nep-law New Economics Papers
on Law and Economics
Issue of 2020‒02‒10
thirteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Property is Dummy Proof: An Experiment By Oren Bar-Gill; Christoph Engel
  2. Manna from Heaven for Judges– Judges’ Reaction to a Quasi-Random Reduction in Caseload By Christoph Engel; Keren Weinshall
  3. Rebating Antitrust Fines to Encourage Private Damages Actions By Winand Emons; Severin Lenhard
  4. Medical Malpractice Appeals in a Civil Law System: Do Administrative and Civil Courts Award Non-Economic Damages Differently? By Sofia Isabel Amaral Garcia
  5. Antitrust and Restrictions on Privacy in the Digital Economy By Nicholas Economides; Ioannis Lianos
  6. If you see (or smell) something, say something: Citizen complaints and regulation of oil and gas wells By Peter Maniloff; Daniel T. Kaffine
  7. Justice is in the Eyes of the Beholder – Eye Tracking Evidence on Balancing Normative Concerns in Torts Cases By Christoph Engel; Rima Maria Rahal
  8. Migration and Imitation By Olena Ivus; Alireza Naghavi; Larry D. Qiu
  9. Parental Leave Reform and Long-run Earnings of Mothers By Corinna Frodermann; Katharina Wrohlich; Aline Zucco
  10. Legal History, Institutions and Banking System Development in Africa By Mutarindwa, Samuel; Schäfer, Dorothea; Stephan, Andreas
  11. The most favoured nation and non-discrimination provisions in international trade law and the OECD codes of liberalisation By Andrea Marín Odio
  12. Big Tech Mergers By Massimo Motta; Martin Peitz
  13. Quantifying Benefits of Sustainability Agreements under Article 101 TFEU in terms of Human Well-Being By van der Zee, Eva

  1. By: Oren Bar-Gill (Harvard Law School); Christoph Engel (Max Planck Institute for Research on Collective Goods)
    Abstract: Law is for humans. Humans suffer from cognitive limitations. Legal institutions can help humans by making these limitations irrelevant. This experiment shows that strong property rights serve this function. In theory, efficient outcomes obtain even without strong property rights. In a hypothetical world where cognitive ability is perfect, individuals would not engage in wasteful taking wars. A party would not take another’s good, if she expects that the good will ultimately be taken back. By contrast, the large majority of experimental subjects takes a token good when interacting with a computer they know to maximize profit, and that has a symmetric ability to take the good back. Experience mitigates the inefficiency, but does not eliminate it; and in the real world relevant experience is often lacking. We show that cognitive limitations prevent weak property rights – imperfectly enforced property rules and liability rules with low damages – from securing efficient outcomes. Strong property rights should be preferred, because they are dummy proof.
    Keywords: Property, Liability, Cost of Appropriation, Cognitive Limitations, Sophistication, Descriptive and Normative Beliefs
    JEL: C91 D02 D47 D61 K11
    Date: 2020–01
  2. By: Christoph Engel (Max Planck Institute for Research on Collective Goods); Keren Weinshall (The Hebrew University of Jerusalem, Faculty of Law)
    Abstract: What is the impact of caseload on judicial decision-making? Is increasing judicial staff effective in improving judicial services? To address these questions, we exploit a natural, near-randomized experiment in the Israeli judiciary. In 2012, six senior registrars were appointed in two of the six magistrate’s court districts. The choice of districts was motivated by reasons unrelated to judicial performance. In these two districts, the civil caseload per judge was substantially reduced. We find that the reduction had a significant impact on the process and outcomes of judicial decision-making. Judges working in courts with reduced caseload invested more resources in resolving each case. The effect is mostly to the advantage of plaintiffs, who were more likely to win, recover a larger fraction of their claim, and be reimbursed for litigation costs. We discuss the implications for judicial management and theories about judicial decision-making.
    JEL: D02 D21 D22 D83 K10 K41
    Date: 2020–01
  3. By: Winand Emons; Severin Lenhard
    Abstract: To encourage private actions for damages in antitrust cases some jurisdictions subtract a fraction of the redress from the fine. We analyze the effectiveness of this policy. Such a rebate does not encourage settlement negotiations that would otherwise not occur. If, however, the parties settle without the rebate, the introduction of the reduction increases the settlement amount, yet at the price of reduced deterrence for those wrongdoers who are actually fined. Under a leniency program the rebate has no effect on the leniency applicant: she doesn’t pay a fine that can be reduced. The overall effect of a fine reduction on deterrence is, therefore, negative.
    Keywords: antitrust, damages, deterrence, leniency
    JEL: D43 K21 K42 L40
    Date: 2020–01
  4. By: Sofia Isabel Amaral Garcia
    Abstract: How do courts award noneconomic damages? Does it matter if the state is the defendant? This article addresses these questions in the context of medical malpractice appeals to the Spanish Supreme Court. Moreover, this study provides the first empirical analysis of the quantification of noneconomic damages in medical malpractice cases in administrative courts, where the state is the defendant, and in civil courts. This separation of jurisdictions is a common feature in civil law tradition countries. Yet, critics of this separation in general, and specialized courts in particular, argue that parties might be subject to different treatments and that similar cases might reach different outcomes, namely in terms of the quantification of damages. A consistent result of this paper is that no significant differences between noneconomic damages in civil and administrative appeals were found. The separation of jurisdictions does not necessarily imply that courts reach different outcomes, even when the state is the defendant. Citizens should not refrain from bringing their claims forward against the state, a more powerful party. In the current era of increasing juridification and judicialization of modern life (Ginsburg 2009; Hirschl 2006; Hirschl 2011), it is crucial for society that citizens and other parties litigating with the state are not disadvantageously treated.
    Keywords: medical malpractice; non-economic damages; civil law; Supreme Court Spain
    Date: 2019–01–01
  5. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (President, Hellenic Competition Commission and Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London)
    Abstract: We present a model of a market failure based on a requirement provision by digital platforms 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 traditional antitrust methodology. Eliminating the requirement and the market failure by creating a functioning market for the sale of personal information would create a functioning market for personal information that would benefit users. Even though market harm is established under the assumption that consumers are perfectly informed about the value of their privacy, we show that when users are not well informed, there can be additional harms to this market failure.
    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; behavioral manipulation; remedies; portability; opt-out.
    JEL: K21 L1 L12 L4 L41 L5 L86 L88
    Date: 2020–01
  6. By: Peter Maniloff (Division of Economics and Business, Colorado School of Mines); Daniel T. Kaffine (Department of Economics, University of Colorado Boulder)
    Abstract: The traditional theory of firm regulation and enforcement examines the interplay of firms and regulator, with citizens as passive consumers of goods or providers of votes. However, in industries such as oil and gas, citizens can play an important role in inspections and enforcement, which we analyze with a novel dataset of Colorado regulatory activities. We find regulators frequently conduct follow-up inspections of citizen complaints, and these citizen-driven inspections are just as likely to lead to regulatory action as ``normal'' scheduled inspections. However, the evidence is consistent with regulators treating these complaints as ``one-offs'' --- regulators do not increase inspection activity of other wells owned by a firm that was complained about. An inspector conducting a complaint inspection crowds out two regular inspections at the daily level, but we find no evidence of crowd-out at time scales of one month or greater. Finally, heterogeneity across complaint types suggests citizens are particularly adept at identifying nuisance-related violations (e.g. noise, smell), but are less adept at identifying more technical violations.
    Keywords: enforcement, oil and gas, citizen participation
    JEL: Q58 Q48 K42
    Date: 2020–01
  7. By: Christoph Engel (Max Planck Institute for Research on Collective Goods); Rima Maria Rahal (Tilburg School of Social and Behavioral Sciences)
    Abstract: Frequently deciding legal cases requires an assessment in multiple, conceptually incompatible dimensions. Often one normative concern would call for one decision, and another normative concern for a different decision. The decision-maker must engage in balancing, with no help from overarching normative theory. A typical situation is torts. The decision must regularly balance concerns on behalf of the victim, the tort feasor and society at large, both on utilitarian and deontological grounds. In this paper we use eye tracking to investigate in which ways laypersons' thought processes react to normative conflict in a set of 16 torts vignettes. If normative conflict is present, participants are less likely to agree with the likely outcome if the case were tried in a German court; they take longer to decide, and they fixate longer on normative concerns presented on a decision screen. Eye movements show that participants indeed consider multiple normative concerns in competition.
    Keywords: torts, fundamental normative relativity, compensation, deterrence, utilitarian and deontological concerns, balancing, eye tracking, machine learning
    JEL: D01 D81 D91 K13 K40
    Date: 2020–01
  8. By: Olena Ivus (Queen's University); Alireza Naghavi (University of Bologna); Larry D. Qiu (University of Hong-Kong)
    Abstract: This paper develops a North-South trade model with heterogeneous labour and horizontally differentiated products and compares the implications of two policies: Southern intellectual property rights (IPRs) and Northern immigration policy that aims to attract Southern talent as means of preempting imitation. Individuals self-select into becoming entrepreneurs and innovate (imitate) in the North (South). The likelihood of imitation depends on product quality, imitator’s ability, and strength of IPRs. Several interrelated channels of competition are identified. Allowing high-ability migration when IPRs protection in the South is weak shifts imitation to low-quality and innovation to high-quality products. The outcome is in stark contrast to the policy of strengthening IPRs, which limits low-quality imitation and encourages low-quality innovation. High-ability migration also increases the income of lowability entrepreneurs, as well as the average quality of products in the high-ability imitation sector in the South.
    Keywords: Intellectual propert yrights; High-skilled migration; Imitation; Innovation; Product quality; Entrepreneurability
    JEL: F22 O31 O34 J24 K37 O38
    Date: 2019–12–20
  9. By: Corinna Frodermann (Institute for Employment Research, Nuremberg, Germany); Katharina Wrohlich (DIW Berlin); Aline Zucco (DIW Berlin)
    Abstract: Paid parental leave schemes have been shown to increase women’s employment rates but decrease their wages in case of extended leave durations. In view of these potential trade-offs, many countries are discussing the optimal design of parental leave policies. We analyze the impact of a major parental leave reform on mothers’ long-term earnings. The 2007 German parental leave reform replaced a means-tested benefit with a more generous earnings-related benefit that is granted for a shorter period of time. Additionally, a “daddy quota” of two months was introduced. To identify the causal effect of this policy on long-run earnings of mothers, we use a difference-in-difference approach that compares labor market outcomes of mothers who gave birth just before and right after the reform and nets out seasonal effects by including the year before. Using administrative social security data, we confirm previous findings and show that the average duration of employment interruptions increased for high-income mothers. Nevertheless, we find a positive long-run effect on earnings for mothers in this group. This effect cannot be explained by changes in working hours, observed characteristics, changes in employer stability or fertility patterns. Descriptive evidence suggests that the stronger involvement of fathers, incentivized by the “daddy months”, could have facilitated mothers’ re-entry into the labor market and thereby increased earnings. For mothers with low prior-to-birth earnings, however, we do not find any beneficial labor market effects of this parental leave reform.
    Keywords: parental leave, wages, labor supply
    JEL: H31 J13 J22 J24 J31
    Date: 2020–01
  10. By: Mutarindwa, Samuel; Schäfer, Dorothea; Stephan, Andreas
    Abstract: This paper links banking systems development to the colonial and legal history of African countries. Specifically, we investigate the impact of differing legal traditions on the development of existing investor and creditor protection, and on African banking systems. Based on a sample of 40 African countries from 2000 to 2016, our empirical findings show a significant dependence of current financial institutions on the legal origin and the colonization type. Findings also reveal that current legal financial institutions are not the major determinants of banking system development, whereas institutional and regulatory quality significantly matter for banking system development in both common and civil law countries. Strong creditor rights reduce the cost of banking in African countries.
    Keywords: Legal origins,colonial history,financial institutions,banking systems,Hausman-Taylor estimation
    JEL: G21 G38 G39 K40
    Date: 2020
  11. By: Andrea Marín Odio (OECD)
    Abstract: Increasing moves away from multilateralism have created a fragmented trade and investment scenario where economies progressively combine the application of restrictive unilateral actions with bilateral and regional preferences. The application of, and exceptions to, the non-discrimination provisions are a fundamental element of these trends.This paper sheds light on the two types of non-discrimination provisions considered the founding stones of the multilateral system: the most favoured nation (MFN) clause - as developed under the GATT and GATS - and the non-discrimination clause among countries adhering to the OECD Codes of Liberalisation.While not taking a position on the complex question of whether a multilateral, plurilateral or bilateral approach to trade and investment liberalisation should be pursued, the paper illustrates the OECD has upheld the non-discrimination obligation as one of its basic principles, dating back to its origins over 60 years ago.
    Keywords: Codes of Liberalisation, international trade law, MFN, most favoured nation, multilateralism, non-discrimination, regional integration, WTO
    JEL: F13 F15 F42 F51 F53 F55 F60 K33
    Date: 2020–02–10
  12. By: Massimo Motta; Martin Peitz
    Abstract: Big tech mergers are frequently occurring events. What are the competitive effects of these mergers? With the help of a simple model we identify the acquisition of potential competitors as a pressing issue for merger control in digital industries. We also sketch a few novel theories of harm of horizontal and conglomerate mergers that are potentially relevant in digital industries. Finally, we draw some policy recommendations on how to deal with mergers in such industries.
    Keywords: merger policy, digital markets, potential competition, conglomerate mergers
    JEL: L41 L13 K21
    Date: 2020–01
  13. By: van der Zee, Eva
    Abstract: The main aim of this paper is to examine how the current European Commission guidelines issued in 2004 on the application of Article 101(3) of the Treaty on the Functioning of the European Union (TFEU) (hereinafter: Commission guidelines) could be improved to allow undertakings to assess their agreements under Article 101(3) TFEU in a way that is quantifiable but that goes beyond an economic approach focusing solely on monetary well-being. This research is timely, as the Commission is currently reviewing the Horizontal Block Exemption Regulations and the Horizontal Co-operation Agreements Guidelines. To achieve this aim, I will first give a brief overview of Article 101 TFEU and the Commission guidelines, pointing out where further guidance is needed. Then, I will show that based on communications by the Commission, as well as based on case law by the Court of Justice of the European Union (CJEU), the term "benefits" under Article 101(3) TFEU should be interpreted as a wide notion of well-being (ie not solely related to monetary well-being), also known as HWB. Based on the legal analysis, this paper explores different methods to estimate HWB (economic cost-benefit analysis, well-being analysis, resourcism, and the capabilities approach), arguing that a combination of these methods would provide the most accurate estimation of HWB. It is concluded that, in the right hands with the proper understanding of the strengths and weaknesses, statistical data derived from HWB methods can provide important insights. To improve guidance as to how to use these insights, national agencies or the European Commission are advised to answer normative questions. These questions include which discount rate should be chosen and which capabilities society deems important.
    Keywords: competition law,European law,human well-being
    JEL: K21 L4
    Date: 2020

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