nep-law New Economics Papers
on Law and Economics
Issue of 2020‒05‒18
thirteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Fines versus Damages: Experimental Evidence on Care Investments By Florian Baumann; Tim Friehe; Pascal Langenbach
  2. Merger control for IRPs: Do acquisitions of distressed firms warrant competition scrutiny? By Ram Mohan, M.P.; Raj, Vishakha
  3. High Finance, Political Money, and the U.S. Congress: A Quantitative Assessment of the Campaign to Roll Back Dodd-Frank By Thomas Ferguson; Paul Jorgenson; Jie Chen
  4. Impacts of California Proposition 47 on Crime in Santa Monica, CA By Crodelle, Jennifer; Vallejo, Celeste; Schmidtchen, Markus; Topaz, Chad; D'Orsogna, Maria R.
  5. Effect of a Federal Paid Sick Leave Mandate on Working and Staying at Home: Evidence from Cellular Device Data By Martin Andersen; Johanna Catherine Maclean; Michael F. Pesko; Kosali I. Simon
  6. Distressed Acquisitions Evidence from European Emerging Markets By Ichiro Iwasaki; Evzen Kocenda; Yoshisada Shida
  7. Stereotypes in High-Stakes Decisions : Evidence from U.S. Circuit Courts By Ash, Elliott; Chen, Daniel L.; Ornaghi, Arianna
  8. Model of the impact of legal regulations on management processes in power companies By Joanna Kott; Jagoda Mrzyglocka-Chojnacka; Marek Kott
  9. Does Information Disclosure Improve Consumer Knowledge? Evidence from a Randomized Experiment of Restaurant Menu Calorie Labels By John Cawley; Alex M. Susskind; Barton Willage
  10. Third-degree price discrimination in oligopoly when markets are covered By Dertwinkel-Kalt, Markus; Wey, Christian
  11. The effect of restrictive measures on cross-border investment in the European Union By Gregori, Wildmer; Nardo, Michela
  12. Tenancy by the Entirety and the Value of Wealth Insurance for Entrepreneurs By Traczynski, Jeffrey
  13. An Economic Approach to Regulating Algorithms By Ashesh Rambachan; Jon Kleinberg; Sendhil Mullainathan; Jens Ludwig

  1. By: Florian Baumann (Center for Advanced Studies in Law and Economics (CASTLE), University of Bonn); Tim Friehe (Public Economics Group, University of Marburg); Pascal Langenbach (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: This paper studies the differential effects of fines and damages on people’s investment in accident prevention. We report results from a laboratory experiment in which monetary payoffs are maintained across the two policy instruments. While standard theory predicts no difference in behavior, we find that potential injurers invest substantially more money in accident prevention when they are subject to damages instead of a fine. We discuss possible behavioral channels that may explain our findings.
    Keywords: Externality, Care, Liability, Damages, Fine
    JEL: H62 K42
    Date: 2020–05
  2. By: Ram Mohan, M.P.; Raj, Vishakha
    Abstract: In July 2019, the Competition Law Review Committee Report had recommended that Insolvency Resolution Plans (IRP) which result in combinations should be green-channelled. This would mean that IRP combinations would be automatically approved without any merger scrutiny. The theoretical basis of this recommendation is the ‘failing firm defence’ which allows parties to enter into mergers if they show that the exit of a firm from the market will be more harmful to competition than the merger. This paper assesses the advisability of green-channelling IRPs through the lens of competition law. It examines the IRPs which have been scrutinised by the CCI and examines whether they are treated differently from other mergers. We use the European Union as a point of comparison to describe how the failing firm defence is being implemented and to show that there can be anticompetitive effects to green-channelling IRPs without a full competition assessment. We conclude that while the failure of a firm is an important consideration when assessing mergers, it cannot be the sole determinant of their desirability.
    Date: 2020–05–08
  3. By: Thomas Ferguson (Institute for New Economic Thinking); Paul Jorgenson (University of Texas Rio Grande Valley); Jie Chen (UMass Boston)
    Abstract: The extent to which governments can resist pressures from organized interest groups, and especially from finance, is a perennial source of controversy. This paper tackles this classic question by analyzing votes in the U.S. House of Representatives on measures to weaken the Dodd-Frank financial reform bill in the years following its passage. To control as many factors as possible that could influence floor voting by individual legislators, the analysis focuses on representatives who originally cast votes in favor of the bill but then subsequently voted to dismantle key provisions of it. This design rules out from the start most factors normally advanced by skeptics to explain vote shifts, since these are the same representatives, belonging to the same political party, representing substantially the same districts. Our panel analysis, which also controls for spatial influences, highlights the importance of time-varying factors, especially political money, in moving representatives to shift their positions on amendments such as the “swaps push out†provision. Our results suggest that the links between campaign contributions from the financial sector and switches to a pro-bank vote were direct and substantial: For every $100,000 that Democratic representatives received from finance, the odds they would break with their party’s majority support for the Dodd-Frank legislation increased by 13.9 percent. Democratic representatives who voted in favor of finance often received $200,000–$300,000 from that sector, which raised the odds of switching by 25–40 percent.
    Keywords: banking and financial regulation, political economy, financial crisis, political parties, political money.
    JEL: G20 L5 N22 D72 G38 P16 K22
    Date: 2020–01
  4. By: Crodelle, Jennifer; Vallejo, Celeste; Schmidtchen, Markus; Topaz, Chad; D'Orsogna, Maria R.
    Abstract: We examine crime patterns in Santa Monica, California before and after passage of Proposition 47, a 2014 initiative that reclassified some non-violent felonies to misdemeanors. We also study how the 2016 opening of four new light rail stations, and how more community-based policing starting in late 2018, impacted crime. A series of statistical analyses are performed on reclassified (larceny, fraud, possession of narcotics, forgery, receiving/possessing stolen property) and non-reclassified crimes by probing publicly available databases from 2006 to 2019. We compare data before and after passage of Proposition 47, city-wide and within eight neighborhoods. Similar analyses are conducted within a 450 meter radius of the new transit stations. Reports of monthly reclassified crimes increased city-wide by approximately 15% after enactment of Proposition 47, with a significant drop observed in late 2018. Downtown exhibited the largest overall surge. The reported incidence of larceny intensified throughout the city. Two new train stations, including Downtown, reported significant crime increases in their vicinity after service began. While the number of reported reclassified crimes increased after passage of Proposition 47, those not affected by the new law decreased or stayed constant, suggesting that Proposition 47 strongly impacted crime in Santa Monica. Reported crimes decreased in late 2018 concurrent with the adoption of new policing measures that enhanced outreach and patrolling. These findings may be relevant to law enforcement and policy-makers. Follow-up studies needed to confirm long-term trends may be affected by the COVID-19 pandemic that drastically changed societal conditions.
    Date: 2020–04–30
  5. By: Martin Andersen; Johanna Catherine Maclean; Michael F. Pesko; Kosali I. Simon
    Abstract: We study the effects of the temporary federal paid sick leave mandate that became effective April 1st, 2020 on ‘social distancing,’ as proxied by physical mobility behavior gleaned from cellular devices. The national paid leave policy was implemented in response to the COVID-19 outbreak and provided many private and many public employees, including individuals employed in the gig economy, with up to two weeks of paid leave. We study the early impact of the federal paid sick leave policy using interrupted time series analyses and difference-in-differences methods leveraging pre-FFCRA county-level differences in mobility. Our proxies for the ability to social distance are the share of cellular devices that are located in the workplace eight or more hours per day (‘full-time work’) and leave the home for less than one hour per day (‘at home’) in each county. Our findings suggest that the federal mandate decreased our full-time work proxy and increased our at home proxy. In particular, we find an initial decrease in working full-time of 17.7% and increase in staying home of 7.5%, with effects dissipating within three weeks. Given that up to 47% of employees are covered by the federal mandate, our effect sizes are arguably non-trivial.
    JEL: H0 I1 J0 K0
    Date: 2020–05
  6. By: Ichiro Iwasaki (Institute of Economic Research, Hitotsubashi University); Evzen Kocenda (Institute of Economic Studies, Charles University); Yoshisada Shida (Economic Research Institute for Northeast Asia (ERINA))
    Abstract: We analyze factors impacting the acquisition of distressed firms in European emerging markets during and after the global financial crisis (2007-2017) by assessing 22,608 distressed acquisitions in 17 economies. We provide detailed evidence of the impact of financial ratios, legal form, ownership structure, firm size, and firm age, emphasizing the role of institutions. We show that institutions specifically related to quality and enforcement of insolvency law have lower probability of distressed acquisitions. The extent of corruption control and progress in banking reforms are also strong factors. The qualitative impact of institutions is similar, but its size is larger in less-advanced countries when compared to economically stronger ones. We take it as indirect evidence of the diminishing marginal returns of institutions with respect to their quality. The effect of institutions increased after the financial crisis, but as the economic situation improved, their impact declined.
    Keywords: distressed acquisitions, mergers, European emerging markets
    JEL: C13 D02 D22 G34 L22
    Date: 2020–05
  7. By: Ash, Elliott (ETH Zurich); Chen, Daniel L. (Toulouse School of Economics); Ornaghi, Arianna (University of Warwick)
    Abstract: Stereotypes are thought to be an important determinant of decision making, but they are hard to systematically measure, especially for individuals in policy-making roles. In this paper, we propose and implement a novel language-based measure of gender stereotypes for the high-stakes context of U.S. Appellate Courts. We construct a judge-specific measure of gender- stereotyped language use – gender slant – by looking at the linguistic association of words identifying gender (male versus female) and words identifying gender stereotypes (career versus family) in the judge’s authored opinions. Exploiting quasi-random assignment of judges to cases and conditioning on detailed biographical characteristics of judges, we study how gen- der stereotypes influence judicial behavior. We find that judges with higher slant vote more conservatively on women’s rights’ issues (e.g. reproductive rights, sexual harassment, and gender discrimination). These more slanted judges also influence workplace outcomes for female colleagues: they are less likely to assign opinions to female judges, they are more likely to reverse lower-court decisions if the lower-court judge is a woman, and they cite fewer female authored opinions
    Date: 2020
  8. By: Joanna Kott; Jagoda Mrzyglocka-Chojnacka; Marek Kott
    Abstract: The Polish energy sector is affected by a number of formal and legal regulations, both national and European Union. Energy companies are compelled to comply with the formal and legal regulations imposed by the legislator. Distribution companies and trading companies are adjusting to their requirements. There is therefore a need for a model for assessing the impact of individual regulations on companies belonging to this sector. The paper presents the proposal of the impact model of regulations on management processes in energy companies. A review of selected legal and regulatory regulations resulting from the Energy Law, which affects energy companies, was conducted. In addition, maps of management processes in energy companies were presented before and after the introduction of the TPA principle. Obtained research results were verified by means of a questionnaire.
    Keywords: Management; Power industry; Regulation
    JEL: K32 M00 Q47 Q48
    Date: 2019–06–05
  9. By: John Cawley; Alex M. Susskind; Barton Willage
    Abstract: The United States, in 2018, implemented a nationwide requirement that chain restaurants disclose calorie information on their menus and menu boards. This law was motivated by concern that consumers underestimate the number of calories in restaurant food, but it remains unclear the extent to which this information disclosure affects consumer knowledge. This paper fills that gap by estimating the impact of information disclosure on consumer knowledge through a randomized controlled field experiment of calorie labels on the menus of a full-service restaurant. The results indicate that information disclosure significantly reduces the extent to which consumers underestimate the number of calories in restaurant food; the labels improve the accuracy of consumers’ post-meal estimates of the number of calories they ordered by 4.0 percent and reduces by 28.9% the probability of underestimating the calories in one’s meal by 50% or more, both of which are statistically significant. However, even after information disclosure, there remains considerable error in consumer beliefs about the calorie content of the restaurant food they ordered. Even among the treatment group who received calorie labels, the average absolute value of percent error in their report is 34.2%.
    JEL: D8 D83 H0 I1 I12 I14 I18 I24 K2 Q18
    Date: 2020–05
  10. By: Dertwinkel-Kalt, Markus; Wey, Christian
    Abstract: We analyze oligopolistic third-degree price discrimination relative to uniform pricing, when markets are always covered. Pricing equilibria are critically determined by supply-side features such as the number of firms and their marginal cost differences. It follows that each firm's Lerner index under uniform pricing is equal to the weighted harmonic mean of the firm's relative margins under discriminatory pricing. Uniform pricing then decreases average prices and raises consumer surplus. We provide an intriguingly simple approach to calculate the consumer surplus gain from uniform pricing only based on market data of the discriminatory equilibrium (prices and quantities).
    Keywords: Third-Degree Price Discrimination,Uniform Pricing,Harmonic Mean Formula,Covered Demand
    JEL: D43 L13 L41 K21
    Date: 2020
  11. By: Gregori, Wildmer (European Commission – JRC); Nardo, Michela (European Commission – JRC)
    Abstract: This study sheds light on the effect of restrictive policies, such as screening mechanisms, on mergers and acquisitions (M&A) flows into EU Member States in the period 2011-2018, by implementing an augmented gravity model. The results show that different restrictive measures affect cross-border investments unequally, and that the presence of screening mechanisms per se does not negatively affect cross-border investments. When we perform the analysis by sector, results suggest that cross-border investments in manufacturing and non-financial services are negatively influenced by restrictive measures, such as restrictions on foreign personnel being employed in key positions, or restriction on the establishment of branches, land acquisition or profit and capital repatriations.
    Keywords: cross-border investment, M&A, EU, FDI, statutory restrictions, gravity model
    JEL: F15 F21 G34 K20
    Date: 2019–12
  12. By: Traczynski, Jeffrey (Federal Deposit Insurance Corporation)
    Abstract: This paper explores the willingness of entrepreneurs to pay for wealth insurance to protect personal assets in case of business failure and the impact of this strategy on small business operation decisions. I show that antidiscrimination laws allow married firm owners in half of U.S. states to choose between asset protection and having more collateral for business funding, allowing entrepreneurs to reveal their valuation for preserving personal assets at time of failure. I find that firm owners value asset protection offered by tenancy by the entirety laws at $900-$1000 per year. Firms receive smaller loans when entrepreneurs use this form of ownership to reduce the personal costs of firm failure, but show no differences in hiring patterns or spending on risky projects. This strategy of preparation in case of failure appears to affect small businesses through the funding channel.
    Keywords: personal bankruptcy, tenancy by the entirety, revealed preference, entrepreneurship
    JEL: K35 K36 L26 M13
    Date: 2020–04
  13. By: Ashesh Rambachan; Jon Kleinberg; Sendhil Mullainathan; Jens Ludwig
    Abstract: There is growing concern about "algorithmic bias" - that predictive algorithms used in decision-making might bake in or exacerbate discrimination in society. When will these "biases" arise? What should be done about them? We argue that such questions are naturally answered using the tools of welfare economics: a social welfare function for the policymaker, a private objective function for the algorithm designer and a model of their information sets and interaction. We build such a model that allows the training data to exhibit a wide range of "biases." Prevailing wisdom is that biased data change how the algorithm is trained and whether an algorithm should be used at all. In contrast, we find two striking irrelevance results. First, when the social planner builds the algorithm, her equity preference has no effect on the training procedure. So long as the data, however biased, contain signal, they will be used and the algorithm built on top will be the same. Any characteristic that is predictive of the outcome of interest, including group membership, will be used. Second, we study how the social planner regulates private (possibly discriminatory) actors building algorithms. Optimal regulation depends crucially on the disclosure regime. Absent disclosure, algorithms are regulated much like human decision-makers: disparate impact and disparate treatment rules dictate what is allowed. In contrast, under stringent disclosure of all underlying algorithmic inputs (data, training procedure and decision rule), once again we find an irrelevance result: private actors can use any predictive characteristic. Additionally, now algorithms strictly reduce the extent of discrimination against protected groups relative to a world in which humans make all the decisions. As these results run counter to prevailing wisdom on algorithmic bias, at a minimum, they provide a baseline set of assumptions that must be altered to generate different conclusions.
    JEL: C54 D6 J7 K00
    Date: 2020–05

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