nep-law New Economics Papers
on Law and Economics
Issue of 2019‒10‒28
thirteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Stay or Flee? Probability versus Severity of Punishment in Hit-And-Run Accidents By Castriota, Stefano; Tonin, Mirco
  2. Bolstering community ties as a means of reducing crime By Magdalena Domínguez; Daniel Montolio
  3. How legal and institutional environments shape the private debt renegotiation process? By Christophe GODLEWSKI
  4. Judicial Presence and Rent Extraction Market By Stephan Litschig; Yves Zamboni
  5. Personal Bankruptcy and Wage Garnishment By Florian Exler
  6. The Intergenerational Effects of Parental Incarceration By Dobbie, Will; Gronqvist, Hans; Niknami, Susan; Palme, Marten; Priks, Mikael
  7. Self-serving invocations of shared and asymmetric history in negotiations By Linda Dezsö; George Loewenstein
  8. Restrictions on Privacy and Exploitation in the Digital Economy: A Competition Law Perspective By Nicholas Economides; Ioannis Lianos
  9. Financial Incentives for Whistleblowers: A Short Survey By Spagnolo, Giancarlo; Nyreröd, Theo
  10. Be Cautious with the Precautionary Principle: Evidence from Fukushima Daiichi Nuclear Accident By Neidell, Matthew; Uchida, Shinsuke; Veronesi, Marcella
  12. Technology evolution in the global automotive industry: a patent-based analysis By Alessandra Perri; Daniela Silvestri; Francesco Zirpoli
  13. A Welfare Analysis of Occupational Licensing in U.S. States By Morris M. Kleiner; Evan J. Soltas

  1. By: Castriota, Stefano (University of Pisa); Tonin, Mirco (Free University of Bozen/Bolzano)
    Abstract: The empirical literature testing the economic theory of crime has extensively studied the relative importance of the probability and the severity of punishment with reference to planned criminal activities. There are, however, also unplanned crimes and in this paper we focus on a very serious and widespread one, hit-and-run road accidents. In fact, it is not only unplanned, but also largely committed by citizens without criminal records and the decision whether to stay or run must be taken within a few seconds. Using Italian data for the period 1996-2016, we rely on daylight as an exogenous source of variation affecting the probability of apprehension and find that the likelihood of hit-and-run conditional on an accident taking place increases by around 20% with darkness. Relying on two legislative reforms which increased the penalties in case of hit-and-run, we find no significant effect on drivers' behavior. Our results show that criminal activities in unplanned circumstances and under intense time pressure and emotional distress are deterred more by the certainty rather than the severity of legal sanctions.
    Keywords: crime, hit-and-run, road accidents, punishment
    JEL: D91 K14 K42 R41
    Date: 2019–10
  2. By: Magdalena Domínguez (Universitat de Barcelona & Institut d’Economia de Barcelona (IEB)); Daniel Montolio (Universitat de Barcelona & Institut d’Economia de Barcelona (IEB))
    Abstract: In this paper we study the effects of bolstering community ties on local crime rates. To do so, we take advantage of the quasi-random nature of the implementation of the deployment of a community health policy in the city of Barcelona. The health-care program called Salut als Barris (BSaB; literally, `health in the neighborhoods') aims to improve health outcomes and reduce inequalities in the most disadvantaged neighborhoods of the city through community-based initiatives and empowerment of citizens. The economic and sociological literature suggests that such a policy may also affect other aspects of overall welfare, such as criminal activity. In order to test the hypothesis that BSaB reduces crime, we used monthly data at the neighborhood level and a staggered differences-in-differences approach. Overall we found that BSaB significantly reduces victimization of women. Furthermore, this decline is seen in types of crime we classify as `anger' and `intimate' crimes, with the reduction ranging from 9% to 18%. We argue that this result is due to the stronger community ties, and that it therefore provides evidence that non-traditional crime prevention policies can work.
    Keywords: Crime, community action, differences-in-differences
    JEL: C23 I18 I28 J18
    Date: 2019
  3. By: Christophe GODLEWSKI (LaRGE Research Center, Université de Strasbourg)
    Abstract: I investigate how legal and institutional conditions around loan origination influence a private debt renegotiation process. Using a large sample of 15,000 loans on the European credit market, I apply a sequential logit model to consider the renegotiation likelihood, the conditional probability of multiple renegotiation rounds or multiple amended terms, and the renegotiation outcomes conditional on specific loan amendments. I find that legal systems with stronger protection of creditors control rights have a positive influence on renegotiation likelihood and favorable outcomes on amendments to amount or maturity. Stronger legal protection reduces renegotiation likelihood when creditors face potential strategic default by shareholders. The legal and institutional environment has a significant effect on how the initial design of the financial contract impacts the renegotiation process.
    Keywords: legal systems, institutional environment, financial contracts, private debt, renegotiation, sequential logit, Europe
    JEL: G21 G24 G32 G34
    Date: 2019
  4. By: Stephan Litschig (National Graduate Institute for Policy Studies, Tokyo, Japan); Yves Zamboni (Universidade Federal de Pernambuco)
    Abstract: This paper estimates the effect of state judiciary presence on rent extraction in Brazilian local governments. We measure rents as irregularities related to waste or corruption uncovered by central government auditors. The identification strategy is based on an institutional rule of state judiciary branches according to which prosecutors and judges tend to be assigned to the most populous among contiguous counties forming a judiciary district. Our research design exploits this rule by comparing counties that are largest in their district to counties with identical population size from other districts in the same state where they are not the most populous. Instrumental variable estimates suggest that state judiciary presence reduces the share of inspections with irregularities related to waste or corruption by about 10 percent. The effect is concentrated among first-term mayors, suggesting that judicial presence operates through an increased probability of detection and prosecution rather than an increased probability of conviction, which should discipline second-term mayors as well.
    Date: 2019–10
  5. By: Florian Exler
    Abstract: Contrary to Chapter 7 bankruptcy in the U.S., many European bankruptcy regimes are stricter and force bankrupts to repay some outstanding debt through wage garnishment. Since wage garnishment raises the efective marginal tax rate, it distorts labor supply. Explicitly modeling the garnishment period and endogenizing labor supply, this paper examines the optimal garnishment regime for Germany: optimal garnishment rates are 18 percentage points lower and the garnishment du-ration increases from six to ten years. Consequently, repayment during bankruptcy increases and interest rates fall. Welfare improves by 3.3%. Low-income households gain the most due to better access to cheaper credit.
    JEL: D14 E44 K35
    Date: 2019–09
  6. By: Dobbie, Will (Harvard Kennedy School); Gronqvist, Hans (Uppsala University); Niknami, Susan (Stockholm University); Palme, Marten (Stockholm University); Priks, Mikael (Stockholm University)
    Abstract: We estimate the causal effects of parental incarceration on children’s short- and long-run outcomes using administrative data from Sweden. Our empirical strategy exploits exogenous variation in parental incarceration from the random assignment of criminal defendants to judges with different incarceration tendencies. We find that the incarceration of a parent in childhood leads to a significant increase in teen crime and significant decreases in educational attainment and adult employment. The effects are concentrated among children from the most disadvantaged families, where criminal convictions increase by 10 percentage points, high school graduation decreases by 25 percentage points, and employment at age 25 decreases by 29 percentage points. In contrast, there are no detectable effects among children from more advantaged families. These results suggest that the incarceration of parents with young children may significantly increase the intergenerational persistence of poverty and criminal behavior, even in affluent countries with extensive social safety nets.
    Date: 2019–10
  7. By: Linda Dezsö; George Loewenstein
    Abstract: The existence of an asymmetric history between bargaining partners can trigger self-serving beliefs about the fair settlement of a subsequent dispute, ultimately leading to bargaining impasse. In a two-stage bargaining experiment, we demonstrate that dyads who share a history that produced wealth asymmetries between them are less likely to settle in a subsequent negotiation than when the same wealth asymmetry stems from partners’ independent histories. When partners share an asymmetric history, the individual who previously lost out in the first stage believes that s/he deserves compensation in the second-stage, but the individual who prevailed in the first stage believes that compensation is not called for. These divergent, self-serving, views about a fair settlement – and the resulting irreconcilable demands – lead to bargaining impasse. We find, further, that unbiased spectators side with the losers in the first stage; they believe that it is fair for them to be compensated in the second stage. Indeed, this is true albeit to a lesser extent, even if the winner and loser had not directly interacted with one-another – i.e., if the history is not shared.
    JEL: C78 D91
    Date: 2019–03
  8. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London, and Hellenic Competition Commission)
    Abstract: The recent controversy on the intersection of competition law with the protection of privacy, following the emergence of big data and social media is a major challenge for competition authorities worldwide. Recent technological progress in data analytics may greatly facilitate the prediction of personality traits and attributes from even a few digital records of human behaviour. There are different perspectives globally as to the level of personal data protection and the role competition law may play in this context, hence the discussion of integrating such concerns in competition law enforcement may be premature for some jurisdictions. However, a market failure approach may provide common intellectual foundations for the assessment of harms associated to the exploitation of personal data, even when the specific legal system does not formally recognize a fundamental right to privacy. The paper presents a model of market failure based on a requirement provision in the acquisition of personal information from users of other products/services. We establish the economic harm from the market failure and the requirement using the traditional competition law toolbox and focusing more on situations in which the restriction on privacy may be analysed as a form of exploitation. Eliminating the requirement and the market failure by creating a functioning market for the sale of personal information is imperative. This emphasis on exploitation does not mean that restrictions on privacy may not result from exclusionary practices. However, we analyse these in a separate study. Besides the traditional analysis of the requirement and market failure, we note that there are typically informational asymmetries between the data controller and the data subject. The latter may not be aware that his data was harvested, in the first place, or that the data will be processed by the data controller for a different purpose, or shared and sold to third parties. The exploitation of personal data may also result from economic coercion, on the basis of resource-dependence or lock-in of the user, the latter having no other choice, in order to enjoy the consumption of a specific service provided by the data controller or its ecosystem, than to consent to the harvesting and use of his data. A behavioural approach would also emphasise the possible internalities (demand-side market failures) coming out of the bounded rationality, or the fact that people do not internalise all consequences of their actions and face limits in their cognitive capacities. The paper also addresses the way competition law could engage with exploitative conduct leading to privacy harm, both for ex ante and ex post enforcement. With regard to ex ante enforcement, the paper explores how privacy concerns may be integrated in merger control as part of the definition of product quality, the harm in question being merely exploitative (the possibility the data aggregation provides to the merged entity to exploit (personal) data in ways that harm directly consumers), rather than exclusionary (harming consumers by enabling the merged entity to marginalise a rival with better privacy policies), which is examined in a separate paper. With regard to ex post enforcement, the paper explores different theories of harm that may give rise to competition law concerns and suggest specific tests for their assessment. In particular, we analyse old and new exploitative theories of harm relating to excessive data extraction, personalised pricing, unfair commercial practices and trading conditions, exploitative requirement contracts, behavioural manipulation. We are in favour of collective action to restore the conditions of a well-functioning data market and the report makes a number of policy recommendations.
    Keywords: personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; hold up; merger; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioural manipulation; remedies; portability; opt out.
    JEL: K21 L1 L12 L4 L41 L5 L86 L88
    Date: 2019–10
  9. By: Spagnolo, Giancarlo (Stockholm Institute of Transition Economics); Nyreröd, Theo (Stockholm Institute of Transition Economics)
    Abstract: Whistleblower reward programs, or “bounty regimes”, are increasingly used in the United States. The effectiveness of these programs have been questioned, and empirical evidence on their effectiveness have been scarce likely due to their relatively recent introduction. In recent years, however, empirical and experimental evidence on their effectiveness have become more available and robust. We review the (rather encouraging) evidence on whistleblower reward programs, in terms of amount of additional information generated, deterrence effects, and administration costs, and consider the possibility of extending them to accomplice-witnesses in antitrust.
    Keywords: whistleblowers; economy
    JEL: B26
    Date: 2019–10–22
  10. By: Neidell, Matthew (Columbia University); Uchida, Shinsuke (Nagoya City University); Veronesi, Marcella (University of Verona)
    Abstract: This paper provides a large scale, empirical evaluation of unintended effects from invoking the precautionary principle after the Fukushima Daiichi nuclear accident. After the accident, all nuclear power stations ceased operation and nuclear power was replaced by fossil fuels, causing an exogenous increase in electricity prices. This increase led to a reduction in energy consumption, which caused an increase in mortality during very cold temperatures. We estimate that the increase in mortality from higher electricity prices outnumbers the mortality from the accident itself, suggesting the decision to cease nuclear production has contributed to more deaths than the accident itself.
    Keywords: precuationary principle, nuclear energy, electricity, mortality
    JEL: I12 K32 Q41
    Date: 2019–10
  11. By: James Alm (Tulane University); James C. Cox (Georgia State University); Vjollca Sadiraj (Georgia State University)
    Abstract: We develop and analyze a dynamic model of individual taxpayer compliance choice that predicts "audit state dependent taxpayer compliance," by distinguishing between the implications of forward-looking versus myopic versus naïve behavior. We then test experimentally the audit state dependent model by reporting the results from the first tax compliance experiment run in Colombia. Consistent with previous studies as well as theoretical predictions, we find that subjects' compliance rates increase with greater enforcement, especially the audit rate. We also find more novel results, both theoretically and empirically: fine rates should be increased after an audit to discourage otherwise-increased underreporting, and "nudging" myopic individuals toward reporting a constant rather than a fluctuating proportion of income would benefit both the taxpayer and the tax authority.
    Keywords: Tax compliance, nudges, laboratory experiments.
    JEL: H26 C91
    Date: 2019–10
  12. By: Alessandra Perri (Dept. of Management, Università Ca' Foscari Venice); Daniela Silvestri (Dept. of Management, Università Ca' Foscari Venice); Francesco Zirpoli (Dept. of Management, Università Ca' Foscari Venice)
    Abstract: This study explores the evolution of the knowledge base of the automotive industry. Over the last decades, the knowledge base of this industry has experienced major changes. New and originally unrelated fields have increasingly become relevant in the industry. Using data on utility patent families granted in the period 1990-2014, we map the knowledge base of the automotive industry by reconstructing and analyzing the innovative portfolio of the top firms operating in this industry. The analysis documents exploration in new technical fields as well as persistence in industry-specific technical areas, pointing to the relevance of core competences that might be difficult to accumulate for industry outsiders.
    Keywords: knowledge base evolution, automotive industry, patent analysis
    JEL: L62 O34
    Date: 2019–10
  13. By: Morris M. Kleiner; Evan J. Soltas
    Abstract: We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labor market equilibrium in which licensing restricts labor supply but also affects labor demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find that licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 12 percent of occupational surplus. Workers and consumers respectively bear 70 and 30 percent of the incidence. Higher willingness to pay offsets 80 percent of higher prices for consumers, and higher wages compensate workers for 60 percent of the cost of mandated investment in occupation-specific human capital.
    JEL: H0 J44 J78 K0
    Date: 2019–10

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