nep-law New Economics Papers
on Law and Economics
Issue of 2019‒10‒14
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Efficient Deployment of Police Resources: Theory and New Evidence from a Randomized Drunk Driving Crackdown in India By Banerjee, Abhijit; Duflo, Esther; Keniston, Daniel
  2. Law and finance in Britain c.1900 By Coyle, Christopher; Musacchio, Aldo; Turner, John D.
  3. The effects of penalty information on tax compliance: evidence from a New Zealand field experiment By Norman Gemmell; Marisa Ratto
  4. The impact of international tax information exchange agreements on the use of tax amnesty: evidence from Norway By Andersson, Jonas; Schroyen, Fred; Torsvik, Gaute
  5. Extreme Temperature and Extreme Violence across Age and Gender: Evidence from Russia By Otrachshenko, Vladimir; Popova, Olga; Tavares, José
  6. 30,000 minimum wages: The economic effects of collective bargaining extensions By Martins, Pedro S.
  7. Tax Avoidance in Buenos Aires: The Case of Ingresos Brutos By Carolina Ines Pan
  8. Tying in evolving industries, when future entry cannot be deterred By Fumagalli, Chiara; Motta, Massimo
  9. Dominance and the pre-emption of competition following the Servier and Paroxetine GSK judgments By Lipatov, Vilen; Neven, Damien J; Siotis, Georges
  10. Family Ownership and Antitrust Violations By Amore, Mario Daniele; Marzano, Riccardo
  11. The rise and persistence of illegal crops: Evidence from a naive policy announcement By Daniel Mejía; Mounu Prem; Juan F. Vargas

  1. By: Banerjee, Abhijit; Duflo, Esther; Keniston, Daniel
    Abstract: Should police activity should be narrowly focused and high force, or widely dispersed but of moderate intensity? Critics of intense "hot spot" policing argue it primarily displaces, not reduces, crime. But if learning about enforcement takes time, the police may take advantage of this period to intervene intensively in the most productive location. We propose a multi-armed bandit model of criminal learning and structurally estimate its parameters using data from a randomized controlled experiment on an anti-drunken driving campaign in Rajasthan, India. In each police station, sobriety checkpoints were either rotated among 3 locations or fixed in the best location, and the intensity of the crackdown was cross-randomized. Rotating checkpoints reduced night accidents by 17%, and night deaths by 25%, while fixed checkpoints had no significant effects. In structural estimation, we show clear evidence of driver learning and strategic responses. We use these parameters to simulate environment-specific optimal enforcement policies.
    Keywords: Choice Modeling; Crime Prevention; Illegal behavior; Information Acquisition; law enforcement; Learning Models
    Date: 2019–09
  2. By: Coyle, Christopher; Musacchio, Aldo; Turner, John D.
    Abstract: In this paper, using new estimates of the size of the UK's capital market, we examine financial development and investor protection laws in Britain c.1900 to test the influential law and finance hypothesis. Our evidence suggests that there was not a close correlation between financial development and investor protection laws c.1900 and that the size of the UK's share market is a puzzle given the paucity of statutory investor protection. To illustrate that Britain was not unique in its approach to investor protection in this era, we examine investor protection laws across legal families c.1900.
    Keywords: Common Law,Finance,Investor Protection,Law,UK
    JEL: G3 G33 K22 N20
    Date: 2019
  3. By: Norman Gemmell (School of Social and Cultural Studies, Victoria University, Wellington - School of Social and Cultural Studies, Victoria University, Wellington); Marisa Ratto (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: The ‘standard' Allingham-Sandmo-Yitzhaki (ASY) model of tax evasion predicts effects oncompliance which depend on the perceived probability of detection, tax rate and penalty forevasion. Compliance effects of detection probabilities and tax rates have been extensively testedempirically, but penalty effects are rarely tested explicitly. This paper examines the effects of latepayment penalties on tax compliance based on an experiment involving New Zealand goods andservice tax (GST) ‘late payers'. Firstly, based on an ASY-type model of tax late payments in whichthe probability of enforcement, rather than detection, is central, we develop a number of testablehypotheses. Secondly, based on a field experiment involving a specific compliance intervention, weexamine how taxpayers respond when given different penalty information. The experiment alsoallows us to consider differences between taxpayers' stated intentions to comply and subsequentlyobserved compliance. Results suggest that differences in penalty information given to taxpayersand reductions in penalty rates both affect taxpayers stated intentions to comply (pay overdue taxand penalties) as predicted. However, subsequently observed responses generally appearunresponsive to penalties. Nevertheless, various individual taxpayer characteristics are identifiablethat affect both compliance intentions and actual behaviour.
    Keywords: Tax evasion,late payment penalties,tax experiment,goods and service tax
    Date: 2019–10–01
  4. By: Andersson, Jonas (Dept of Business and Management Science NHH and NoCeT); Schroyen, Fred (Dept. of Economics, Norwegian School of Economics and Business Administration); Torsvik, Gaute (University of Oslo, Dept of Economics and OFS)
    Abstract: In this paper we develop a model for tax amnesty applications in a multi-period setting. One key insight from the model is that applying for amnesty becomes more attractive at the moment when stricter enforcement is announced, even if the implementation of the policy is in the distant future. We use our model to make sense of how international tax information exchange agreements affects voluntary disclosure of wealth and income previously hidden in tax havens. Our data is from Norway. In accordance with the dynamic amnesty model we observe a strong announcement effect of a tax information exchange agreement between Norway and Switzerland and Luxembourg, the two most important tax havens for Norwegian tax evaders. However, the effect levels off very quickly, much faster than our model predicts. We think this is because the initial announcement of the tax agreement exaggerated the risk the agreement imposed to those who had hidden taxable income and wealth in Switzerland. We also estimate and find significant effects of the press releases the Norwegian Tax Authority issues to inform taxpayers about new international tax agreements and the amnesty, or voluntary disclosure, option that exists in the Norwegian tax code.
    Keywords: Tax Evasion; Tax Amnesty; Tax Information Exchange Agreement
    JEL: C22 C23 H26 H27 K34
    Date: 2019–09–30
  5. By: Otrachshenko, Vladimir; Popova, Olga; Tavares, José
    Abstract: We examine the relationship between extreme temperatures and violent mortality across Russian regions, with implications for the social costs of climate change. We assess the unequal impact of temperature shocks across gender and age groups by exploring a dataset on temperature and violence in Russia, between the years 1989 and 2015. Hot days lead to an increase in both female and male victims, one hot day resulting in the loss of 1,579 person-years of life for men, and 642 for women. However, the likelihood of victimization during weekends rises noticeably for women, with women between 25 and 59 more victimized on weekends. Our results suggest that female victimization on hot days would be mitigated by increases in regional income and job opportunities, and on cold days, by decreasing the consumption of spirits.
    Keywords: Extreme Temperatures; Gender Homicide; Russia; Violence
    JEL: I14 K42 P52 Q54
    Date: 2019–09
  6. By: Martins, Pedro S.
    Abstract: Many governments extend the coverage of collective agreements to workers and employ- ers that were not involved in their bargaining. These extensions may address coordination issues but may also distort competition by imposing sector-specific minimum wages and other work conditions that are not suitable for some firms and workers. In this paper, we analyse the impact of such extensions along several economic margins. Drawing on worker- and firm-level monthly data for Portugal, a country where extensions have been widespread, and the scattered timing of the extensions, we find that, while continuing workers experience wage increases following an extension, formal employment and wage bills in the relevant sectors fall, on average, by 2%. These results increase by about 25% across small firms and are driven by reduced hirings. In contrast, the employment and wage bills of independent contractors, who are not subject to labour law or collective bargaining, increases by over 1% following an extension.
    Keywords: Collective agreements,Worker flows,Labour law
    JEL: J52 K31 J23
    Date: 2019
  7. By: Carolina Ines Pan (Center for International Development at Harvard University)
    Abstract: This study presents evidence of tax avoidance in Buenos Aires, Argentina. I exploit a break in the tax scheme of the most controversial tax, Ingresos Brutos (gross income), between the city and the greater area, which are otherwise identical law and regulation-wise for the studied population. When possible, workers would rather travel longer distances to their jobs than face the tax burden. Given that this type of avoidance is costly, results suggest that Ingresos Brutos might be acting as a binding constraint to growth for businesses.
    Keywords: Taxes, Tax Avoidance, Gross Income, Binding Constraints
    JEL: H2 K2
    Date: 2019–09
  8. By: Fumagalli, Chiara; Motta, Massimo
    Abstract: We show that the incentive to engage in exclusionary tying (of two complementary products) may arise even when the incumbent's dominant position in the primary market cannot be protected. By engaging in tying, an incumbent firm sacrifices current profits but can exclude a more efficient rival from a complementary market by depriving it of the critical scale it needs to be successful. In turn, exclusion in the complementary market allows the incumbent to be in a favorable position when a more efficient rival will enter the primary market, and to appropriate some of the rival's efficiency rents. The paper also shows that tying is a more profitable exclusionary strategy than pure bundling, and that exclusion is the less likely the higher the proportion of consumers who multi-home.
    Keywords: Inefficient foreclosure; network externalities; Scale Economies; Tying
    JEL: K21 L41
    Date: 2019–09
  9. By: Lipatov, Vilen; Neven, Damien J; Siotis, Georges
    Abstract: This paper discusses, from economic and enforcement perspectives, unilateral conduct aimed at foreclosing the entry of generics. We assume, in line with empirical evidence, that before the entry of generics, competition takes place among originators mostly through non price instruments and in particular, promotion. The entry of generics for one molecule introduces head to head price competition for that molecule and changes competitive interactions among the originators that remain patent protected. First, we develop a model in which competition takes place through price and promotion and analyse the consequence of unilateral conduct preventing the entry of generics, thus prolonging the status quo. We find that that the extent to which this conduct reduces consumer welfare (if at all) depends on whether promotion enhances the utility of users and whether promotion also involves business stealing. In order to provide some guidance for enforcement, we characterise the competitive outcome that prevails before entry in terms of consumer welfare. We find that unlike what happens with price competition, common indicators of performance such as the number of firms, the level of concentration (for a given number of firms) and the intensity of rivalry might be negatively associated with consumer welfare. As a consequence, the foreclosure of entrants might lead to welfare losses even when the status quo involves intense non-price competition and low concentration. Finally, we consider how unilateral conduct towards generic entry can be dealt with in the current enforcement framework. In the Servier and Paroxetine cases, the foreclosure of generics has been framed as an abuse of a dominant position held by the originator before entry, in spite of evidence of non-price competition. We show that it would be preferable to frame the conduct as an abuse of the dominant position that the originator holds in the molecule market as a consequence of its patent. In such a framework, the dominant position is instrumental in making exclusion feasible.
    Keywords: Abuse of dominance; foreclosure; Non-price competition; Pharmaceutical industry
    JEL: I11 K21 L13
    Date: 2019–09
  10. By: Amore, Mario Daniele; Marzano, Riccardo
    Abstract: We study how family ownership shapes the firms' likelihood of being involved in antitrust indictments. Using data from Italy, we show that family firms are significantly less likely than other firms to commit antitrust violations. To achieve identification, we exploit a law change that made it easier to transfer family control. Studying the mechanisms at play, we find that family firms are especially less likely to commit antitrust violations when they feature a more prominent size relative to the city where they are located, which magnifies reputational concerns. Next, we show that family firms involved in antitrust violations appoint more family members in top executive positions in the aftermath of the indictment. Moreover, these firms invest less and curb equity financing as compared to nonfamily firms. Collectively, our findings suggest that family control wards off reputational damages but, at the same time, it weakens the ability to expand in order to keep up with fiercer competition following the dismantlement of the anticompetitive practice.
    Keywords: Antitrust violation; Financing; investment; ownership
    JEL: D22 G34 G38 K21
    Date: 2019–09
  11. By: Daniel Mejía; Mounu Prem; Juan F. Vargas
    Abstract: Well-intended policies often have negative unintended consequences if they fail to foresee the different ways in which individuals may respond to the new set of incentives. When widespread and persistent, these may lead to a net reduction of social welfare. Focusing on the case of anti-drug policies, in this paper we show that the recent unprecedented surge in the growing of illicit coca crops in Colombia was the result of a naive and untimely policy announcement during peace negotiations between the government and the FARC guerrillas. On May 2014, the parties’ peace delegations issued a press release announcing that coca-growing farmers would receive material incentives for voluntary crop substitution once a final agreement had been reached. To evaluate the anticipation effect of this announcement we exploit the cross sectional variation on both the cost advantage of growing coca (using an ecological measure of coca suitability) and the expected benefits of doing so (using a predicted measure of where the material benefits would have been targeted). Coca plantations levels remained high even after the implementation of the announced incentives’ scheme. We explain this persistence by documenting that the surge in coca growing is differentially higher in areas with presence illegal armed groups, that benefited financially from availability of a key input in the drug trade.
    Keywords: Coca growing, Drug war, Anticipation effects, Policy announcement, Colombia
    JEL: K42 D78
    Date: 2019–10–10

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