nep-law New Economics Papers
on Law and Economics
Issue of 2020‒08‒10
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Effect of Patent Litigation Insurance: Theory and Evidence from NPEs By Bernhard Ganglmair; Christian Helmers; Brian J. Love
  2. Liability Insurance: Equilibrium Contracts under Monopoly and Competition By Jorge Lemus; Emil Temnyalov; John L. Turner
  3. Legitimizing Policy By Chen, Daniel L.; Michaeli, Moti; Spiro, Daniel
  4. Pay-for-delay with Follow-on Products By Jorge Lemus; Emil Temnyalov
  5. Algorithmic Risk Assessment in the Hands of Humans By Megan Stevenson; Jennifer Doleac
  6. Risky moms, risky kids? Fertility and crime after the fall of the wall By Chevalier, Arnaud; Marie, Olivier
  7. Rules, Discretion, and Corruption in Procurement: Evidence from Italian Government Contracting By Francesco Decarolis; Raymond Fisman; Paolo Pinotti; Silvia Vannutelli
  8. Illegal immigrants, crime, and sanctuary cities By Kaz Miyagiwa; Yunyun Wan
  9. Embedded supervision: how to build regulation into blockchain finance By Auer, Raphael
  10. The Second Convict Age: Explaining the Return of Mass Imprisonment in Australia By Andrew Leigh
  11. This Time is Different? - On the Use of Emergency Measures During the Corona Pandemic By Bjørnskov, Christian; Voigt, Stefan

  1. By: Bernhard Ganglmair; Christian Helmers; Brian J. Love
    Abstract: We analyze the extent to which private defensive litigation insurance deters patent assertion by non-practicing entities (NPEs). We study the effect that a patent-specific defensive insurance product, offered by a leading litigation insurer, had on the litigation behavior of insured patents' owners, all of which are NPEs. We first model the impact of defensive litigation insurance on the behavior of patent enforcers and accused infringers. We show that the availability of defensive litigation insurance can have an effect on how often patent enforcers will assert their patents. We confirm this result empirically showing that the insurance policy had a large, negative effect on the likelihood that a patent included in the policy was subsequently asserted relative to other patents held by the same NPEs and relative to patents held by other NPEs with portfolios that were entirely excluded from the insurance product. Our findings suggest that market-based mechanisms can deter so-called "patent trolling."
    Keywords: NPEs, patents, insurance, litigation
    JEL: G22 K41 O34
    Date: 2020–07
  2. By: Jorge Lemus (University of Illinois Urbana-Champaign); Emil Temnyalov (University of Technology Sydney); John L. Turner (University of Georgia)
    Abstract: In liability lawsuits (e.g. product liability or patent infringement), a third party demands compensation from a firm. Verifying that the firm harmed the third party requires a costly lawsuit, so parties often negotiate a settlement agreement. Liability insurance improves the firmÕs bargaining leverage when negotiating this settlement. We study this leverage effect of insurance and characterize equilibrium contracts under symmetric and asymmetric information: in a competitive market, only a pooling equilibrium with under-insurance may exist; in a monopolistic setting, the insurer offers at most two contracts which under-insure low-risk types and may inefficiently induce high-risk types to litigate.
    Keywords: liability; insurance; litigation; bargaining; adverse selection; competitive equilibrium; monopoly
    JEL: C7 D82 G22 K1 K41
    Date: 2019–07–01
  3. By: Chen, Daniel L.; Michaeli, Moti; Spiro, Daniel
    Abstract: In many settings of political bargaining over policy, agents care not only about getting their will but also about having others approve the chosen policy thus giving it more weight. What is the effect on the bargaining outcome when agents care about such legitimacy of the policy? We study this question theoretically and empirically. We show that the median-voter theorem holds in groups that are ideologically very cohesive and in groups with extreme ideological disagreement. However, in groups with intermediate ideological disagreement, the median-voter theorem does not hold. This is since, on the individual level, ideological disagreement with the median has a non-monotonic effect on the policy. We test our model in a natural experimental setting—U.S. appeals courts—where causal identification is based on random assignment of judges into judicial panels, each consisting of three judges who rule on a case. Here judges care about legitimacy of the policy they write because a norm of consensus prevails and because increased legitimacy reduces the likelihood of the judicial case to be heard by the Supreme Court. The predicted pattern of how policies depend on the participants’ ideologies are corroborated by our empirical tests.
    JEL: D7 K0 Z1
    Date: 2020–07
  4. By: Jorge Lemus (University of Illinois Urbana-Champaign); Emil Temnyalov (University of Technology Sydney)
    Abstract: We study pay-for-delay settlements between a patent holder and a challenger when the patent holder can introduce follow-on products. We show that ignoring follow-on products biases the inferred competitive harm of pay-for-delay settlements (the ÒActavis inferenceÓ). The reason is that patent invalidation triggers an earlier introduction of follow-on products which changes pay-for-delay negotiationÕs payoffs relative to the case of no follow-on products. When follow-on products are ignored, we show that an inference based on a reverse payment over-estimates patent strength. If parties cannot use payments (as in pure-delay settlements), follow-on products may push the parties to settle on an earlier entry date relative to the entry date negotiated in the absence of follow-on products, and litigation may arise in equilibrium.
    Keywords: pay-for-delay; product hopping; evergreening; antitrust; litigation
    JEL: D2 K2 K4 L4 L13 O3
    Date: 2019–05–01
  5. By: Megan Stevenson (George Mason University); Jennifer Doleac (Texas A&M University)
    Abstract: We evaluate the impacts of adopting algorithmic predictions of future offending(risk assessments) as an aid to judicial discretion in felony sentencing. We find that judges' decisions are influenced by the risk score, leading to longer sentences for defendants with higher scores and shorter sentences for those with lower scores. However, we find no robust evidence that this reshuffling led to a decline in recidivism, and, over time, judges appeared to use the risk scores less. Risk assessment's failure to reduce recidivism is at least partially explained by judicial discretion in its use. Judges systematically grant leniency to young defendants, despite their high risk of re-offending. This is in line with a long standing practice of treating youth as a mitigator in sentencing, due to lower perceived culpability. Such a conflict in goals may have led prior studies to overestimate the extent to which judges make prediction errors. Since one of the most important inputs to the risk score is effectively off-limits, risk assessment's expected benefits are curtailed. We find no evidence that risk assessment affected racial disparities statewide, although there was a relative increase in sentences for black defendants in courts that appeared to use risk assessment most. We conduct simulations to evaluate how race and age disparities would have changed if judges had fully complied with the sentencing recommendations associated with the algorithm. Racial disparities might have increased slightly, but the largest change would have been higher relative incarceration rates for defendants under the age of 23. In the context of contentious public discussions about algorithms, our results highlight the importance of thinking about how man and machine interact.
    Keywords: algorithm, risk assessment, felonies, felony sentencing
    JEL: D81 K14 C63
    Date: 2020–07
  6. By: Chevalier, Arnaud; Marie, Olivier
    Abstract: We study the link between parental selection and child criminality. Following the collapse of the communist regime in 1989, the number of births halved in East Germany. These cohorts became markedly more likely to be arrested as they grew up in reunified Germany. This is observed for both genders and all offence types. We highlight risk attitude as an important reason why certain women did not alter their fertility decisions during this time of economic uncertainty. We also show that this preference for risk was then strongly transmitted to their children which may in turn explain their high criminal propensity.
    Keywords: crime; economic uncertainty; Fertility; parental selection; risk attitude
    JEL: J13 K42
    Date: 2019–12
  7. By: Francesco Decarolis; Raymond Fisman; Paolo Pinotti; Silvia Vannutelli
    Abstract: The benefits of bureaucratic discretion depend on the extent to which it is used for public benefit versus exploited for private gain. We study the relationship between discretion and corruption in Italian government procurement auctions, using a confidential database of firms and procurement ocials investigated for corruption by Italian enforcement authorities. Based on a regression discontinuity design around thresholds for discretion, we find that, overall, a large increase in the use of discretionary procedures in the 2000s led to a minimal increase in auctions won by investigated firms. By further investigating the attributes of "corrupted" auctions, we uncover two main factors that drive this \non-result." First, discretionary procedure auctions are associated with corruption only when conducted with fewer than the formally required number of bidders or employing discretionary criteria ("scoring rule" rather than first price), which comprise a small fraction of discretionary auctions overall. We further show that, while these "corruptible" discretionary auctions are chosen more often by officials who are themselves investigated for corruption, they are used less often in procurement administrations in which at least one official is investigated for corruption. These findings fit with a framework in which more discretion leads to greater efficiency as well as more opportunities for theft, and a central monitor manages this trade- off by limiting discretion for high-corruption procedures and locales. Additional results based on two standard tools for curbing corruption - turnover and subcontracting limits - corroborate this interpretation. Overall, our results imply that discretion is under-utilized, given the high potential benefits as compared to the modest increment in corruption.
    Keywords: Corruption, Procurement, Bureaucracy, Competition, Bribes
    JEL: D73 H57 K42
    Date: 2020
  8. By: Kaz Miyagiwa (Department of Economics, Florida International University, U.S.A.); Yunyun Wan (Graduate School of Economics, Kobe University)
    Abstract: In the United States there are about 300 jurisdictions (cities, counties and states) today, which refuse to deport illegal immigrants even with criminal records. Do such sanctuary jurisdictions necessarily attract more illegal aliens, leading to higher unemployment and more crime compared with non-sanctuary jurisdictions? In this paper we investigate these questions in a model of equilibrium unemployment and find that sanctuary cities may have a smaller immigrant population and less crime compared with non-sanctuary cities. Examined also are the effects of raising minimum wages, anti-crime policies and provision of unemployment benefits to illegal immigrants.
    Date: 2020–07
  9. By: Auer, Raphael
    Abstract: The spread of distributed ledger technology (DLT) in finance could help to improve the efficiency and quality of supervision. This paper makes the case for embedded supervision, ie a regulatory framework that provides for compliance in tokenised markets to be automatically monitored by reading the market's ledger, thus reducing the need for firms to actively collect, verify and deliver data. After sketching out a design for such schemes, the paper explores the conditions under which distributed ledger data might be used to monitor compliance. To this end, a decentralised market is modelled that replaces today's intermediary-based verification of legal data with blockchain-enabled data credibility based on economic consensus. The key results set out the conditions under which the market's economic consensus would be strong enough to guarantee that transactions are economically final, so that supervisors can trust the distributed ledger's data. The paper concludes with a discussion of the legislative and operational requirements that would promote low-cost supervision and a level playing field for small and large firms.
    Keywords: Basel III; blockchain; central bank digital currencies; cryptocurrencies; economic finality; regtech; stablecoins; tokenisation
    JEL: D20 D40 E42 E51 F31 G12 G18 G32 G38 K22 L10 L50
    Date: 2019–11
  10. By: Andrew Leigh
    Abstract: Constructing a new series of incarceration rates from 1860 to 2018, I find that Australia now incarcerates a greater share of the adult population than at any point since the late nineteenth century. Much of this increase has occurred since the mid-1980s. Since 1985, the Australian incarceration rate has risen by 130 percent, and now stands at 0.22 percent of adults (221 prisoners per 100,000 adults). Recalculating Indigenous incarceration rates so that they are comparable over a long time span, I find that incarceration rates for Indigenous Australians have risen dramatically. Fully 2.5 percent of Indigenous adults are incarcerated (2481 prisoners per 100,000 adults), a higher share than among African-Americans. The recent increase in the Australian prison population does not seem to be due to crime rates, which have mostly declined over the past generation. Instead, higher reporting rates, stricter policing practices, tougher sentencing laws, and more stringent bail laws appear to be the main drivers of Australia’s growing prison population.
    Keywords: prison, jail, incarceration, crime
    JEL: I30 K14 N30
    Date: 2020–03
  11. By: Bjørnskov, Christian; Voigt, Stefan
    Abstract: The COVID-19 pandemic has not only caused thousands to die and millions to lose their jobs, it has also prompted more governments to simultaneously to declare a state of emergency than ever before. States of emergency usually imply the extension of executive powers that diminishes the powers of other branches of government, as well as to the civil liberties of individuals. Here, we analyze whether the use of emergency provisions during the COVID-19 pandemic is an exception, and find that this is not the case. In fact, some measures point at long-term dangers to the rule of law and democracy.
    Keywords: COVID-19,constitutional emergency provisions,state of emergency
    JEL: K40 Z13
    Date: 2020

This nep-law issue is ©2020 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.
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