financing and either complement or substitute for these sources. Investors thus expect returns or other financial benefits from these types of crowdfunding. The fourth type – charity-based crowdfunding – is purely philanthropic. The United States and United Kingdom are responsible for the majority of crowdfunding transactions. The share of European Union markets (excluding the UK) is still low, with negligible cross-border activity. We argue that the lack of a clear and consistent regulatory framework in Europe is a major obstacle to the development of these markets. The European Commission proposed in March 2018 a set of measures aimed at addressing the major shortcomings of the current regulatory framework and employing instead an EU-wide regime (European Commission, 2018b). The Commission’s proposal moves in the right direction to provide a solid basis for the development of crowdfunding markets in Europe, but has at least three major shortcomings that need to be addressed. First, an EU-wide framework needs to have a precise and transparent legal definition of crowdfunding activities, eliminating any legal confusion for investors, enterprises and platforms. Second, such a framework requires a clear stance on investor protection. We suggest including in the proposal a more refined requirement for agents who want to invest more than a certain threshold amount to undertake a ‘qualified investor test’. Third, the proposal would limit crowdfunding offers to €1 million per project over a period of 12 months. We argue that this threshold is too restrictive and should be raised to €5 million in order to enable the frictionless development of investment-based crowdfunding in Europe.
    Date: 2019–03
  10. By: Datta, Pratik (National Institute of Public Finance and Policy); Hans, Mehtab; Mishra, Mayank; Patnaik, Ila (National Institute of Public Finance and Policy)
    Abstract: Indian courts are clogged with large backlogs. Part of the reason for the problem is that cases take a very long time to move through the courts. The slow progress of court cases is harmful for the Indian democracy and economy.We suggest that part of the reason for the backlog is the poor administrative support available to judges. Following several Supreme Court judgements, we propose that a separate organisation (The Indian Courts and Tribunals Services, ICTS) be set up to facilitate administrative functions. Care needs to be taken while designing ICTS to ensure the protection of judicial independence. The functions of ICTS would also involve a reengineering of the business processes of the courts to take full advantage of modern technology.
    Date: 2019–03
  11. By: Swoboda, Sandra Maria
    Abstract: Cartel duration is influenced by market structure but it also varies depending on the cause of cartel death. This paper distinguishes between determinants which increase the probability of death by leniency application and those that increase the probability of death through intervention by competition authorities. Proportional hazard models with competing risks are applied to detected EU cartel cases for the period 2001 to 2017. The analysis indicates that the existence of industry specific problems or high cumulative market share do not give cartel members an incentive to apply for leniency, whereas companies which benefit from advantages or the existence of buyer power on the demand side are more likely to denounce the cartel. Regardless of the cause of their death, cartels lasted longer if they operated across different markets. Likewise, the probability of cartel detection by competition authorities decreases if cartel agreements affect heterogeneous products. In contrast, detection probability increases if companies are organised around an industry association with regular meetings or in case the cartel has a leader.
    Date: 2018
  12. By: Keisaku Higashida (School of Economics, Kwansei Gakuin University)
    Abstract: Using a laboratory experimental approach, this study examines the effect of institutional changes in the responsibility for paying inspection costs for environmental regulations on the behavior of polluters and authorities. In particular, we compare two schemes: one is that authorities always bear the inspection cost and the other is that polluters bear the cost in a given situation. We find that polluters comply with regulations more frequently in the latter than the former scheme, while the inspection behavior of authorities does not change significantly. Moreover, the cost-bearing change in the scheme induces income redistribution between polluters and authorities (pollutees or society). In addition, we introduce uncertainty about the occurrence of environmental damage, and find that the frequency of inspection is greater in the latter than the former scheme. Because both inspection and compliance costs increase, total payoff may decrease by the partial shift of responsibility for inspection cost from authorities to polluters.
    Keywords: Compliance, environmental regulation, inspection cost, laboratory experiment
    JEL: K32 Q52 Q58
    Date: 2019–03

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