nep-law New Economics Papers
on Law and Economics
Issue of 2020‒03‒30
thirteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Costly pretrial agreements By Anderlini, Luca; Felli, Leonardo; Immordino, Giovanni
  2. The Rise of American Minimum Wages, 1912-1968 By Fishback, Price; Seltzer, Andrew
  3. Application Period in Reverse Auctions By Sümeyra Atmaca
  4. "Mechanism Design with Blockchain Enforcement" By Hiroshi Matsushima; Shunya Noda
  5. Superstars in two-sided markets: exclusives or not? By Carroni, Elias; Madio, Leonardo; Shekhar, Shiva
  6. Can Society Function Without Ethical Agents? An Informational Perspective By Bruno Strulovici
  7. Profit-sharing Rules and the Taxation of Multinational Internet Platforms By Francis Bloch; Gabrielle Demange
  8. A Different Set of Rules? NLRB Proposed Rule Making and Student Worker Unionization Rights By Herbert, William A.; van der Naald, Joseph
  9. Enforcing Competition and Firm Productivity : Evidence from 1,800 Peruvian Municipalities By Schiffbauer,Marc Tobias; Sampi Bravo,James Robert Ezequiel
  10. Do Inheritance Rules Affect Voter Turnout? Evidence from an Alpine Region By Andrea Bonoldi; Chiara Dalle Nogare; Martin Mosler; Niklas Potrafke
  11. Manipulative Disclosure By Mezzetti, Claudio
  12. Keeping the Listener Engaged: a Dynamic Model of Bayesian Persuasion By Yeon-Koo Che; Kyungmin Kim; Konrad Mierendorff
  13. The (in)efficiency of Justice. An equilibrium analysis of supply policies. By Antonio Peyrache; Angelo Zago

  1. By: Anderlini, Luca; Felli, Leonardo; Immordino, Giovanni
    Abstract: Settling a legal dispute involves some costs that the parties have to incur ex ante for the pretrial negotiation and possible agreement to become feasible. Even in a full-information world, if the distribution of these costs is sufficiently mismatched with the distribution of the parties’ bargaining powers, a pretrial agreement may never be reached even though litigation is overall wasteful. Our results shed light on two key issues. First, a plaintiff may initiate a lawsuit even though the parties fully anticipate that it will be settled out of court. Second, the likelihood that a given lawsuit goes to trial is unaffected by how trial costs are distributed among the litigants. The choice of fee-shifting rule can affect only whether the plaintiff files a lawsuit in the first place. It does not affect whether it is settled before trial or litigated.
    Keywords: Pretrial Agreements; Costly Negotiations; Court Litigation
    JEL: C79 D23 D86 K12 K13
    Date: 2019–01–01
  2. By: Fishback, Price (University of Arizona); Seltzer, Andrew (Royal Holloway, University of London)
    Abstract: Minimum wages have been among the most controversial government interventions in labor markets. There have been several waves of minimum wage activity over the past century, beginning with a 1912 Massachusetts law. Since 1938 minimum wages in the United States have been set by a complex array of federal and state laws, with state laws sometimes exceeding the national law and closing important coverage gaps. Between 1938 and 1968, the real value of the federal minimum wage was generally increasing. Coverage gaps continued to be closed by amendments to federal legislation into the 1970s. In the 1980s, the real minimum rate declined sharply, and has since this time never again reached the level of 1955-1980. In this paper we examine the political economy of early minimum wage laws, focussing on the role of interest groups, politicians, courts, economists, and the general public.
    Keywords: minimum wages, political economy
    JEL: N32 N42 J88
    Date: 2020–02
  3. By: Sümeyra Atmaca (-)
    Abstract: The duration to apply for participation in auctions affects entry costs and eventually the allocation and prices of contracts. The role of the application period is studied using Russian public procurement data on gasoline in 2011-2013. By relying on formal rules on the determination of the application period, I find that longer periods enhance competition and lead to price reductions. Moreover, I show that public buyers avoid long application periods. They shorten the period if they need gasoline immediately but I further argue that it facilitates favoritism. Finally, evidence is provided of collusion sustaining favoritism
    Keywords: public procurement, auction design, corruption, regulation
    JEL: H57 K42
    Date: 2020–03
  4. By: Hiroshi Matsushima (Faculty of Economics, The University of Tokyo); Shunya Noda (Faculty of Economics, The University of Tokyo)
    Abstract: We study the design of self-enforcing mechanisms that rely on neither a trusted third party (e.g., court, trusted mechanism designer) nor a long-term relationship. Instead, we use a smart contract written on blockchains as a commitment device. We design the digital court, a smart contract that identifies and punishes agents who reneged on the agreement. The digital court substitutes the role of legal enforcement in the traditional mechanism design paradigm. We show that, any agreement that is implementable with legal enforcement can also be implemented with enforcement by the digital court. To pursue a desirable design of the digital court, we study a way to leverage truthful reports made by a small fraction of behavioral agents. Our digital court has a unique equilibrium as long as there is a positive fraction of behavioral agents, and it gives correct judgment in the equilibrium if honest agents are more likely to exist than dishonest agents. The platform for smart contracts is already ready in 2020; thus, self-enforcing mechanisms proposed in this paper can be used practically, even now. As our digital court can be used for implementing general agreements, it does not leak the detailed information about the agreement even if it is deployed on a public blockchain (e.g., Ethereum) as a smart contract.
  5. By: Carroni, Elias; Madio, Leonardo; Shekhar, Shiva
    Abstract: This article studies incentives for a premium provider (Superstar) to offer exclusive contracts to competing platforms mediating the interactions between consumers and firms. When platform competition is intense, more consumers affiliate with the platform favored by Superstar’s exclusive deal. This mechanism is self-reinforcing as more firms follow consumer decisions and some singlehome on the favored platform. Our model shows that the presence of indirect network externalities may overturn the common conclusion in the one-sided literature that exclusivity could be deemed as anti-competitive. Exclusivity can be welfare-enhancing and a vertical merger (platform-Superstar) may make non-exclusivity more likely than if the Superstar was independent.
    Keywords: exclusive contracts; platforms; two-sided markets; marquee player
    JEL: L13 L22 L86 K21
    Date: 2020–03
  6. By: Bruno Strulovici
    Abstract: Many facts are learned through the intermediation of individuals with special access to information, such as law enforcement officers, officials with a security clearance, or experts with specific knowledge. This paper considers whether societies can learn about such facts when information is cheap to manipulate, produced sequentially, and these individuals are devoid of ethical motive. The answer depends on an "information attrition" condition pertaining to the amount of evidence available which distinguishes, for example, between reproducible scientific evidence and the evidence generated in a crime. Applications to institution enforcement, social cohesion, scientific progress, and historical revisionism are discussed.
    Date: 2020–03
  7. By: Francis Bloch (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Gabrielle Demange (PSE - Paris School of Economics)
    Abstract: We analyze the strategy of a monopolistic Internet platform serving users from two jurisdictions with different corporate tax rates. We show that the platform exploits positive externalities across users to shift profit, and study the effects of a change in the corporate tax rate of one of the two jurisdictions. When externalities flow symmetrically among users in both jurisdictions, the platform increases quantities in the high tax jurisdiction and reduces quantities in the low tax jurisdiction. When externalities only flow from one jurisdiction to another, the platform's response depends on the direction of externalities. If externalities originate in the high tax jurisdiction, the platform increases quantities in the high tax jurisdiction ; if they originate in the low tax jurisdiction, the platform reduces quantities in the low tax jurisdiction. We contrast the baseline regime of separate accounting (SA) with a regime of Formula Apportionment (FA), where the tax bill is apportioned in proportion to the number of users in the two jurisdictions. Under FA, the platform always increases quantities in the lower-tax jurisdiction and decreases quantities in the higher-tax jurisdiction. We use a numerical simulation to show that the higher-tax jurisdiction prefers SA to FA whereas the lower-tax jurisdiction prefers FA to SA. JEL Classification Numbers: H32, H25, L12, L14.
    Keywords: Digital platforms,multinational firms,corporate income taxation,Formula Apportionment,separate accounting *
    Date: 2020–03–09
  8. By: Herbert, William A.; van der Naald, Joseph (School of Labor and Urban Studies, CUNY)
    Abstract: This article presents data, precedent, and empirical evidence relevant to the National Labor Relations Board (NLRB) proposal to issue a new rule to exclude graduate assistants and other student employees from coverage under the National Labor Relations Act (NLRA). The analysis in three parts. First, the authors show through an analysis of information from other federal agencies that the adoption of the proposed NLRB rule would exclude over 81,000 graduate assistants on private campuses from the right to unionize and engage in collective bargaining. Second, the article presents a legal history from the past half-century about unionization of student employees at private and public sector institutions of higher education, including the NLRB’s oscillation on the question of whether student employees are protected under the NLRA. The inconsistencies of the NLRB is in stark contrast to state and Canadian provincial precedent during the same period. Lastly, the authors analyze the terms of 42 current collective bargaining agreements covering student workers, including 10 at the private sector institutions. The empirical evidence from five decades of relevant collective bargaining history, precedent, and contracts demonstrates consistent economic relationships between student employees and their institutions.
    Date: 2020–03–16
  9. By: Schiffbauer,Marc Tobias; Sampi Bravo,James Robert Ezequiel
    Abstract: This paper uses a unique data set that captures the elimination of subnational regulatory barriers to firm entry and competition across 1,800 municipalities and matches it with establishment census panel data to estimate the impact on establishment productivity and markups. The elimination of local barriers that were inconsistent with national legislation was the result of legal reforms that strengthened the mandate of Peru's competition authority. Legislative changes in 2013/14 empowered the competition authority to enforce the elimination of illegal, sector-specific subnational regulatory barriers to firm entry and competition, conditional on the existence of a precedence. The changes provide a unique quasi-experimental setting to identify the impact of enforcing competition within the controlled institutional environment of a single country. The paper finds that the elimination of subnational barriers to entry boosted the (revenue) productivity of establishments operating in reform municipalities and sectors relative to establishments in nonreform municipalities/sectors. But it did not raise the establishments'markups, which, if anything, declined, suggesting that physical productivity improved. The paper provides a wide range of evidence supporting a causal interpretation of this finding. The results suggest that strengthening the mandate of institutions enforcing competition is critical to raise productivity.
    Keywords: Transport Services,International Trade and Trade Rules,Employment and Unemployment,Food&Beverage Industry,Common Carriers Industry,Construction Industry,Business Cycles and Stabilization Policies,General Manufacturing,Plastics&Rubber Industry,Textiles, Apparel&Leather Industry,Pulp&Paper Industry,Competition Policy,Competitiveness and Competition Policy
    Date: 2019–01–22
  10. By: Andrea Bonoldi; Chiara Dalle Nogare; Martin Mosler; Niklas Potrafke
    Abstract: We examine the relationship between inheritance rules and voter turnout. Inheritance rules are measured by entailed farms in South Tyrol: land properties whose inheritance is regulated by a law similar to the right of primogeniture. Using data for municipalities between 1998 and 2010, we show that voter turnout is high in municipalities with many entailed farms relative to population. The effect is based on local elections. If the number of entailed farms per 100 inhabitants increases by one standard deviation, voting turnout in municipal and provincial elections increases by around 1.27 and 1.43 percentage points (around 25 and 35 percent of a standard deviation). Our results suggest that entailed farm owners themselves are more likely to vote, and that entailed farms owners encourage other citizens of their municipality to participate in local elections.
    Keywords: Entailed farms, voter turnout, inheritance rules, identity, civic duty
    JEL: D72 H70 K11 Q15 Z19
    Date: 2020
  11. By: Mezzetti, Claudio (University of Queensland & University of Warwick)
    Abstract: This paper studies disclosure of verifiable information by a privately informed expert. It shows that if the direction of the expert’s bias is uncertain, then a positive measure of expert types manipulate the decision maker fully, inducing her to choose their ideal outcome. Most other types manipulate partially. The decision maker obtains her first best outcome only if the expert is unbiased or the state of the world is a boundary point of the state space and the expert prefers a more extreme outcome. Experts benefit from being poker faced and the decision maker’s lack of familiarity with the problem.
    Keywords: Verifiable disclosure of information ; experts and decision makers ; manipulation ; pooling ; senders and receivers ; skepticism ; uncertain bias ; unravelling JEL codes: D44 ; D82
    Date: 2020
  12. By: Yeon-Koo Che; Kyungmin Kim; Konrad Mierendorff
    Abstract: We consider a dynamic model of Bayesian persuasion. Over time, a sender performs a series of experiments to persuade a receiver to take a desired action. Due to constraints on the information flow, the sender must take real time to persuade, and the receiver may stop listening and take a final action at any time. In addition, persuasion is costly for both players. To incentivize the receiver to listen, the sender must leave rents that compensate his listening costs, but neither player can commit to her/his future actions. Persuasion may totally collapse in Markov perfect equilibrium (MPE) of this game. However, for persuasion costs sufficiently small, a version of a folk theorem holds: outcomes that approximate Kamenica and Gentzkow (2011)'s sender-optimal persuasion as well as full revelation (which is most preferred by the receiver) and everything in between are obtained in MPE, as the cost vanishes.
    Date: 2020–03
  13. By: Antonio Peyrache (CEPA - School of Economics, The University of Queensland); Angelo Zago (Dipartimento di Scienze Economiche, Università degli Studi di Verona)
    Abstract: In this paper we propose an equilibrium computational model of the market for justice that focuses on supply policies aiming to increase the efficiency of the system. We measure performance in terms of completion times and inefficiency in terms of the discrepancy between observed completion time and an efficient benchmark (equilibrium) completion time. By using a rather general production model that can take into account resource use, we can study the (steady state) performance of the justice sector as a whole and improve both on the analysis of length of trials and on standard measures of partial productivity (like the number of defined cases per judge). In order to identify demand and supply and run our counterfactual equilibrium analysis, we focus on a recently collected dataset on the Italian courts of justice system. The Italian case is useful because it provides exogeneous variation in the quantity of interest that allows for identification. It is also interesting because of the heterogeneity of the system in terms of completion times. Overall we find that three supply policies can make a significant contribution to the efficiency of the system: introduction of best practices, break-ups of large courts of justice into smaller ones (to exploit economies of scale), and optimal reallocation of judges across courts (in order to enhance efficiency). We find that, even without introduction of best practices, break- ups and reallocation can reduce the system completion time by around 30%. Although we are critical about the external validity of our results, these results point to the fact that there is large scope for supply policies aiming at improving the processing time of judicial systems.
    Keywords: Courts of Justice; Efficiency; Equilibrium; Completion Times
    Date: 2020–03

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