nep-law New Economics Papers
on Law and Economics
Issue of 2019‒04‒15
seventeen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Takeovers, Shareholder Litigation, and the Free-riding Problem By Broere, Mark; Christmann, Robin
  2. Do Private Prisons Affect Criminal Sentencing? By Christian Dippel; Michael Poyker
  3. Crime and Social Media By Asongu, Simplice; Nwachukwu, Jacinta; Orim, Stella-Maris; Pyke, Chris
  4. The Effect of Social Connectedness on Crime: Evidence from the Great Migration By Stuart, Bryan; Taylor, Evan J.
  5. Population Aging, Age Discrimination, and Age Discrimination Protections at the 50th Anniversary of the Age Discrimination in Employment Act By Button, Patrick
  6. 25 Years of European Merger Control By Pauline Affeldt; Tomaso Duso; Florian Szücs
  7. Refugees Welcome? Understanding the Regional Heterogeneity of Anti-Foreigner Hate Crimes in Germany By Entorf, Horst; Lange, Martin
  8. Schools, Neighborhoods, and the Long-Run Effect of Crime-Prone Peers By Stephen B. Billings; Mark Hoekstra
  9. How Common are Electoral Cycles in Criminal Sentencing? By Christian Dippel; Michael Poyker
  10. Tobacco Sales Prohibition and Teen Smoking By Meier, Armando N.; Odermatt, Reto; Stutzer, Alois
  11. New Technology and Increasing Returns: The End of the Antitrust Century? By Basu, Kaushik
  12. Responding to Regulation: The Effects of Changes in Mandatory Retirement Laws on Firm-Provided Incentives By Frederiksen, Anders; Flaherty Manchester, Colleen
  13. Securing Personal Freedom through Institutions – the Role of Electoral Democracy and Judicial Independence By Berggren, Niclas; Gutmann, Jerg
  14. Tax Professionals: Tax-Evasion Facilitators or Information Hubs? By Battaglini, Marco; Guiso, Luigi; Lacava, Chiara; Patacchini, Eleonora
  15. Antitrust Analysis with Upward Pricing Pressure and Cost Efficiencies By Jessica Dutra; Tarun Sabarwal
  16. Violence and Human Capital Investments By Foureaux Koppensteiner, Martin Foureaux; Menezes, Livia
  17. An Empirical and Qualitative Assessment of Terrorism Sentencing Decisions in Canada since 2001: Shifting Away from the Fundamental Principle and Towards Cognitive Biases By Nesbitt, Michael; Oxoby, Robert J.; Potier, Meagan

  1. By: Broere, Mark; Christmann, Robin
    Abstract: When shareholders of a target firm expect a value improving takeover to be successful, they are individually better off not tendering their shares to the buyer and the takeover potentially fails. Squeeze-out procedures can overcome this free-riding dilemma by allowing a buyer to enforce a payout of minority shareholders and seize complete control of the target firm. However, it is often argued that shareholder protection laws and litigation restore or intensify the free-riding dilemma. Applying a game theoretic setting, we demonstrate that it is not shareholder litigation that brings back the free-riding dilemma, but rather the strategic gambling of buyers for lower prices and flaws in the design and application of squeeze-out laws. We find, for example, that lawmakers should refrain from setting separate legal thresholds for corporate control and squeeze-outs. We also analyze a favorable change in jurisdiction of the German Federal Court and provide implications for legal policy.
    Keywords: squeeze-out; appraisals; entire Fairness; judicial review
    JEL: G34 K22 K41
    Date: 2019–03–29
  2. By: Christian Dippel; Michael Poyker
    Abstract: This paper provides causal evidence of the effect of private prisons on court sentencing, using novel data on private prisons and state trial courts. Our identification strategy uses state-level changes in private-prison capacity and compares changes in sentencing only across court pairs that straddle state borders. We find that the opening of a private prison increases the length of sentences relative to what the crime’s and defendant’s characteristics predict. Effects are concentrated at the margin of sentence length, not of being sent to prison. The effect does not appear to be driven by ‘judicial capture’; instead the evidence is most consistent with the cost savings from private prisons leading judges to pass longer sentences. Private prisons do not appear to accentuate existing racial biases in sentencing decisions.
    JEL: D72 H76 K0 K14 K41
    Date: 2019–03
  3. By: Asongu, Simplice; Nwachukwu, Jacinta; Orim, Stella-Maris; Pyke, Chris
    Abstract: Purpose-The study complements the scant macroeconomic literature on the development outcomes of social media by examining the relationship between Facebook penetration and violent crime levels in a cross-section of 148 countries for the year 2012. Design/methodology/approach-The empirical evidence is based on Ordinary Least Squares (OLS), Tobit and Quantile regressions. In order to respond to policy concerns on the limited evidence on the consequences of social media in developing countries, the dataset is disaggregated into regions and income levels. The decomposition by income levels included: low income, lower middle income, upper middle income and high income. The corresponding regions include: Europe and Central Asia, East Asia and the Pacific, Middle East and North Africa, Sub-Saharan Africa and Latin America. Findings-From OLS and Tobit regressions, there is a negative relationship between Facebook penetration and crime. However, Quantile regressions reveal that the established negative relationship is noticeable exclusively in the 90th crime quantile. Further, when the dataset is decomposed into regions and income levels, the negative relationship is evident in the Middle East and North Africa (MENA) while a positive relationship is confirmed for sub-Saharan Africa. Policy implications are discussed. Originality/value- Studies on the development outcomes of social media are sparse because of a lack of reliable macroeconomic data on social media. This study primarily complemented five existing studies that have leveraged on a newly available dataset on Facebook.
    Keywords: Crime; Social media; ICT; Global evidence; Social networks
    JEL: D74 D83 K42 O30
    Date: 2019–01
  4. By: Stuart, Bryan (George Washington University); Taylor, Evan J. (University of Chicago)
    Abstract: This paper estimates the effect of social connectedness on crime across U.S. cities from 1970 to 2009. Migration networks among African Americans from the South generated variation across destinations in the concentration of migrants from the same birth town. Using this novel source of variation, we find that social connectedness considerably reduces murders, rapes, robberies, assaults, burglaries, and motor vehicle thefts, with a one standard deviation increase in social connectedness reducing murders by 21 percent and motor vehicle thefts by 20 percent. Social connectedness especially reduces murders of adolescents and young adults committed during gang and drug activity.
    Keywords: crime, social connectedness, Great Migration
    JEL: K42 N32 R23 Z13
    Date: 2019–03
  5. By: Button, Patrick (Tulane University)
    Abstract: This paper discusses population aging, increased participation of seniors in the labor force in the United States (and reasons for this), and how these trends are making the struggles of older workers in the labor market increasingly relevant. Evidence examining whether age discrimination is a barrier for seniors as they try to increase their work lives through the common practice of "bridge" jobs is also presented. After discussing the evidence that measures age discrimination, economics and legal research that seeks to determine to what extent the federal Age Discrimination in Employment Act and state-level age discrimination laws prevent age discrimination is discussed. In summary, current evidence indicates that age discrimination exists, but more so for older women. While evidence suggests that age discrimination laws may help, they cannot resolve the challenges imposed by population aging, especially for older women.
    Keywords: age discrimination, seniors, age discrimination in employment act, population aging, discrimination law, older women, sex-plus-age discrimination, intersectionality
    JEL: J71 J78 J14 K31 J16 J26
    Date: 2019–03
  6. By: Pauline Affeldt; Tomaso Duso; Florian Szücs
    Abstract: We study the evolution of the EC’s merger decision procedure over the first 25 years of European competition policy. Using a novel dataset constructed at the level of the relevant markets and containing all merger cases over the 1990-2014 period, we evaluate how consistently arguments related to structural market parameters were applied over time. Using non-parametric machine learning techniques, we find that the importance of market shares and concentration measures has declined while the importance of barriers to entry and the risk of foreclosure has increased in the EC’s merger assessment following the 2004 merger policy reform.
    Keywords: Merger policy, DG competition, causal forests
    JEL: K21 L40
    Date: 2019
  7. By: Entorf, Horst (Goethe University Frankfurt); Lange, Martin (ZEW Mannheim)
    Abstract: In this article, we examine anti-foreigner hate crime in the wake of the large influx of asylum seekers to Germany in 2014 and 2015. By exploiting the quasi-experimental assignment of asylum seekers to German regions, we estimate the causal effect of an unexpected and sudden change in the share of the foreign-born population on anti-foreigner hate crime. Our county-level analysis shows that not simply the size of regional asylum seeker inflows drives the increase in hate crime, but the rapid compositional change of the residential population: Areas with previously low shares of foreign-born inhabitants that face large-scale immigration of asylum seekers witness the strongest upsurge in hate crime. Economically deprived regions and regions with a legacy of anti-foreigner hate crimes are also found to be prone to hate crime against refugees. However, when we explicitly control for East-West German differences, the predominance of native-born residents at the local level stands out as the single most important factor explaining the sudden increase in hate crime.
    Keywords: hate crime, immigration, natural experiment, regional conditions
    JEL: J15 R23 K42
    Date: 2019–03
  8. By: Stephen B. Billings; Mark Hoekstra
    Abstract: This paper examines how elementary-aged peers affect cognitive and non-cognitive outcomes from adolescence to adulthood. We identify effects by exploiting within-school and within-neighborhood variation in the proportion of peers with an arrested parent. Results indicate exposure to these peers reduces achievement and increases antisocial behavior during middle and high school. More importantly, we estimate that a five percentage point increase in school and neighborhood crime-prone peers increases arrest rates at age 19 - 21 by 6.5 and 2.6 percent, respectively. Additional evidence suggests these effects are due to attending school with crime-prone peers, rather than living in the same neighborhood.
    JEL: I21 K42
    Date: 2019–04
  9. By: Christian Dippel; Michael Poyker
    Abstract: Existing empirical evidence suggests a pervasive pattern of electoral cycles in criminal sentencing in the U.S.: judges appear to pass more punitive sentences when they are up for re-election, consistent with models of signaling where voters have more punitive preferences than judges. However, this pervasive evidence comes from only three states. Combining the existing evidence with data we collected from eight additional states, we are able to reproduce previous results, but find electoral cycles in only one of the eight additional states. Sentencing cycles appear to be the exception rather than the norm. We find that their existence hinges on the level of competition in judicial elections, which varies considerably across states.
    JEL: D72 H76 K41
    Date: 2019–03
  10. By: Meier, Armando N. (University of Basel); Odermatt, Reto (University of Basel); Stutzer, Alois (University of Basel)
    Abstract: We evaluate one of the most prevalent prohibitory policies: banning the sales of tobacco to teens. We exploit the staggered introduction of sales bans across Switzerland and the European Union from 1990 to 2016. The estimates indicate a less than 1 percentage point reduction in teen smoking because of the bans. The reduction is substantially lower than the 5 percentage point reduction expected by health officials. We examine additional outcomes relevant to assessing any prohibitory policy. We find that teens circumvent the bans through peers. Moreover, they consider smokers less cool but do not think smoking is more dangerous.
    Keywords: prohibition, tobacco sales bans, youth smoking, attitudes toward smoking, tobacco prevention
    JEL: D12 I12 I18 K42
    Date: 2019–03
  11. By: Basu, Kaushik (World Bank)
    Abstract: The advance of digital technology is changing the nature of markets, enhancing the capacity of corporations to extract more consumers' surplus and lower the wages paid to workers. The rise of new technology has also diminished the efficacy of traditional laws to regulate firms and corporations. This is best illustrated by antitrust laws. With the new technology, there is greater returns to scale in production, and further, it is possible to have different components of the same final good be produced by different firms in faraway places. Unlike in earlier times the n firms in one industry, say the automobile industry, would all be producing cars, now the n firms in that industry produce n different parts of the product, thereby getting enormous returns to scale. Such markets are described as vertically serrated markets and their equilibria are characterized. Traditional antitrust law does not apply to these markets because the high returns to scale are natural and not artificially induced. This compels us to look for novel ways to regulate such markets. This paper discusses, in particular, laws that compel firms to have widely dispersed share holdings.
    Keywords: antitrust law, share distribution, technological advance, labor demand
    JEL: K21 L13 O33
    Date: 2019–04
  12. By: Frederiksen, Anders (Aarhus University); Flaherty Manchester, Colleen (University of Minnesota)
    Abstract: The Age Discrimination in Employment Act of 1978 expanded employee age protections to age 70, making the widespread practice by U.S. firms of mandating retirement at age 65 illegal. Building on the work of Lazear (1979), we propose that the law change not only weakened the long-term employment contract, but also contributed to the rise in pay-for-performance incentives. We model the firm's choice between offering long-term incentive contracts with low monitoring requirements and pay-for-performance (PFP) contracts with high monitoring requirements, showing how the law change increased the relative attractiveness of PFP contracts. We test the model's predictions using data from the Baker-Gibbs-Holmstrom firm, evaluating the effect of the law change on the slope of the age-pay profile, turnover rates, and the sensitivity of pay to performance. Further, we find direct evidence of strategic response to the law change by the firm, including the introduction of bonus payments, change in performance management system, and increase in the proportion of top managers. The setting also provides an opportunity to empirically investigate how firms navigate career incentives for employees.
    Keywords: incentive pay, pay for performance, long-term incentive contracts, promotions, slot constraints, career incentives
    JEL: M51 M52
    Date: 2019–03
  13. By: Berggren, Niclas (Research Institute of Industrial Economics (IFN)); Gutmann, Jerg (Institute of Law & Economics)
    Abstract: Personal freedom is highly valued by many and a central element of liberal political philosophy. Although personal freedom is frequently associated with electoral democracy, developments in countries such as Hungary, Poland, Turkey and Russia, where elected populist leaders with authoritarian tendencies rule, suggest that electoral democracy may not be the envisaged unequivocal guarantor of freedom. Instead, an independent judicial system, insulated from everyday politics, might provide a firmer foundation. We investigate empirically how electoral democracy and judicial independence relate to personal freedom, as quantified by the new Human Freedom Index. Our findings reveal that while judicial independence is positively and robustly related to personal freedom in all its forms, electoral democracy displays a robust relationship with two out of seven types of personal freedom only (freedom of association, assembly and civil society as well as freedom of expression and information). These are types of freedom associated with democracy itself, but democracy seems unable to protect freedom in other dimensions. When we study interaction effects and make use of more refined indicators of the political system in place, we find that countries without elections or with only one political party benefit more from judicial independence than both democracies and multi-party systems without free elections. A number of robustness checks confirm these findings. Hence, it seems as if personal freedom has institutional correlates in the form of both democracy and judicial independence, with the latter safeguarding freedom more consistently and more strongly.
    Keywords: Freedom; Democracy; Judicial independence; Political economy; Institutions
    JEL: D63 D72 D78 K36 P48
    Date: 2019–04–03
  14. By: Battaglini, Marco; Guiso, Luigi; Lacava, Chiara; Patacchini, Eleonora
    Abstract: To study the role of tax professionals, we merge tax records of 2.5 million taxpayers in Italy with the respective audit files from the tax revenue agency. Our data covers the entire population of sole proprietorship taxpayers in seven regions, followed over seven fiscal years. We first document that tax evasion is systematically correlated with the average evasion of other customers of the same tax professional. We then exploit the unique structure of our dataset to study the channels through which these social spillover effects are generated. Guided by an equilibrium model of tax compliance with tax professionals and auditing, we highlight two mechanisms that may be behind this phenomenon: self-selection of taxpayers who sort themselves into professionals of heterogeneous tolerance for tax evasion; and informational externalities generated by the tax professional activities. We provide evidence supporting the simultaneous presence of both mechanisms.
    Keywords: tax enforcement; tax evasion
    JEL: H26 K34
    Date: 2019–04
  15. By: Jessica Dutra (Department of Economics, The University of Kansas); Tarun Sabarwal (Department of Economics, University of Kansas)
    Abstract: We investigate the accuracy of UPP as a tool in antitrust analysis when there are cost efficiencies from a horizontal merger. We include model-based, merger-specific cost efficiencies in a tractable manner and extend the standard UPP formulation to account for these efficiencies. The efficacy of the new UPP formulations is analyzed using Monte Carlo simulation of 40,000 mergers (8 scenarios, 5,000 mergers in each scenario). We find that the new UPP formulations yield substantial gains in prediction of post-merger prices, and there are substantial gains in merger screening accuracy as well. Moreover, the new UPP formulations outperform the standard UPP formulation at higher thresholds for all the standard cases in the paper. The results support the inclusion of model-based cost efficiencies in the standard UPP formulation for more accurate antitrust decision-making.
    Keywords: upward pricing pressure, merger efficiency, monte carlo, UPP, mergers, antitrust, unilateral effects, cost efficiencies
    JEL: K21 L11 L41 L13
    Date: 2019–04
  16. By: Foureaux Koppensteiner, Martin Foureaux (University of Surrey); Menezes, Livia (University of Leicester)
    Abstract: In this paper, we investigate the effect of student exposure to homicides on their educational performance and human capital investments. Combining a number of large georeferenced administrative datasets from Brazil, we estimate the effect of exposure to homicides in the public way on these outcomes. Using within-school and within-corridor estimates, we show that violence in the surroundings of schools has a detrimental effect on school attendance and on standardised test scores in math and Portuguese language and increases dropout rates. We construct measures of student exposure to homicides on their way from home to school and find that exposure on the school path increases dropout rates substantially. Exceptionally rich data on student- and parent-reported aspirations and attitudes towards education allow us to explore the channels underlying these effects.
    Keywords: homicides, human capital investments, education, Brazil
    JEL: I25 K42 O12
    Date: 2019–03
  17. By: Nesbitt, Michael (University of Calgary); Oxoby, Robert J. (University of Calgary); Potier, Meagan (University of Calgary)
    Abstract: In this paper, we take a comprehensive and multidisciplinary look at terrorism sentencing decisions over a 17-year period, between September 2001 when the ATA was first conceived of and September 2018. In so doing, we first offer an empirical analysis of the sentences for all terrorism offenses to date, including the total number of sentences, conviction rates, charges, demographics associated with the accused and other factors. We then engage in a qualitative assessment of the sentencing decisions to date. We also investigate the role that section 718.2(a)(v) of the Criminal Code has had on terrorism sentences in Canada and whether it might help to explain the empirical and qualitative shifts we are seeing in terrorism sentencing decisions. Finally, we ask whether there is anything inherent to the legislative and judicial framing of terrorism as a crime, and therefore in its sentencing, that might explain the unique nature of terrorism sentences.
    Keywords: law and economics, behavioural economics, framing effects, heuristics and biases
    JEL: K14
    Date: 2019–03

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