nep-law New Economics Papers
on Law and Economics
Issue of 2020‒03‒02
fourteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Sham Litigation, Delayed Tax Payment and Evasion: The Role of Informal Credit Market By Sugata Marjit; Suryaprakash Mishra; Sandip Mitra
  2. Prospects of Blockchain in Contract and Property By Benito Arruñada
  3. Religion, Politics, and Judicial Independence: Theory and Evidence By Sultan Mehmood; Avner Seror
  4. Bayesian Panel Quantile Regression for Binary Outcomes with Correlated Random Effects: An Application on Crime Recidivism in Canada By Georges Bresson; Guy Lacroix; Mohammad Arshad Rahman
  5. Learning from Law Enforcement By Libor Dusek; Christian Traxler
  6. Does the “Open- Cell Regime” foster Inmates’ Legal Capability? Evidence from two Italian Prisons By Lucia Dalla Pellegrina; Margherita Saraceno
  7. Speed Limit Enforcement and Road Safety By Stefan Bauernschuster; Ramona Rekers
  8. Perception vs. Experience: Explaining Differences in Corruption Measures Using Microdata By Jerg Gutmann; Fabio Padovano; Stefan Voigt;
  9. Property Rights, Political Connections, and Corporate Investment By Miao,Meng; Tang,Dragon Yongjun; Xu,L. Colin
  10. Bargaining and Conflict with Up-Front Investments: How Power Asymmetries Matter By Zachary Schaller; Stergios Skaperdas
  11. Consensus and Ideology in Courts: an Application to the Judicial Committee of the Privy Council By Sofia Amaral-Garcia; Lucia Dalla Pellegrina; Nuno Garoupa
  12. The Third Function of Law Is to Transform Cultural Categories By Hoff,Karla; Walsh,James Sonam
  13. Alcohol and Violence: A Field Experiment with Bartenders in Bogotá,Colombia By Andrés Ham; Darío Maldonado; Michael Weintraub; Andrés Felipe Camacho; Daniela Gualtero
  14. OPEX-risk as a source of CAPEX-bias in monopoly regulation By Gert Brunekreeft; Margarethe Rammerstorfer

  1. By: Sugata Marjit; Suryaprakash Mishra; Sandip Mitra
    Abstract: We model the interaction between the informal credit market and the act of tax collection by the government; in presence and functioning of the informal credit market, the agents (the tax paying firms) engage in false or sham litigation and deferred tax payments. During the litigation period they earn higher return, higher than the punishment rates charged by the government. Proportion of false claims increases with size. In this context we get a result that contradicts conventional wisdom in tax evasion literature whereby higher tax rate actually leads to greater compliance and tax rate acts as a policy instrument even when in the standard case it does not affect evasion. We propose part-payment of the disputed amount by the tax paying firm to the government as a possible solution to the problems of excessive litigation against the government, delayed tax payments and evasion; it also has a positive impact on the tax collection of the government. Finally, we also attempt to explain as to why and how the government policies may be intentionally designed to foster the informal sector.
    Keywords: delayed tax payment, evasion, sham litigation, informal credit market
    JEL: H25 H26 H32 K34 K41 K42
    Date: 2019
  2. By: Benito Arruñada
    Abstract: Recurrent difficulties are delaying what for the time being are still modest applications of blockchain. This paper identifies what value this new technology adds to the contractual and property processes, exploring its potential and analyzing the main difficulties it is facing. Paying particular attention to the distinction between contract (personal or in personam) rights and property (real or in rem) rights, it first examines the difficulties for trading contract rights through blockchain-based applications, mainly those to complete contracts ex ante without relying on third-party enforcers. Second, it explores the difficulties faced by blockchain to enable trade in property rights.
    Keywords: Property rights, enforcement, transaction costs, impersonal exchange, blockchain, distributed ledgers, smart contracts, registries
    JEL: D23 K11 K12 L85 G38 H41 O17 P48
    Date: 2020–02
  3. By: Sultan Mehmood (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France); Avner Seror (Aix-Marseille Univ, CNRS, EHESS, Ecole Centrale, AMSE, Marseille, France)
    Abstract: Most enlightenment philosophers argued that the separation between Church and State would prevent capture of resources by one state religion. We formalize and test a theory that addresses a different danger. We demonstrate that a reduction in the separation between Church and State can be corrosive to political institutions, especially the Judiciary. We show that religious leaders use their high legitimacy to gain political office, and become particularly abusive politicians, misusing their political authority to undermine the independence of the Judiciary. We provide a theoretical framework and estimate the structural equations of our theory using data from Pakistan. Our empirical strategy exploits the plausibly exogenous timing of a military coup to provide causal evidence for the key predictions of our theory.
    Keywords: religion, judicial independence, elections, economic development
    JEL: K10 K40 Z12 D72
    Date: 2020–02
  4. By: Georges Bresson; Guy Lacroix; Mohammad Arshad Rahman
    Abstract: This article develops a Bayesian approach for estimating panel quantile regression with binary outcomes in the presence of correlated random effects. We construct a working likelihood using an asymmetric Laplace (AL) error distribution and combine it with suitable prior distributions to obtain the complete joint posterior distribution. For posterior inference, we propose two Markov chain Monte Carlo (MCMC) algorithms but prefer the algorithm that exploits the blocking procedure to produce lower autocorrelation in the MCMC draws. We also explain how to use the MCMC draws to calculate the marginal effects, relative risk and odds ratio. The performance of our preferred algorithm is demonstrated in multiple simulation studies and shown to perform extremely well. Furthermore, we implement the proposed framework to study crime recidivism in Quebec, a Canadian Province, using a novel data from the administrative correctional files. Our results suggest that the recently implemented “tough-on-crime” policy of the Canadian government has been largely successful in reducing the probability of repeat offenses in the post-policy period. Besides, our results support existing findings on crime recidivism and offer new insights at various quantiles.
    Keywords: Bayesian Inference,Correlated Random Effects,Crime,Panel Data,Quantile Regression,Recidivism,
    JEL: C11 C31 C33 C35 K14 K42
    Date: 2020–02–04
  5. By: Libor Dusek; Christian Traxler
    Abstract: This paper studies how punishment for past offenses affects future compliance behavior and isolates deterrence effects mediated by learning. Using administrative data from speed cameras that capture the full driving histories of more than a million cars over several years, we evaluate responses to punishment at the extensive (receiving a speeding ticket) and intensive (tickets with higher fines) margins. Two complementary empirical strategies - a regression discontinuity design and an event study - coherently document strong responses to receiving a ticket: the speeding rate drops by a third and re-offense rates fall by 70%. Higher fines produce only a limited additional effect. All responses occur immediately and are persistent over time, with no ‘backsliding’ towards speeding even two years after receiving a ticket. Our evidence rejects unlearning and temporary salience effects. Instead, it supports a learning model in which agents update their priors on the expected punishment in a ‘coarse’ manner. Additional results indicate that learning from law enforcement affects drivers’ behavior more broadly, including spillovers on non-ticketed drivers.
    Keywords: learning deterrence, law enforcement, speeding tickets, regression discontinuity, event study
    JEL: K10 D80 K42
    Date: 2020
  6. By: Lucia Dalla Pellegrina; Margherita Saraceno
    Abstract: This study is a first attempt to map non-criminal legal needs of prisoners by means of a peer-setting survey. The investigation has been carried out in 2014 in two Italian prisons. Evidence shows that prisoners’ legal needs are mainly related to family law matters, property law issues and administrative procedures, including release and renewal of documents. We test the general hypothesis according to which imprisonment by itself represents a recurrent cause to give up trying to solve legal problems. We focus, in particular, on the introduction of the open-cell regime to identify the effects of isolation due to imprisonment on the frequency of problem resolution. We also investigate how inmates’ specific characteristics (being a foreigner or waiting for a first-instance judgment), on the one hand, and prison-specific characteristics, on the other hand, affect the capacity of prisoners to manage their pending legal issues (legal capability). This contributes to debate about detention conditions as an important part of European Union justice policy.
    Keywords: Access to justice, legal needs, prison
    JEL: K41
    Date: 2020–02
  7. By: Stefan Bauernschuster; Ramona Rekers
    Abstract: We study the impact on road safety of one-day massive speed limit monitoring operations (SLMO) accompanied by media campaigns that announce the SLMO and provide information on the dangers of speeding. Using register data on the universe of police reported accidents in a generalized difference-in-differences approach, we find that SLMO reduce traffic accidents and casualties by eight percent. Yet, immediately after the SLMO day, all effects vanish. Further evidence suggests that people drive more slowly and responsibly on SLMO days to avoid fines; providing information on the dangers of speeding does not alter driving behavior in a more sustainable way.
    Keywords: traffic, law enforcement, safety, accidents
    JEL: H76 K42 R41
    Date: 2019
  8. By: Jerg Gutmann; Fabio Padovano; Stefan Voigt;
    Abstract: Understanding corruption is at the heart of treating the dysfunctionality of many countries’ public sectors. Yet, most corruption research suffers from one common problem: There is no “objective” measure of public-sector corruption for a cross-section of countries. Most studies on the determinants or the effects of corruption rely on indicators of corruption perception. In recent years, a second type of indicator reflecting stated experiences with bribery has become available. If corruption perception is primarily informed by experience with corruption, these two types of indicators should be very highly correlated. In fact, they are not. This paper deals with the divergence between these two types of corruption indicators. We examine the variation in individual corruption perception that cannot be explained by individual corruption experience alone. We find that both respondent characteristics and country characteristics affect corruption perception beyond what can be explained by individuals’ first-hand experience of corruption. Some of these biases may force us to reevaluate results of corruption research that is based on perception data, as well as the anti-corruption policies designed after these results.
    Keywords: corruption experience, corruption measurement, corruption perception, governance indicators, institutional quality, subjective indicators
    JEL: D73 C80 K42 O17
    Date: 2019
  9. By: Miao,Meng; Tang,Dragon Yongjun; Xu,L. Colin
    Abstract: Despite the literature on rural land property rights, studies on urban land property rights are rare. This paper studies the impact of an urban land titling program on firm investment. It finds that the program leads to increased investment rate for titling firms, and the positive effect holds only for politically connected firms. The effects are likely causal, because they are more pronounced for firms that are more likely to benefit from strengthened property rights. Connected titling firms experienced fewer disputes than nonconnected titling firms after the program, and the results remain robust when using instrumental variable estimation.
    Keywords: Judicial System Reform,Common Property Resource Development,Social Policy,Regulatory Regimes,Legislation,Legal Products,Legal Reform,Agricultural Economics,Cultural Heritage&Urban Revitalization,Foreign Trade Promotion and Regulation,Trade Law,De Facto Governments,Democratic Government,Public Sector Administrative&Civil Service Reform,Public Sector Administrative and Civil Service Reform
    Date: 2019–08–12
  10. By: Zachary Schaller; Stergios Skaperdas
    Abstract: We examine settings - such as litigation, labor relations, or arming and war - in which players first make non-contractible up-front investments to improve their bargaining position and gain advantage for possible future conflict. Bargaining is efficient ex post, but we show that a player may prefer Conflict ex ante if there are sufficient asymmetries in strength. There are two sources of this finding. First, up-front investments are more dissimilar between players under Conflict, and they are lower than under Bargaining when one player is much stronger than the other. Second, the probability of the stronger player winning in Conflict is higher than the share received under Nash bargaining. We thus provide a rationale for conflict to occur under complete information that does not depend on long-term commitment problems. Greater balance in institutional support for different sides is more likely to maintain peace and settlements.
    Keywords: power asymmetries, war, litigation, contests
    JEL: C70 D74 J53 K41
    Date: 2019
  11. By: Sofia Amaral-Garcia; Lucia Dalla Pellegrina; Nuno Garoupa
    Abstract: This article argues that judges suppress dissent when it is costly to do so, and that the cost of dissent depends on the political dimension of the issue broached. It contends that judges who disagree may nevertheless try to safeguard integrity and legitimacy in political disputes by presenting a public impression of unity. We muster evidence from the United Kingdom, specifically, votes from the Judicial Committee of the Privy Council (JCPC) between 1998 and 2011. We demonstrate through statistical analysis that judges are likelier to suppress dissent in devolution cases, which are more political in character, than in Commonwealth appeals, which are more mundane in nature. We find that while consensus on domestic issues reflects the absence of conflict between judicial ideologies, judges have stronger conflicting positions on issues concerning devolution, but tend to suppress their propensity to dissent. This finding confirms that the Court wants to appear cohesive to give an image of greater authority on decisions of predominantly political content.
    Date: 2020–02
  12. By: Hoff,Karla; Walsh,James Sonam
    Abstract: How does law change society? In the rational actor model, law affects behavior only by changing incentives and information -- the command and coordination function of law. Under the view that humans are social animals, law is also a guidepost for social norms that regulate behavior -- the expressive function of law. This paper proposes a third function of law?the schematizing function -- based on cognitive research that shows that individuals cannot think without categories. Law makes possible new kinds of exemplars, role models, and social interactions that give people prototypes that transform the categories they use, thereby reframing their options and influencing their behavior. This paper illustrates the schematizing power of law with examples from field and natural experiments. Like the one-two punch in a boxing match, the command and schematizing functions of law together can change society in situations where the command function alone would be ineffective or backfire.
    Keywords: Gender and Development,Human Rights,Social Cohesion,Disability,Services&Transfers to Poor,Access of Poor to Social Services,Economic Assistance,Judicial System Reform
    Date: 2019–08–06
  13. By: Andrés Ham; Darío Maldonado; Michael Weintraub; Andrés Felipe Camacho; Daniela Gualtero
    Abstract: This paper studies whether bartenders that adopt standardized practices can promote responsible alcohol consumption and subsequently reduce alcohol-attributable violence. We conduct a randomized experiment in four localities of Bogotá in cooperation with Colombia’s largest brewery and Bogota’s Secretariat of Security, Coexistence, and Justice. Our design allows estimating direct and spillover effects on reported incidents within and around bars. Results show that bartenders in treatment locations sell more water and food, thus contributing to more responsible alcohol consumption by patrons. We find no direct or spillover effects of these changes in consumption on brawls, but some improvement on other alcohol-related incidents. ***** Este trabajo estudia el rol que tienen los tenderos de barrio para promover el consumo responsable de alcohol y analiza si el consumo responsable reduce las riñas dentro y alrededor de tiendas. Este estudio presenta la evaluación experimental del programa “Buenos Tragos” en cuatro localidades de Bogotá. El diseño experimental permite estimar efectos directos e indirectos sobre reportes de riñas y otros incidentes dentro y alrededor de las tiendas de barrio. Los resultados indican que el programa Buenos Tragos hace que los tenderos vendan mas agua y comida, por lo cual sí logran fomentar el consumo responsable entre sus clientes. Sin embargo, no encontramos efectos directos o indirectos del programa sobre riñas, pero si reducciones en otros incidentes relacionados con el alcohol como embriaguez y alteración del orden publico.
    Keywords: Alcohol, bartenders, brawls, alcohol-related violence, crime. Alcohol, tenderos, rinas, violencia relacionada al alcohol, crimen.
    JEL: C93 D90 I10 K42 O12
    Date: 2019–10–17
  14. By: Gert Brunekreeft; Margarethe Rammerstorfer
    Abstract: This paper shows with a formal model that under monopoly regulation, OPEX-risk can be a source for a CAPEX-bias. If OPEX and CAPEX are substitutes, the regulated firm can reduce the risk of the firm and thereby reduce the true cost of capital by rebalancing OPEX and CAPEX. If the allowed rate-of-return on capital is not influenced by the firm’s actions, this creates a margin between the allowed rate-of-return and the true cost of capital. We examine two remedies: first, fixed-OPEX-CAPEX-share (FOCS) which is a variation of TOTEX-regulation and second, OPEX-mark-up. FOCS internalizes the CAPEX-bias and can be implemented easily. The OPEX-mark-up is effective, but it will be challenging to reach the optimum.
    Keywords: Capex-bias, Opex-risk, regulated monopoly
    JEL: K23 L12 L51 L9
    Date: 2020–02

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