nep-law New Economics Papers
on Law and Economics
Issue of 2019‒11‒11
sixteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Market collusion with joint harm and liability sharing By Andreea Cosnita-Langlais; Maxime Charreire; Florian Baumann
  2. Stay or Flee? Probability Versus Severity of Punishment in Hit-And-Run Accidents By Stefano Castriota; Mirco Tonin
  3. Do Immigrants Threaten U.S. Public Safety? By Orrenius, Pia M.; Zavodny, Madeline
  4. Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment By Marcelo Bergolo; Rodrigo Ceni; Guillermo Cruces; Matias Giaccobasso; Ricardo Perez Truglia
  5. Slavery, corruption, and institutions By Rauscher, Michael; Willert, Bianca
  6. (Un)Intended Effects of Preferential Tax Regimes: The Case of European Patent Boxes By Marko Koethenbuerger; Federica Liberini; Michael Stimmelmayr
  7. Multisided Markets & Platform Dominance By Alleman, James; Baranes, Edmond; Rappoport, Paul
  8. The intergenerational effects of parental incarceration By Dobbie, Will; Grönqvist, Hans; Niknami, Susan; Palme, Mårten; Priks, Mikael
  9. One Step Ahead of the Law: The Net Effect of Anticipation and Implementation of Colombia's Illegal Crops Substitution Program By Ladino, J. F; Saavedra, S; Wiesner, D
  10. Fiduciary - Asymmetrical Power, Asymmetrical Care By Helen Mussell
  11. The Legal and Economic Case for an Auction Reserve Price in the EU Emissions Trading System By Carolyn Fischer; Leonie Reins; Dallas Burtraw; David Langlet; Åsa Löfgren; Michael Mehling; Stefan Weishaar; Lars Zetterberg; Harro van Asselt; Kati Kulovesi
  12. Is regulatory compliance by employers possible without enforcement? Evidence from the Swedish labor market. By Cronert, Axel
  13. Embedded Supervision: How to Build Regulation into Blockchain Finance By Auer, Raphael
  14. The Rise and Persistence of Illegal Crops: Evidence from a Naive Policy Announcement By Mejía, D; Prem, M; Vargas, J. F
  15. Income Levels, Governance and Inclusive Human Development in Sub-Saharan Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  16. Privacy Regulation and Quality Investment By Lefouili, Yassine; Toh, Ying Lei

  1. By: Andreea Cosnita-Langlais; Maxime Charreire; Florian Baumann
    Abstract: When it is impossible to identify ex post the producer of a product causing harm or the damage caused is indivisible although caused by multiple injurers, courts must apportion the total damage among tortfeasors. In this model we examine how such liability sharing rules affect the likelhood of tacit collusion. For this we use a standard Cournot oligopoly model where firms are collectively held liable for joint harm inflicted on third parties. The damage caused may be either linear or cumulative in total industry output. With repeated market interaction and grim strategies, we investigate the sustainability of collusion to derive some policy implications.
    Keywords: Cournot oligopoly, liability sharing rules, market collusion
    JEL: L41 L13 K13
    Date: 2019
  2. By: Stefano Castriota; Mirco Tonin
    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
  3. By: Orrenius, Pia M. (Federal Reserve Bank of Dallas); Zavodny, Madeline (University of North Florida)
    Abstract: Opponents of immigration often claim that immigrants, particularly those who are unauthorized, are more likely than U.S. natives to commit crimes and that they pose a threat to public safety. There is little evidence to support these claims. In fact, research overwhelmingly indicates that immigrants are less likely than similar U.S. natives to commit violent and property crimes, and that areas with more immigrants have similar or lower rates of violent and property crimes than areas with fewer immigrants. There are relatively few studies specifically of criminal behavior among unauthorized immigrants, but the limited research suggests that these immigrants also have a lower propensity to commit crime than their native-born peers, although possibly a higher propensity than legal immigrants. Evidence about legalization programs is consistent with these findings, indicating that a legalization program reduces crime rates. Meanwhile, increased border enforcement, which reduces unauthorized immigrant inflows, has mixed effects on crime rates. A large-scale legalization program, which is not currently under serious consideration, has more potential to improve public safety and security than several other policies that have recently been proposed or implemented.
    Keywords: crime; immigration; public safety
    JEL: J18 J61 K14
    Date: 2019–08–01
  4. By: Marcelo Bergolo (IECON-UDELAR); Rodrigo Ceni (IECON-UDELAR); Guillermo Cruces (Centro de Estudios Distributivos, Laborales y Sociales (CEDLAS), IIE-FCE, Universidad Nacional de La Plata and University of Nottingham); Matias Giaccobasso (University of California, Los Angeles); Ricardo Perez Truglia (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.
    JEL: C93 H26 K34 K42 Z13
    Date: 2019–11
  5. By: Rauscher, Michael; Willert, Bianca
    Abstract: We develop a model where firms profit from coercing workers into employment under conditions violating national law and international conventions and where bureaucrats benefit from accepting bribes from detected perpetrators. Firms and bureaucrats are hetero-geneous. Employers differ in their unscrupulousness regarding the use of slave labour whereas bureaucrats have differing intrinsic motivations to behave honestly. Moreover, there is a socially determined warm-glow effect: honest bureaucrats feel better if their colleagues are honest too. The determination of bribes is modelled via Nash bargaining between the firm and the corrupt civil servant. It is shown that multiple equilibria and hysteresis are possible. Depending on history, an economy may be trapped in a locally stable high-corruption, high-slavery equilibrium and major changes in government policies may be necessary to move the economy out of this equilibrium. Moreover, we show that trade bans that are effective in reducing slavery in the export industry tend to raise slavery in the remainder of the economy. It is possible that this leakage effect dominates the reduction of slavery in the export sector.
    Keywords: Coerced Labour,Modern Slavery,Corruption,Social Norms,Trade-Related Process Standards
    JEL: D73 F16 J47
    Date: 2019
  6. By: Marko Koethenbuerger; Federica Liberini; Michael Stimmelmayr
    Abstract: Patent boxes have become an increasingly popular tax instrument in the European Union and the US to attract mobile tax bases of multinational enterprises (MNEs) as well as to foster productivity. This paper estimates the size of the (un)intended effects of the new preferential tax regime, which grants a reduction in the tax burden on income from intellectual property. We show that MNE affliates that can benefit from the preferential regime report 8.5 percent higher profits. The profit change splits up into a profit shifting and a productivity effect in proportions 2/3 and 1/3. Surprisingly, the profit shifting effect includes an unintended, reversed profit shifting out of the affiliate. Contrary to expectation, the overall tax base adjustment might lower tax revenues collected from MNEs.
    Date: 2019
  7. By: Alleman, James; Baranes, Edmond; Rappoport, Paul
    Abstract: The internet giants - Facebook, Amazon, Netflix and Google, among others - have transformed society with both positive and negative effects. The negative effects have been stark. There have been huge disruptions caused by e-commerce. More recently, subtler, but even more serious negative effects are only now being recognized: threats to democracy, violations of privacy, and monopolistic behavior. By traditional measures Facebook and Google are highly concentrated. Each has obtained de facto monopolistic or oligopolistic power with little concern on the part of government. Facebook and Google and other internet giants are multisided markets (MSM); their economic rents are "hidden" from the public. On the user-side of the market, prices are zero - "free." On the other side of the market, Facebook's and Google's revenues are derived from advertising which appears when the users click on advertiser's web sites. Facebook and Google can extract exorbitant prices for ads, since they are virtually the only source that can target ads directly to potential customers. This is where the economic rents are not so obvious. This paper addresses the monopolistic/monopsony aspect of the internet giants. In the singlesided market, monopoly pricing is well defined - as well as tests for predatory behavior; not so with multisided markets. Since the definition of markets is central to the legal enforcement of antitrust statutes, the paper examines non-transactional multisided markets for their potential for determining consumers' harm and welfare effects, as well as defining monopoly and predatory pricing in this context. Initial estimates of Google's and Facebook's social cost in terms of consumers' welfare loss are $54 and $33 billion, respectively and increasing cost to consumers at least $87 billion dollars. It demonstrates and quantifies that dominate internet platforms can create three major harms to consumers: - Increasing prices to consumers via added costs to the products being advertised, - Elimination (or non-emergence) of competition in markets to the products being advertised, - Increasing prices to consumers beyond the cost of advertising via the market power of the remaining firms in the market of the products being advertised The paper outlines potential remedies to ameliorate the problems.
    Keywords: Advertising,Antitrust,Consumers' Surplus,Internet,Platform Economics,Regulation,Two-Sided/Multisided Markets
    JEL: D42 D43 K21 L12 L13 L22 L51 L96
    Date: 2019
  8. By: Dobbie, Will (Harvard Kennedy School and NBER.); Grönqvist, Hans (IFAU - Institute for Evaluation of Labour Market and Education Policy); Niknami, Susan (Stockholm University); Palme, Mårten (Stockholm University); Priks, Mikael (Stockholm University)
    Abstract: We estimate the causal effects of parental incarceration on children’s short- and long-run out-comes using administrative data from Sweden. Our empirical strategy exploits exogenous varia-tion 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.
    Keywords: incarceration; causal effects; childrens outcomes
    JEL: J10
    Date: 2019–10–28
  9. By: Ladino, J. F; Saavedra, S; Wiesner, D
    Abstract: Pre-announced policies often generate anticipation effects that may end up in unin- tended consequences. But little is known about the extent to which the actual imple- mentation of the policy can offset these effects. Previous research have shown that the announcement of an illegal crop substitution program made coca cultivation increase substantially in Colombia, but the net effect of the policy has not been estimated. We use detailed data on both coca cultivation and substitution payments at 1km x 1km grid squares to estimate the net effect of the policy. Our data also allows us to study the geographical spillovers of the program to non-targeted neighboring areas. Using a difference-in-differences empirical strategy, we nd that program recipients reduced illegal crops by 94% with respect to the pre-program mean. Surprisingly, the reduction in neighboring (non-targeted) grid areas is of similar magnitude. However, these re- ductions are not enough to compensate for the large increase in coca growing that took place between the announcement and the implementation of the policy, and thus the net effect is negative. This suggest both that the early announcement was a mistake that led to a substantial one-time cost, but the ongoing substitution efforts will have the intended effects if continued.
    Keywords: Policy anticipation; Illegal Markets; Coca; Colombia
    Date: 2019–10–31
  10. By: Helen Mussell
    Abstract: The legal concept of fiduciary plays a fundamental role in all financial and business organisations. It acts as a moral safeguard of the relationship between trustee and beneficiary, ensuring that the beneficiaries’ best interests are met. It is often referred to as a duty of care. Originally formulated within familial law to protect property put into Trust, beneficiaries were women and children, allocated passive and subordinated roles. This paper investigates two aspects of the asymmetrical power relations central to the fiduciary. Firstly it reveals the gendered presuppositions regarding male and female agential capabilities on which the fiduciary is premised, drawing out the origins of the authority differential in the trustee-beneficiary relationship. Secondly, the paper engages with the ethical nature of the fiduciary relationship, arguing that Care Ethics offers a robust framework for explicating the history of the relationship, alongside delivering a morally-enhanced and future-fit fiduciary free of damaging gendered stereotypes.
    Keywords: Fiduciary; economic agency; care ethics; gender relations; gender politics;trustee; beneficiary; tort law; essentialism; history of finance; share-holder activism; history of economic thought; feminist economics
    JEL: A12 B40 B54 K1 N2
    Date: 2019–03
  11. By: Carolyn Fischer; Leonie Reins; Dallas Burtraw; David Langlet; Åsa Löfgren; Michael Mehling; Stefan Weishaar; Lars Zetterberg; Harro van Asselt; Kati Kulovesi
    Abstract: When it was launched in 2005, the European Union emissions trading system (EU ETS) was projected to have prices of around €30/ton CO2 and to be a cornerstone of the EU’s climate policy. The reality was a cascade of falling prices, a ballooning privately held emissions bank, and a decade of low prices providing inadequate incentive to drive investment in the technologies and innovation necessary to achieve long-term climate goals. The European Commission responded with administrative measures, including postponing the introduction of allowances (backloading) and using a quantity-based criterion for regulating future allowance sales (the market stability reserve); although prices are beginning to recover, it is far from clear whether these measures will adequately support the price into the future. In the meantime, governments have been turning away from carbon pricing and adopting overlapping regulatory measures that reinforce low prices and further undermine the confidence in market-based approaches to addressing climate change. The solution in other carbon markets has been the introduction of a reserve price that would set a minimum price in allowance auctions. Opponents of an auction reserve price in the EU ETS have expressed concern that a minimum auction price would interfere with economic operations in the market or would be tantamount to a tax, which would trigger a decision rule requiring unanimity among EU Member States. This Article reviews the economic and legal arguments for and against an auction reserve price. Our economic analysis concludes that an auction reserve price is necessary to accommodate overlapping policies and for the allowance market to operate efficiently. Our legal analysis concludes that an auction reserve price is not a “provision primarily of a fiscal nature,” nor would it “significantly affect a Member State’s choice between different energy sources.” We describe pathways through which a reserve price could be introduced.
    Keywords: emissions trading, auction reserve price, carbon tax, price floor, EU law
    JEL: Q54 Q58 K32 K34
    Date: 2019
  12. By: Cronert, Axel (Uppsala University)
    Abstract: This study shines new light on an ongoing debate about the extent to which discouraging enforcement activities are necessary to make regulated actors comply with government regulations. Specifically, it evaluates a long-standing but essentially unenforced regulation that mandated employers in Sweden to post their vacancies at the Public Employment Service (PES) to improve matching and the labor market prospects of disadvantaged workers. Using comprehensive vacancy data from the PES, it tests whether the regulation despite not being enforced—influenced employers’ vacancy posting behavior in the period prior to its partial repeal in 2007. Exploiting the fact that the repeal did not apply to employers in the central government sector, the difference-indifferences analyses conducted in this study identify a substantial and significant negative effect of repealing the unenforced law on employers’ vacancy posting behavior, under reasonable assumptions. This finding is at odds with standard deterrence models of regulatory compliance and hints at an important role for organizational factors related to cultures and norms. A supplementary analysis of heterogeneous effects among local government employers investigates to what extent some organizational factors are correlated to compliance with the unenforced regulation.
    Keywords: regulatory compliance; cultures and norms;
    JEL: J20 L20
    Date: 2019–10–14
  13. By: Auer, Raphael (Bank of International Settlements)
    Abstract: The spread of distributed ledger technology (DLT) in finance could help to improve the efficiency and quality of supervision. This paper makes the case for embedded supervision, i.e., a regulatory framework that provides for compliance in tokenized markets to be automatically monitored by reading the market’s ledger, thus reducing the need for firms to actively collect, verify and deliver data. After sketching out a design for such schemes, the paper explores the conditions under which distributed ledger data might be used to monitor compliance. To this end, a decentralized market is modelled that replaces today’s intermediary-based verification of legal data with blockchain-enabled data credibility based on economic consensus. The key results set out the conditions under which the market’s economic consensus would be strong enough to guarantee that transactions are economically final, so that supervisors can trust the distributed ledger’s data. The paper concludes with a discussion of the legislative and operational requirements that would promote low-cost supervision and a level playing field for small and large firms.
    Keywords: tokenisation; stablecoins; asset-based tokens; cryptoassets; cryptocurrencies; regtech; suptech; regulation; supervision; Basel III; proportionality; blockchain; distributed ledger technology; central bank digital currencies; proof-of-work; proof-of-stake; permissioned DLT; economic consensus; economic finality; fintech; compliance; auditing; accounting; privacy; digitalisation; finance; banking
    JEL: D20 D40 E42 E51 F31 G12 G18 G28 G32 G38 K22 L10 L50 M40
    Date: 2019–10–01
  14. By: Mejía, D; Prem, M; Vargas, J. F
    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: 2019–10–09
  15. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study examines how income-driven governance affects inclusive human development in Sub-Saharan Africa with data for the period 2000-2012. The empirical evidence is based on the Generalised Method of Moments (GMM) and Tobit regressions. Nine bundled and unbundled concepts of governance are used: political (voice & accountability and political stability/no violence), economic (government effectiveness and regulation quality) and institutional (corruption-control and the rule of law) governances. The main finding is that ‘middle income’-driven governance has a higher effect on inclusive human development than ‘low income’-driven governance. Policy implications are discussed in the light of: (i) the contemporary relevance of findings; (ii) the pivotal role of a higher income level in the post-2015 sustainable development agenda; and (iii) inconsistent strands in the literature and in foreign aid policies.
    Keywords: Inclusive development; Income levels; Governance; Africa
    JEL: D31 I10 I32 K40 O55
    Date: 2019–01
  16. By: Lefouili, Yassine; Toh, Ying Lei (Federal Reserve Bank of Kansas City)
    Abstract: This paper analyzes whether a privacy regulation that restricts a dominant firm’s data disclosure level harms the firm’s incentives to invest in service quality and thereby harms social welfare. We study how the regulation affects the privacy and quality choices of a monopoly service provider, who derives revenues solely from disclosing user data to third parties, as well as how those choices in turn affect consumers’ participation and information-sharing decisions. We show that the regulation does not always harm investment incentives; moreover, even when it does, it may still improve social welfare.
    Keywords: Privacy Regulation; Data Disclosure; Investment; Quality
    JEL: D83 L15 L51
    Date: 2019–07–30

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