nep-law New Economics Papers
on Law and Economics
Issue of 2019‒05‒27
fourteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Late Emerging Consensus Among American Economists on Antitrust Laws in the Second New Deal By Thierry Kirat; Frédéric Marty
  2. The Impact of Legalized Abortion on Crime over the Last Two Decades By John J. Donohue; Steven D. Levitt
  3. Testing for collusion in bus contracting in London By Waterson, Michael; Xie, Jian
  4. Tax Audits as Scarecrows. Evidence from a Large-Scale Field Experiment By Bergolo, Marcelo; Ceni, Rodrigo; Cruces, Guillermo; Giaccobasso, Matias; Perez-Truglia, Ricardo
  5. A Study of Exclusionary Coalitions: The Canadian Sugar Coalition, 1888–1889 By John Asker; C. Scott Hemphill
  6. Vague lies and lax standards of proof: On the law and economics of advice By Mikhail Drugov; Marta Troya-Martinez
  7. Population Aging, Age Discrimination, and Age Discrimination Protections at the 50th Anniversary of the Age Discrimination in Employment Act By Patrick Button
  8. Gender, Crime and Punishment: Evidence from Women Police Stations in India By Sofia Amaral; Sonia Bhalotra; Nishith Prakash
  9. Smart working as a form of regulating new labour relationships: the effects of technical progress By Dario Calderara
  10. An Analysis of Transfer Pricing Disputes in India. By Tandon, Suranjali; Damle, Devendra
  11. Violence and Human Capital Investments By Martin Foureaux Koppensteiner; Lívia Menezes
  12. The Rise and Decline of Private Foundations as Controlling Owners of Swedish Listed Firms: The Role of Tax Incentives By Henrekson, Magnus; Johansson, Dan; Stenkula, Mikael
  13. Simplicity Creates Inequity: Implications for Fairness, Stereotypes, and Interpretability By Jon Kleinberg; Sendhil Mullainathan
  14. The turnaround of the Swedish economy: lessons from large business sector reforms By Fredrik Heyman; Pehr-Johan Norbäck; Lars Persson

  1. By: Thierry Kirat; Frédéric Marty
    Abstract: This paper presents the late convergence process from US economists that led them to support a strong antitrust enforcement in the late thirties despite their long standing distrust toward this legislation. The 1945 Alcoa decision crafted by Judge Hand embodied the results of this convergence. The purpose of antitrust law enforcement does not consist in promoting economic efficiency, as today’s more economic approach advocates, but in searching for a reasonable compromise aiming at preventing improper uses of economic power. This paper presents the path from which institutionalist economists, on one side, and Chicagoan neoliberals, on the other one, have converged on supporting the President F.D. Roosevelt administration towards reinvigorating antitrust law enforcement as of 1938, putting aside their initial preferences for a regulated competition model or for laissez-faire.
    Keywords: Antitrust,efficiency,economic power,institutional economics,Chicago School,
    JEL: B25 K21 L40 N42
    Date: 2019–05–14
  2. By: John J. Donohue; Steven D. Levitt
    Abstract: Donohue and Levitt (2001) presented evidence that the legalization of abortion in the early 1970s played an important role in the crime drop of the 1990s. That paper concluded with a strong out-of-sample prediction regarding the next two decades: “When a steady state is reached roughly twenty years from now, the impact of abortion will be roughly twice as great as the impact felt so far. Our results suggest that all else equal, legalized abortion will account for persistent declines of 1 percent a year in crime over the next two decades.” Estimating parallel specifications to the original paper, but using the seventeen years of data generated after that paper was written, we find strong support for the prediction. The estimated coefficient on legalized abortion is actually larger in the latter period than it was in the initial dataset in almost all specifications. We estimate that crime fell roughly 20% between 1997 and 2014 due to legalized abortion. The cumulative impact of legalized abortion on crime is roughly 45%, accounting for a very substantial portion of the roughly 50-55% overall decline from the peak of crime in the early 1990s.
    JEL: J13 K42
    Date: 2019–05
  3. By: Waterson, Michael (University of Warwick); Xie, Jian (University of Warwick)
    Abstract: We investigate the London bus market, a large market with regular procurement of bus services, for possible collusion using a wide variety of techniques, making use of the data at our disposal. There is little evidence of collusion in bidding for contracts apparent from our data, despite some features of the market that might lead to collusive behaviour.
    Keywords: Cartel behaviour ; Procurement ; Detecting Cartels ; Bus market
    JEL: D44 L41 L92 D22
    Date: 2019
  4. By: Bergolo, Marcelo (IECON, Universidad de la República); Ceni, Rodrigo (IECON, Universidad de la República); Cruces, Guillermo (CEDLAS-UNLP); Giaccobasso, Matias (University of California, Los Angeles); Perez-Truglia, Ricardo (University of California, Los Angeles)
    Abstract: The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay's tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 200 million dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measured the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, based on administrative data. We find that providing information about audits had a significant effect on tax compliance but in a manner that was inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model, risk-as-feelings, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way that scarecrows frighten off birds.
    Keywords: tax, evasion, audits, penalties, frictions
    JEL: C93 H26 K34 K42 Z13
    Date: 2019–05
  5. By: John Asker; C. Scott Hemphill
    Abstract: In this paper we examine exclusion accomplished by a coalition of firms—frequently, a coalition of suppliers and customers—that share the benefits of exclusion. As a particular historical example, we study the Canadian sugar industry of the 1880s, which was controlled by a complex coalition of refiners and wholesalers. We assess the incentives and conduct of the parties as revealed in the records of a House of Commons inquiry into anticompetitive practices in the industry. Drawing upon this example, we identify and evaluate several doctrinal approaches to establishing antitrust liability for anticompetitive exclusionary coalitions.
    JEL: D43 K21 L40 L41 L42 N81
    Date: 2019–05
  6. By: Mikhail Drugov (New Economic School and CEPR); Marta Troya-Martinez (New Economic School and CEPR)
    Abstract: This paper analyses a persuasion game where a seller provides (un)biased and (im)precise advice and may be fined by an authority for misleading the buyers. In the equilibrium, biasing the advice and making it noisier are complements. The advice becomes both more biased and less precise with a stricter standard of proof employed by the authority, a larger share of credulous consumers, and a higher buyers' heterogeneity. The optimal policy of the authority is characterized in terms of a standard of proof and resources devoted to the investigation.
    Keywords: Advice, Persuasion, Legal Procedure, Consumer Protection
    JEL: D18 D8 K4 L1
    Date: 2018–06
  7. By: Patrick Button
    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 all the challenges imposed by population aging, especially for older women.
    JEL: J14 J16 J26 J71 J78 K31
    Date: 2019–05
  8. By: Sofia Amaral (ifo Institute and CESifo); Sonia Bhalotra (ISER - University of Essex); Nishith Prakash (University of Connecticut)
    Abstract: We study the impact of an innovative policy intervention in India that led to a rapid expansion in ‘all women police stations’ across cities in India on reported crime against women and deterrence. Using an identification strategy that exploits the staggered implementation of women police stations across cities and nationally representative data on various measures of crime and deterrence, we find that the opening of police stations increased reported crime against women by 22 percent. This is due to increases in reports of female kidnappings and domestic violence. In contrast, reports of genderspecific mortality, self-reported intimate-partner violence and other non-gender specific crimes remain unchanged. We also show that victims move away from reporting crimes in general stations and that self-reported use of support services increased in affected areas. The implementation of women police stations also led to marginal improvements in measures of police deterrence such as arrest rates.
    Keywords: Women police station, Crime against women, Women in policing, India, Pro-active behaviour
    Date: 2019–04
  9. By: Dario Calderara
    Abstract: 1. Regulatory landscape. – 2. Legal framework. – 3. Typical elements. – 3.1 Workplace. – 3.2 Flexible work hours. – 4. Regulating smart working in the P.A. – 4.1. The role and content of directive no. 3/2017, following law no. 81/2017. – 5. The form, content and discipline of withdrawal. – 6. The equality principle in group treatment. – 7. Legal relationships, group bidding and individual deals. – 8. Common grounds and differences between smart working and teleworking. – 9. Conclusions.
  10. By: Tandon, Suranjali (National Institute of Public Finance and Policy); Damle, Devendra (National Institute of Public Finance and Policy)
    Abstract: The transfer pricing regime in India, since its inception, has been criticised for pronounced and protracted litigation. In this context, this paper evaluates the transfer pricing regime over the span of a decade (2003-04 to 2013-14) using 6731 case orders. It presents the first evidence of the duration of transfer pricing cases, delineated into pre-ITAT and post-ITAT phases, and compares the performance of the two pre-ITAT forums - the CIT(A) and the DRP. Further, the paper presents evidence on issues such as repeated litigation on identical grounds and remand orders that place companies in cycles of litigation. We find that while the DRP, as an alternative dispute resolution mechanism, may have led to a reduction in case duration in the initial years, this benefit may have now peaked leading to a convergence across forums. Further, we find that often grounds for litigation are similar across years, and therefore joint audits for multiple years may be a superior strategy for transfer pricing cases than the current one.
    Keywords: Transfer pricing ; Income Tax Appellate Tribunal ; Dispute Resolution Panel
    JEL: K34 K41 M41 M42
    Date: 2019–05
  11. By: Martin Foureaux Koppensteiner; Lívia Menezes
    Abstract: In this paper, we investigate the effect of exposure to homicides on the educational performance and human capital investments of students in Brazil. We combine extremely granular information on the location and timing of homicides with a number of very large administrative educational datasets, to estimate the effect of exposure to homicides around schools, students' residence, and on their way to school on these outcomes. We show that violence has a detrimental effect on school attendance, on standardised test scores in math and Portuguese language and increases dropout rates of students substantially. The effects are particularly pronounced for boys, indicating important heterogeneous effects of violence. We use exceptionally rich information from student- and parent-background questionnaires to investigate the effect of violence on the aspirations and attitudes towards education. In line with the effects on dropout and the longer-term human capital accumulation of students, we find that boys systematically report lower educational aspiration towards education. Making use of the very rich information from the homicides and education data, we explore a number of underlying transmission channels, including mechanisms related to school supply, bereavement and incentives for human capital investments.
    Keywords: Homocides, human capital investments, education, Brazil
    JEL: I25 K42 O12
    Date: 2019–04
  12. By: Henrekson, Magnus (Research Institute of Industrial Economics (IFN)); Johansson, Dan (Örebro University School of Business); Stenkula, Mikael (Research Institute of Industrial Economics (IFN))
    Abstract: Private foundations became a vehicle for the corporate control of large listed firms in Sweden during the post-war era, but in the 1990s, they were replaced by wealthy individuals who either directly own controlling blocks or who own them through holding companies. We study potential explanations for this change and pro­pose two taxation-related candidates: shifts in the relative effective taxation across owner types and the dismantling of the inheritance taxation that prevented the genera­tional transfer of the ownership of large controlling blocks. Our analysis exploits newly computed marginal effective capital income tax rates across capital owners, accounting for all relevant factors, including rules governing tax exemptions. We show that the 1990–91 tax reform, abolition of the wealth tax for controlling owners in 1997, 2003 tax exemption of dividends and capital gains on listed stock for holding companies with a voting or equity share of at least 10 percent, and abolition of the inheritance and gift taxes in 2004 reversed the rules of the game. Recently, control has largely been wielded through direct ownership, and the role of foundations is rapidly declining. These find­ings point to the importance of tax incentives for the use of foundations as the control vehicles of listed firms.
    Keywords: Corporate governance; Entrepreneurship; Family firms; Foundations; Owner-level taxation
    JEL: H20 K34 L26 N44
    Date: 2019–05–20
  13. By: Jon Kleinberg; Sendhil Mullainathan
    Abstract: Algorithms are increasingly used to aid, or in some cases supplant, human decision-making, particularly for decisions that hinge on predictions. As a result, two additional features in addition to prediction quality have generated interest: (i) to facilitate human interaction and understanding with these algorithms, we desire prediction functions that are in some fashion simple or interpretable; and (ii) because they influence consequential decisions, we also want them to produce equitable allocations. We develop a formal model to explore the relationship between the demands of simplicity and equity. Although the two concepts appear to be motivated by qualitatively distinct goals, we show a fundamental inconsistency between them. Specifically, we formalize a general framework for producing simple prediction functions, and in this framework we establish two basic results. First, every simple prediction function is strictly improvable: there exists a more complex prediction function that is both strictly more efficient and also strictly more equitable. Put another way, using a simple prediction function both reduces utility for disadvantaged groups and reduces overall welfare relative to other options. Second, we show that simple prediction functions necessarily create incentives to use information about individuals' membership in a disadvantaged group—incentives that weren't present before simplification, and that work against these individuals. Thus, simplicity transforms disadvantage into bias against the disadvantaged group. Our results are not only about algorithms but about any process that produces simple models, and as such they connect to the psychology of stereotypes and to an earlier economics literature on statistical discrimination.
    JEL: C54 D8 I30 J7 K00
    Date: 2019–05
  14. By: Fredrik Heyman; Pehr-Johan Norbäck; Lars Persson
    Abstract: How can a country improve the productivity growth in its business sector and reach its growth potential? Sweden during the 1970–2010 period can serve as an example to help other countries understand how to efficiently reform a business sector. In the 1990s, Sweden implemented a reform package that ignited a successful reorganization of a business sector that had faltered for decades. To understand the economic forces behind this process, we first survey the industrial restructuring literature and then examine the reform package using Swedish matched plant-firm-worker data. The removal of barriers to growth for new and productive firms and increased rewards for investment in human capital were crucial to the success of Sweden’s reforms. We also discuss how the reform experience from a developed country such as Sweden can be useful for developing countries that are in the process of transforming their business sectors. We also discuss evidence from developing countries that have undergone similar micro-based business sector reform programs. Our findings suggest that policymakers have much to learn from country case studies and that the Swedish experience can be a valuable case study for developing countries that are attempting to promote growth by developing their business sectors.
    Keywords: regulations, allocative efficiency, productivity, job dynamics, matched employer-employee data, industrial structure and structural change
    JEL: D22 E23 J21 J23 K23 L11 L16 L51
    Date: 2019

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