nep-law New Economics Papers
on Law and Economics
Issue of 2020‒12‒07
sixteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Political Connections and White-collar Crime: Evidence from Insider Trading in France By Bourveau, Thomas; Coulomb, Renaud; Sangnier, Marc
  2. Breaking borders? The European Court of Justice and internal market By Spengel, Christoph; Fischer, Leonie; Stutzenberger, Kathrin
  3. Gulags, Crime, and Elite Violence: Origins and Consequences of the Russian Mafia By Lonsky, Jakub
  4. Blockchain and Institutions (II): The Realm of Law By Plinio Limata
  5. Does Employment Protection Unprotect Workers? The Labor Market Effects of Job Reinstatements in Peru By Jiménez, Bruno; Rendon, Silvio
  6. Common ownership in the US pharmaceutical industry: A network analysis By Albert Banal-Estañol; Melissa Newham; Jo Seldeslachts
  7. Use and Abuse of Antidumping by Global Cartels By Gnutzmann-Mkrtchyan, Arevik; Hoffstadt, Martin
  8. Waifs and strays: property rights in late medieval England By Claridge, Jordan; Gibbs, Spike
  9. Common Ownership in the US Pharmaceutical Industry: A Network Analysis By Albert Banal-Estanol; Melissa Newham; Jo Seldeslachts
  10. Public perception of courts in India: unmeasured gap between the justice system and its beneficiaries By Ram Mohan, M.P.; Faisal, Muhammed K; Alex, Jacob P; Shiju, M V
  11. The German Federal Constitutional Court ruling and the European Central Bank's strategy By Feld, Lars P.; Wieland, Volker
  12. On the Role of Internationalization of Firm-Level Corporate Governance – The Case of Audit Committees By Afzali, Haaron; Martikainen, Minna; Oxelheim, Lars; Randoy, Trond
  13. (Changing) Marriage and Cohabitation Patterns in the US: do Divorce Laws Matter? By Fabio Blasutto; Egor Kozlov
  14. The effects of structural reforms: Evidence from Italy By Emanuela Ciapanna; Sauro Mocetti; Alessandro Notarpietro
  15. Institutional Imperfections and Buyer-Induced Holdout in Land Acquisition By Sreeparna Saha; Prabal Roy Chowdhury; Jaideep Roy; Grazyna Wiejak-Roy
  16. Promise, Trust and Betrayal: Costs of Breaching an Implicit Contract By Daniel Levy; Andrew T. Young

  1. By: Bourveau, Thomas; Coulomb, Renaud; Sangnier, Marc
    Abstract: This paper investigates whether political connections affect individuals' propensity to engage in white-collar crime. We identify connections by campaign donations or direct friendships and use the 2007 French Presidential election as a marker of change in the value of political connections to the winning candidate. We compare the behavior of Directors of publicly listed companies who were connected to the future President to the behavior of other non-connected Directors, before and after the election. Consistent with the belief that connections to a powerful politician can protect someone from prosecution or punishment, we uncover indirect evidence that connected Directors are more likely to engage in suspicious insider trading after the election: Purchases by connected Directors trigger larger abnormal returns, connected Directors are less likely to comply with trading disclosure requirements in a timely fashion, and connected Directors trade closer in time to their firms' announcements of results.
    Keywords: Political Connections, White-Collar Crime, Insider Trading
    JEL: D72 G14 G18 G38 K22 K42
    Date: 2020–11
  2. By: Spengel, Christoph; Fischer, Leonie; Stutzenberger, Kathrin
    Abstract: Upon more than 400 judgements on direct taxation, the case law of the European Court of Justice has considerably shaped Member States' tax systems. Based on Member States' tax law adjustments in the context of four landmark rulings on corporate income taxation, we analyse whether case law is a suitable instrument to eliminate tax distortions towards the realisation of a European internal market. Our analysis is based on effective tax burdens using the Devereux/Griffith methodology. Overall, we find that due to Member States' mostly heterogeneous adjustments and varying levels of compliance, cross- border investment continues to be discriminated in some Member States following the Marks & Spencer and National Grid Indus judgements. In addition, differences in the general availability of the rules under scrutiny and design of related provisions, cross-country differences in effective tax burdens and hence distortions to the internal market might persist. We conclude that a comprehensive harmonisation of Member States' tax systems by way of positive integration would be necessary to sustainably eliminate tax obstacles to cross-border business activities.
    Keywords: European Court of Justice,Internal Market,Effective Tax Rates,Thin Capitalisation Rules,Cross-Border Loss Relief,Controlled Foreign Company Rules,Exit Taxation
    JEL: H25 K34
    Date: 2020
  3. By: Lonsky, Jakub
    Abstract: This paper studies the origins and consequences of the Russian mafia (vory-v-zakone). Using a unique web scraped dataset containing detailed biographies of more than 5,000 mafia leaders, I first show that the Russian mafia originated in the Soviet Gulag archipelago, and could be found near the gulags' initial locations in mid-1990s Russia, some three decades after the camps were officially closed down. Then, using an instrumental variable approach that exploits the proximity of the Russian mafia to the gulags, I show that Russian communities with mafia presence in the mid-1990s experienced a dramatic rise in crime driven by elite violence which erupted shortly after the collapse of the Soviet Union in 1991. The violence – initially confined to the criminal underworld – eventually spilled over, leading to indiscriminate attacks against local businessmen, managers of state-owned enterprises, judges, and members of the state security apparatus. However, there was no increase in politically-motivated violence, suggesting a widespread collusion between the mafia and local politicians in the early post-Soviet Russia.
    Keywords: Russian mafia,Gulag,Post-socialist transition,Crime,Elite violence
    JEL: K42 N40 P16 P37
    Date: 2020
  4. By: Plinio Limata (LUMSA University)
    Abstract: Blockchains promise to bring disruptive changes at several levels well beyond the realm of cryptocurrencies, in which they were first deployed; centralized institutions are challenged. The present survey focuses on the potential frictions between the application of blockchain technologies and the realm of law. Several subtopics are highlighted as problematic. Findings show that the current state of the art does not sufficiently support the blockchain’s implementation on a societal level. Shortcomings and confusion among legal and economic concepts are highlighted to be addressed, and therefore clarity and uniformity are needed to ensure the benefits that may derive from the application of this technology.
    Keywords: Blockchain; Law; Regulation; Smart Contract; Property
    JEL: D23 K10 K11 P14
    Date: 2020–11
  5. By: Jiménez, Bruno (Universidad de Piura); Rendon, Silvio (Independent Researcher)
    Abstract: We investigate the labor market effects of the reestablishment of private-sector workers' right to reinstatement for unfair dismissals, which occurred in 2002 in Peru. Using data from Peruvian Household Surveys from 2004 to 2015, and the Specialized Employment Survey 1998-2001, we estimate a quasi-experimental difference-in-difference model. We find that this reestablishment is associated with increases in new contracting in the private sector, by 5.9 % for permanent hiring and 3.0 % for temporary hiring. By means of placebo tests, we only fund a causal effect of the reinstatement on temporary hiring, not on permanent hiring. We also find a negative association between reinstatements and real wages of 3.9 %, but placebo tests indicate that this is not a causal effect. Our findings call into question the effectiveness of removing reinstatement laws as a policy to increase permanent hiring and wages.
    Keywords: labor costs, employment, fixed-term contracts
    JEL: J23 J65 E24
    Date: 2020–11
  6. By: Albert Banal-Estañol; Melissa Newham; Jo Seldeslachts
    Abstract: We investigate patterns in common ownership networks between firms that are active in the US pharmaceutical industry for the period 2004-2014. Our main findings are that "brand firms" -i.e. firms that have R&D capabilities and launch new drugs- exhibit relatively dense common ownership networks with each other that further increase significantly in density over time, whereas the network of "generic firms" -i.e. firms that primarily specialize in developing and launching generic drugs- is much sparser and stays that way over the span of our sample. Finally, when considering the common ownership links between brands firms, on the one hand, and generic firms, on the other, we find that brand firms have become more connected to generic firms over time. We discuss the potential antitrust implications of these findings.
    Keywords: common ownership networks, pharmaceutical companies, competition, innovation
    JEL: G23 K21 L11 L41 L65
    Date: 2020–10
  7. By: Gnutzmann-Mkrtchyan, Arevik; Hoffstadt, Martin
    Abstract: Antidumping creates opportunities for abuse to stifle market competition. Whether cartels actually abuse trade policy for anticompetitive purposes remains an open question in the literature. To address this gap, we construct a novel dataset that matches cartel investigations with trade data at the product level. We then estimate the world import price and quantity effects of antidumping in cartel products. We find that the use of antidumping in cartel industries helps to maintain higher world import prices and lower quantities during cartel periods, and to induce the establishment of a cartel. The effect is present both for antidumping cases that result in duties and cases that are withdrawn by the petitioning industry.
    Keywords: tcartels; collusion; antitrust; antidumping; trade policy
    JEL: F14 F15 L41
    Date: 2020–11
  8. By: Claridge, Jordan; Gibbs, Spike
    Keywords: medieval; agriculture; property rights; livestock; law; federalism
    JEL: N00 N01 N53 N43 N73 O13 O31 P11 P14 P16 P20 P21 Q00 Q15
    Date: 2020–11
  9. By: Albert Banal-Estanol; Melissa Newham; Jo Seldeslachts
    Abstract: We investigate patterns in common ownership networks between firms that are active in the US pharmaceutical industry for the period 2004-2014. Our main findings are that “brand firms” — i.e. firms that have R&D capabilities and launch new drugs — exhibit relatively dense common ownership networks with each other that further increase significantly in density over time, whereas the network of “generic firms” — i.e. firms that primarily specialize in developing and launching generic drugs — is much sparser and stays that way over the span of our sample. Finally, when considering the common ownership links between brands firms, on the one hand, and generic firms, on the other, we find that brand firms have become more connected to generic firms over time. We discuss the potential antitrust implications of these findings.
    Keywords: Common ownership networks, pharmaceutical companies, competition, innovation
    JEL: G23 K21 L11 L41 L65
    Date: 2020
  10. By: Ram Mohan, M.P.; Faisal, Muhammed K; Alex, Jacob P; Shiju, M V
    Abstract: Understanding how people view the courts and the legal profession helps in identifying some areas of friction, and thereby provides critical insights into the measures needed to improve the working and management of the justice delivery process. This study examines the influence of gender, age, education and court experience on citizens’ perception of the Ernakulam District and Sessions Court, Kerala – a state with the highest social indicators in India. Using a total sample of two hundred and fifty (n=250) respondents, the study assessed perception of the court using three attitudinal scales, perception of the court’s concern and respect, fair procedure and outcome, and overall perception of the court. A multivariate regression analysis was used to gauge the significance of the influence of each demographic factor and court experience on the respondents’ perception of the court. We find respondents with personal experience in courts perceive it negatively; gender has no significant influence on attitudes toward the court; and regardless of their demographic characteristics and court experience, people perceive the court as being too costly and too slow for settling legal disputes.
    Date: 2020–11–23
  11. By: Feld, Lars P.; Wieland, Volker
    Abstract: The ruling of the German Federal Constitutional Court and its call for conducting and communicating proportionality assessments regarding monetary policy have been the subject of some controversy. However, it can also be understood as a way to strengthen the de-facto independence of the European Central Bank. This paper shows how a regular proportionality check could be integrated in the ECB's strategy that is currently undergoing a systematic review. In particular, it proposes to include quantitative benchmarks for policy rates and the central bank balance sheet. Deviations from such benchmarks can have benefits in terms of the intended path for inflation while involving costs in terms of risks and side effects that need to be balanced. Practical applications to the euro area are provided.
    Keywords: central bank independence,monetary law,monetary institutions,monetary policy strategy,proportionality,policy rules,quantitative easing
    JEL: E52 E58 K10
    Date: 2020
  12. By: Afzali, Haaron (Hanken School of Economics, Helsinki, Finland); Martikainen, Minna (University of Vaasa, Faculty of Business Studies, Vaasa, Finland); Oxelheim, Lars (School of Business and Law, University of Agder, Kristiansand, Norway); Randoy, Trond (School of Business and Law, University of Agder, Kristiansand, Norway)
    Abstract: Motivated by agency theory and arguments from linguistic studies, we argue in this paper the internationalization of a firm’s audit committee to be associated with weaker firm-level corporate governance. Based on 2,015 publicly traded European firms from 16 countries over 2000-2018, we find the presence of foreign directors on audit committees to have a significant negative impact on financial reporting quality (FRQ). The effect is found to be weaker in countries with strong investor protection. We find linguistic differences within audit committees an important explanation for the negative influence of foreign directors on FRQ. The results are robust to alternative FRQ measures and model specifications, including difference-in-differences and propensity score matching. While foreign directors on a corporate board may create value for the firm by boosting the advisory capacity of that board, recruiting a foreign director to that firm’s audit committee may compromise the board’s monitoring function and the firm’s FRQ.
    Keywords: Reporting Quality; Foreign Directors; Audit Committee; Investor Protection
    JEL: F23 G34 K22 M16 M42
    Date: 2020–11–24
  13. By: Fabio Blasutto; Egor Kozlov
    Abstract: What is the role of unilateral divorce in the rise of unmarried cohabitation? Exploiting the staggered introduction of unilateral divorce across the US states, we show that after the reform singles become more likely to cohabit than to marry, and that newly formed cohabitations last longer. To understand the mechanisms driving these outcomes, we build a life-cycle model with partnership choice, endogenous divorce/breakup, female labor force participation, and saving decisions. A structural estimation that matches the empirical findings suggests that unilateral divorce decreases the marriage gains that derive from cooperation and risk-sharing. This makes cohabitation preferred among couples that would have likely faced a divorce, which is more expensive than breaking up. As cohabiting couples formed after the reform are better matched, the average length of cohabitations increases by 27%. Consistent with data, the rise in cohabitation is larger in states that impose an equal division of property upon divorce. This is because men, who stand to lose more wealth in a divorce than in a breakup, convince women to cohabit in exchange for more household resources. A counterfactual experiment reveals that the time spent cohabiting would have been halved if the divorce laws had never changed.
    JEL: D13 D14 D91 J12 J16
    Date: 2020–11–25
  14. By: Emanuela Ciapanna (Bank of Italy); Sauro Mocetti (Bank of Italy); Alessandro Notarpietro (Bank of Italy)
    Abstract: This paper quantifies the macroeconomic effects of three major structural reforms (i.e., service sector liberalizations, incentives to innovation and civil justice reforms) undertaken in Italy in the last decade. We employ a novel approach that estimates the impact of each reform on total factor productivity and markups in an empirical micro setting and that uses these estimates in a structural general equilibrium model to simulate the macroeconomic impact of the reforms. Our results indicate that, accounting for estimation uncertainty, the increase in the level of GDP as of 2019 due to the sole effect of these reforms (ignoring all the other shocks that the Italian economy suffered in the same period) would be between 3% and 6%. The long-run increase in Italy's potential output would lie between 4% and 8%, with non-negligible effects on the labor market.
    Keywords: structural reforms, DSGE models, liberalization, innovation, civil justice
    JEL: E10 E20 J60 K40 L50 O30
    Date: 2020–11
  15. By: Sreeparna Saha (Central Queensland University); Prabal Roy Chowdhury (Indian Statistical Institute, Delhi); Jaideep Roy (University of Bath); Grazyna Wiejak-Roy (University of the West of England)
    Abstract: Imperfect institutions, particularly in developing economies, encourage bureaucratic corruption and outside interference by political parties or civic-society organisations, thereby distorting property rights for land. We characterise conditions when an industrial buyer’s optimal design to acquire land strategically involves holdout as a response to these imperfections. We propose testable hypotheses suggesting that such form of holdout increases (i) with a reduction in corruption if the current imperfections are significant, (ii) with an increase in ease of political opposition, and (iii) during elections. We also study welfare implications and discuss the relevance of the framework and the results for advanced economies.
    Keywords: Land acquisition, institutional imperfections, outside interference, buyer-induced holdout.Sector, Public Sector
    JEL: K11 O25 Q15 R52
    Date: 2020–06
  16. By: Daniel Levy (Bar-Ilan University); Andrew T. Young
    Abstract: We study the cost of breaching an implicit contract in a goods market. Young and Levy (2014) document an implicit contract between the Coca-Cola Company and its consumers. This implicit contract included a promise of constant quality. We offer two types of evidence of the costs of breach. First, we document a case in 1930 when the Coca-Cola Company chose to avoid quality adjustment by incurring a permanently higher marginal cost of production, instead of a one-time increase in the fixed cost. Second, we explore the consequences of the company’s 1985 introduction of “New Coke” to replace the original beverage. Using the Hirschman’s (1970) model of Exit, Voice, and Loyalty, we argue that the public outcry that followed New Coke’s introduction was a response to the implicit contract breach.
    Keywords: Invisible Handshake, Implicit Contract, Customer Market, Long-Term Relationship, Cost of Breaching a Contract, Cost of Breaking a Contract, Coca-Cola, New Coke, Exit, Voice, Loyalty, Nickel Coke, Sticky/Rigid Prices, Cost of Price Adjustment, Cost of Quality Adjustmen
    JEL: E31 K10 L11 L16 L66 M20 M30 N80 N82
    Date: 2020–07

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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.