nep-law New Economics Papers
on Law and Economics
Issue of 2019‒12‒02
fourteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The real effects of 'ndrangheta: firm-level evidence By Litterio Mirenda; Sauro Mocetti; Lucia Rizzica
  2. Too Big to Fail U.S. Banks` Regulatory Alchemy: Converting an Obscure Agency Footnote into an `At Will` Nullification of Dodd-Frank`s Regulation of the Multi-Trillion Dollar Financial Swaps Market By Michael Greenberger
  3. Immigration and Preferences for Greater Law Enforcement Spending in Rich Democracies By Brady, David; Fink, Joshua J
  4. Employment Protection and Firm-Provided Training: Quasi-Experimental Evidence from a Labour Market Reform By Bratti, Massimiliano; Conti, Maurizio; Sulis, Giovanni
  5. Parliamentary sovereignty and democratic accountability: matters of prerogative powers and legal reasoning By O D Delaney, Marianne
  6. Review, replication, and re-analysis of a recent study on the impact of abortion law on maternal mortality in Mexico – Maintaining rigor and research integrity By Koch, Elard; Chireau, Monique; Stanford, Joseph; Haddad, Sebastian; Pliego, Fernando; Bravo, Miguel; Thorp, John
  7. Municipal Surveillance Regulation and Algorithmic Accountability By Young, Meg; Katell, Michael; Krafft, P. M.
  8. Corruption and tax morale in Africa By Boly, Amadou; Konte, Maty; Shimeles, Abebe
  9. Do parental leaves make the motherhood wage penalty worse? Assessing two decades of German reforms By Mari, Gabriele; Cutuli, Giorgio
  10. Bargaining with Independence of Higher or Irrelevant Claims By Josune Albizuri, M.; Dietzenbacher, Bas; Zarzuelo, J.
  11. The Promise and Pitfalls of Conflict Prediction: Evidence from Colombia and Indonesia By Bazzi, Samuel; Blair, Robert A.; Blattman, Chris; Dube, Oeindrila; Gudgeon, Matthew; Peck, Richard
  12. The Contributions of Socioeconomic and Opioid Supply Factors to Geographic Variation in U.S. Drug Mortality Rates By Shannon M. Monnat
  13. Credit, Bankruptcy, and Aggregate Fluctuations By Nakajima, Makoto; Rios-Rull, Jose-Victor
  14. Capital and public investment in Italy: macroeconomic effects, measurement and regulatory weaknesses By Fabio Busetti; Cristina Giorgiantonio; Giorgio Ivaldi; Sauro Mocetti; Alessandro Notarpietro; Pietro Tommasino

  1. By: Litterio Mirenda (Bank of Italy); Sauro Mocetti; Lucia Rizzica (Bank of Italy)
    Abstract: We analyze the real effects of mafia infiltrations in the legal economy. We focus on the case of the 'ndrangheta, a large criminal organization originating from the South of Italy. Combining information from investigative records with panel data on firms' governance and balance sheets, we build an indicator of 'ndrangheta infiltrations in firms located in areas with no tradition of mafia settlements. We show that (i) organized crime targets firms in financial distress and privileges sectors that most rely on public sector demand or are more money laundering prone;; (ii) infiltrations generate a significant rise in the firm's revenues; (iii) the penetration of mafia produces a long-run negative effect on economic growth at the local level.
    Keywords: organized crime, firm performance, competition
    JEL: D02 K42 L11
    Date: 2019–10
  2. By: Michael Greenberger
    Abstract: The multi-trillion dollar market for, what was at that time wholly unregulated, over-the-counter derivatives (``swaps``) is widely viewed as a principal cause of the 2008 worldwide financial meltdown. The Dodd-Frank Act, signed into law on July 21, 2010, was expressly considered by Congress as a remedy for the deregulatory problems, in that market, that led to the crash. The legislation required the swaps market, subject to U.S. regulation, to comply with a host of business conduct and anti-competitive protections, including that the swaps market be fully transparent to U.S. financial regulators, collateralized, and capitalized. The statute also expressly provides that it would cover foreign subsidiaries of big U.S. financial institutions if their swaps trading could adversely impact the U.S. economy or represent an attempt to ``evade`` Dodd-Frank. In July 2013, the CFTC promulgated an 80 page, triple columned, and single-spaced ``guidance`` implementing Dodd-Frank`s extraterritorial reach, i.e., that manner in which Dodd-Frank would apply to swaps transactions executed outside the United States. The key point of that guidance was that `guaranteed` foreign subsidiaries of U.S. bank holding company swaps dealers were subject to all of Dodd-Frank`s swaps regulations wherever in the world those subsidiaries` swaps were executed. At that time, the standardized industry swaps agreement contemplated that, inter alia, U.S. swaps dealers foreign subsidiaries would be `guaranteed` by their corporate parent, as was true since 1992. In August 2013, without notifying the CFTC, the principal swaps dealer trade association privately circulated to its member’s standard contractual language that would, for the first time, `deguarantee` foreign subsidiaries. By relying only on the obscure footnote 563 of the CFTC guidance’s 662 footnotes, the trade association assured its swaps dealer members that the newly deguaranteed foreign subsidiaries could (if they so choose) no longer be subject to Dodd-Frank. As a result, it has been reported (and also has been understood by many experts within the swaps industry) that a substantial portion of the U.S. swaps market has shifted from the large U.S. bank holding companies swaps dealers and their U.S. affiliates to their newly deguaranteed `foreign` subsidiaries. The CFTC also soon discovered that these huge U.S. bank holding company swaps dealers, through their foreign subsidiaries, were `arranging, negotiating, and executing` these swaps in the United States with U.S. bank personnel and, only after execution in the U.S., were these swaps formally `assigned` to the U.S. banks` newly `deguaranteed` foreign subsidiaries with the accompanying claim that these swaps, even though executed in the U.S., were not covered by Dodd-Frank. In October 2016, the CFTC proposed a rule that would have closed these loopholes completely. However, the proposed rule was not finalized prior to the inauguration of President Trump. All indications are that it will never be finalized during a Trump Administration. Thus, as the tenth anniversary of the Lehman failure approaches, there is an under- standing among many market regulators and swaps trading experts that large portions of the swaps market have moved from U.S. bank holding company swaps dealers to their newly deguaranteed foreign affiliates. However, what has not moved abroad is the very real obligation of the lender of last resort to rescue these U.S. swaps dealer bank holding companies if they fail because of poorly regulated swaps in their deguaranteed foreign subsidiaries, i.e., the U.S. tax-payer. While relief is unlikely to be forthcoming from either the Trump Administration or a Republican-controlled Congress, some other means will have to be found to avert another multi- trillion dollar bank bailout and/or financial calamity caused by poorly regulated swaps on the books of big U.S. banks. This paper notes that the relevant statutory framework affords state attorneys general and state financial regulators the right to bring so-called `parens patriae` actions in federal district court to enforce, inter alia, Dodd-Frank on behalf of a state’s citizens. That kind of litigation to enforce the statute`s extraterritorial provisions is now badly needed.
    Keywords: Derivatives, Commodity Futures Trading Commission, finance, banks, Dodd-Frank, cross border, regulation
    JEL: E5 G01 G21 G28 K22
    Date: 2018–06
  3. By: Brady, David; Fink, Joshua J
    Abstract: Immigration to rich democracies grew substantially in the 1990s and 2000s. We investigate whether the rise of immigration influenced the novel and salient outcome of preferences for greater law enforcement spending. We propose that these preferences are consequential for policymaking, reflect popular demand for punitive social control, and represent micro-level preferences underlying the politics of criminal justice. Motivated by literatures on criminal justice politics, minority threat, and the fear of crime, we examine whether stocks and flows of immigration influence individual-level preferences for greater law enforcement spending. Using International Social Survey Programme (ISSP) data, we analyze between-country variation with multi-level models of 25 countries in 2006, and within-country variation with differences-in-differences (DD) models of 16 countries with available data in both 1996 and 2006. Both multilevel and DD models show that flows of immigration increase preferences for greater law enforcement spending. Indeed, the coefficients for immigration flows are larger than or comparable in magnitude to the coefficients for any other variable, and are robust net of homicide rates and police officers per 100,000. By contrast, the stock of immigrants is not robustly associated with preferences. The results demonstrate that rising immigration contributed to increasing public support for greater law enforcement spending.
    Date: 2019–02–27
  4. By: Bratti, Massimiliano (University of Milan); Conti, Maurizio (University of Genova); Sulis, Giovanni (University of Cagliari)
    Abstract: In 2012, a labour market reform in Italy known as the Fornero Law substantially reduced firing restrictions for open-ended contracts in the case of firms with more than 15 employees. The results from a difference in regression discontinuities design that compares firms below versus those above the cut-off before and after the reform demonstrate that after the Fornero Law was introduced, the number of trained workers increased in firms just above the threshold, with an order of magnitude of approximately 1.5 additional workers in our preferred empirical specification. We show that this effect might be partly explained by the reduction in worker turnover and a lower use of temporary contracts at the threshold after the reform. Our study highlights the potentially adverse effects of employment protection legislation (EPL) on training in dual labour markets due to larger firms seeking to avoid the higher costs of EPL via temporary contracts.
    Keywords: employment protection legislation, training, dual labour markets, temporary contracts, Italy
    JEL: J42 J63 J65 M53
    Date: 2019–11
  5. By: O D Delaney, Marianne
    Abstract: This paper aims to contribute to the extant literature on the matter by highlighting how and why it is necessary to delineate between matters of public interests, national security – and ultimately the need to balance interests of democratic accountability and parliamentary (legislative) sovereignty from a background of the context, content and prevailing matters of public policy and constitutional relevance – even as intended by the rule of law and the application of separation of powers. Further, it highlights why the role of the judiciary becomes all the more important in ensuring that an appropriate balance and favorable consensus is reached between politically motivated goals and the need to uphold democratic accountability – particularly given the fact that the legislative and executive branches are more intricately linked – such that there are greater possibilities of conflicts of interest between these two branches.
    Keywords: democratic accountability; rule of law; separation of powers; parliamentary sovereignty; Congress; parliament; Brexit
    JEL: E4 E44 K2 K23 K49
    Date: 2019–09
  6. By: Koch, Elard; Chireau, Monique; Stanford, Joseph; Haddad, Sebastian; Pliego, Fernando; Bravo, Miguel; Thorp, John
    Abstract: This report provides a review, replication, and re-analysis of an study by Darney et al (Contraception. 2017;95(1):105-111) on the association between maternal mortality ratio (MMR, number of maternal deaths per 100,000 live births) and abortion legislation in Mexico City compared with 31 other states. In their study, Darney et al disputed evidence from our study (Koch et al, BMJ Open 2015;5(2):e006013), which found a null association between abortion laws and MMR, and reported their own conclusion of a negative association between abortion availability and MMR. After replicating their dataset and statistical analysis, we found that the beta coefficient (effect size) for abortion legislation was apparently misinterpreted by Darney et al to support the conclusion that legislation allowing abortion on request in Mexico City was associated with a 22.49-unit decrease in MMR. In fact, their analysis showed the opposite result: after multivariable adjustments, Mexico City was associated with a 22.49-unit increase in MMR compared with the 31 states with restricted access to abortion. Moreover, Darney et al did not report the initial time-adjusted effect size, where the 95% CI supports the hypothesis of null association (beta = 4.17; 95%CI -7.19 to 15.54; p=0.470). In our re-analysis of their data, estimates were highly unstable in multiple regression models, and the initial effect size (4.17) for the association between abortion legislation and the MMR was inflated up to 5-fold (22.49) as a result of a ‘tipping effect’ on coefficients and multicollinearity among covariates. In conclusion, our reanalysis of Darney et al’s study provides evidence of serious methodological flaws, faulty statistical analysis and misinterpretation of regression coefficients, ultimately resulting in an invalid conclusion.
    Date: 2018–11–29
  7. By: Young, Meg; Katell, Michael; Krafft, P. M.
    Abstract: A wave of recent scholarship has warned about the potential for discriminatory harms of algorithmic systems, spurring an interest in algorithmic accountability and regulation. Meanwhile, parallel concerns about surveillance practices have already led to multiple successful regulatory efforts of surveillance technologies—many of which have algorithmic components. Here, we examine municipal surveillance regulation as offering lessons for algorithmic oversight. Taking the 2017 Seattle Surveillance Ordinance as our primary case study and surveying efforts across five other cities, we describe the features of existing surveillance regulation; including procedures for describing surveillance technologies in detail, processes for public engagement, and processes for establishing acceptable uses. Although these surveillance-focused laws were not intended to address algorithmic accountability, we find these considerations to be relevant to the law’s aim of surfacing disparate impacts of systems in use. We also find that in notable cases, government employees did not identify regulated algorithmic surveillance technologies as reliant on algorithmic or machine learning systems, highlighting a definitional gap that could hinder future efforts toward algorithmic regulation. We argue that (i) finer-grained distinctions between types of analytic and information systems in the language of law and policy, and (ii) risk assessment tools integrated into their implementation would both strengthen future regulatory efforts by rendering underlying algorithmic components more legible and accountable to political and community stakeholders.
    Date: 2019–07–31
  8. By: Boly, Amadou (African Development Bank); Konte, Maty (UNU-MERIT); Shimeles, Abebe (African Development Bank)
    Abstract: This paper analyses the effect of the quality of governance (proxied by perceived corruption) on attitude towards paying tax. Using the Afrobarometer surveys from 36 African countries over the period 2011-2015, we find that low perception of corruption of different levels of the Executive branch (President Office, Government Officials or Tax Authorities) has a significant and positive impact on tax morale. To account for possible reverse causality between a citizen's perception of governance quality and attitude towards tax payment, we also propose an IV approach, using the ethnicity of the country's leader as instrument for perceived level of corruption. The IV results confirm that an individual's positive perception of governance has a positive impact on its willingness to pay tax.
    Keywords: Corruption, Taxation, Governance, Africa
    JEL: D73 H71 O23 O55
    Date: 2019–10–31
  9. By: Mari, Gabriele; Cutuli, Giorgio
    Abstract: Women-friendly policies may have perverse effects on the wages of employed women and mothers in particular. Yet few have addressed the causal impact of such policies and the mechanisms they might trigger at the individual level to produce such wage responses. We assess if and how two decades of reforms of parental leave schemes in Germany have shaped changes in the motherhood wage penalty over time. We compare two sweeps of reforms inspired by opposite principles, one allowing for longer periods out of paid work, the other prompting quicker re-entry in the labour market. We deploy panel data (G-SOEP 1985-2014) and a within-person difference-in-differences design. Motherhood wage penalties were found to be harsher than previously assessed in the 1990s. As parental leave reform triggered longer time spent on leave coupled with better tenure accumulation, wage losses for mothers remained stable in this first period. Conversely, we can no longer detect motherhood wage penalties for women affected by the later reform. Shorter career breaks and increased work hours may have benefited new mothers in the late 2000s, leading to a substantial improvement in their wage prospects.
    Date: 2018–12–14
  10. By: Josune Albizuri, M.; Dietzenbacher, Bas (Tilburg University, Center For Economic Research); Zarzuelo, J.
    Abstract: This paper studies independence of higher claims and independence of irrelevant claims on the domain of bargaining problems with claims. Independence of higher claims requires that the payoff of an agent does not depend on the higher claim of another agent. Independence of irrelevant claims states that the payoffs should not change when the claims decrease but remain higher than the payoffs. Interestingly, in conjunction with standard axioms from bargaining theory, these properties characterize a new constrained Nash solution, a constrained Kalai-Smorodinsky solution, and a constrained Kalai solution.
    Keywords: bargaining with claims; independence of higher claims; independence of irrelevant claims; constrained Nash solution; constrained Kalai-Smorodingsky solution
    JEL: C78 D74
    Date: 2019
  11. By: Bazzi, Samuel; Blair, Robert A.; Blattman, Chris; Dube, Oeindrila; Gudgeon, Matthew; Peck, Richard
    Abstract: Policymakers can take actions to prevent local conflict before it begins, if such violence can be accurately predicted. We examine the two countries with the richest available sub-national data: Colombia and Indonesia. We assemble two decades one fine- grained violence data by type, alongside hundreds of annual risk factors. We predict violence one year ahead with a range of machine learning techniques. Models reliably identify persistent, high-violence hot spots. Violence is not simply autoregressive, as detailed histories of disaggregated violence perform best. Rich socio-economic data also substitute well for these histories. Even with such unusually rich data, however, the models poorly predict new outbreaks or escalations of violence. \Best case" scenarios with panel data fall short of workable early-warning systems.
    Date: 2019–06–11
  12. By: Shannon M. Monnat (Maxwell School of Citizenship and Public Affairs at Syracuse University)
    Abstract: Over the past two decades deaths from opioids and other drugs have grown to be a major U.S. population health problem, but the magnitude of the crisis varies across the U.S., and explanations for widespread geographic variation in the severity of the drug crisis are limited. An emerging debate is whether geographic differences in drug mortality rates are driven mostly by opioid supply factors or socioeconomic distress. To explore this topic, I examined relationships between county-level non-Hispanic white drug mortality rates for 2000-02 and 2014-16 and several socioeconomic and opioid supply measures across the urban-rural continuum and within different rural labor markets. Net of county demographic composition, average non-Hispanic white drug mortality rates are highest and increased the most in large metro counties. In 2014-16, the most rural counties had an average of 6.2 fewer deaths per 100,000 population than large metro counties. Economic distress, family distress, persistent population loss, and opioid supply factors (exposure to prescription opioids and fentanyl) are all associated with significantly higher drug mortality rates. However, the magnitude of associations varies across the urban-rural continuum and across different types of rural labor markets. In rural counties, economic distress appears to be a stronger predictor than opioid supply measures of drug mortality rates, but in urban counties, opioid supply factors are more strongly associated with drug mortality rates than is economic distress. Ultimately, the highest drug mortality rates are disproportionately concentrated in economically distressed mining and service sector dependent counties with high exposure to prescription opioids and fentanyl.
    Keywords: health, mortality, urban-rural continuum, inequality, economic disadvantage, opioids
    JEL: I1 I3 J21 K32 R1
    Date: 2019–01
  13. By: Nakajima, Makoto (Federal Reserve Bank of Philadelphia); Rios-Rull, Jose-Victor (Federal Reserve Bank of Philadelphia)
    Abstract: We document the cyclical properties of unsecured consumer credit (procyclical and volatile) and of consumer bankruptcies (countercyclical and very volatile). Using a growth model with household heterogeneity in earnings and assets with access to unsecured credit (because of bankruptcy costs) and aggregate shocks, we show that the cyclical behavior of household earnings growth accounts for these properties, albeit not for the large volatility of credit. We find that tilting household consumption towards goods that can be purchased on credit and a slight countercyclicality in the terms of access to credit match the sizes of credit and bankruptcy volatilities. We also find that when the right to file for bankruptcy does not exist unsecured credit is countercyclical.
    Keywords: consumer credit; default; bankruptcy; debt; business cycle; heterogeneous agents; incomplete markets
    JEL: D91 E21 E32 E44 K35
    Date: 2019–11–21
  14. By: Fabio Busetti (Bank of Italy); Cristina Giorgiantonio (Bank of Italy); Giorgio Ivaldi (Bank of Italy); Sauro Mocetti (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Pietro Tommasino (Bank of Italy)
    Abstract: Public investment expenditure in Italy has decreased markedly in the last few years. Several indicators suggest that the quantity and quality of Italy’s public capital are lower than in the other main euro area economies. The paper presents some estimates of the macroeconomic effects of an increase in public investment. It also discusses how the public capital stock can be measured and looks at public investment dynamics in the main euro-area economies. Finally, it reviews some regulatory aspects which could slow down public works in Italy. The authors conclude that an increase in public investment can only have a significant macroeconomic impact if the resources are utilized efficiently, interventions are appropriately chosen and implemented quickly, and good financial conditions are preserved. It appears crucial to improve evaluation, planning and monitoring of public infrastructure projects.
    Keywords: public investment multiplier, public capital, public procurement
    JEL: E62 H54 K23 R42
    Date: 2019–10

This nep-law issue is ©2019 by Eve-Angeline Lambert. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.