nep-law New Economics Papers
on Law and Economics
Issue of 2021‒03‒01
fifteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The Institutionalization of the Fight against White-Collar Crime in Switzerland, 1970-1990 By Thibaud Giddey
  2. Efficient Institutions and Effective Deterrence: On Timing and Uncertainty of Formal Sanctions By Johannes Buckenmaier; Eugen Dimant; Ann-Christin Posten; Ulrich Schmidt
  3. Privacy and data protection in India and Germany: A comparative analysis By Arora, Kim
  4. Commuting for crime By Thomas Kirchmaier; Monica Langella; Alan Manning
  5. The political economy of law enforcement By Dewey, Matías; Woll, Cornelia; Ronconi, Lucas
  6. Revealing Corruption: Firm and Worker Level Evidence from Brazil By Prem, M; Colonnelli, E; Lagaras, S; Ponticelli, J; Tsoutsoura, M
  7. On the Use of Outcome Tests for Detecting Bias in Decision Making By Ivan A. Canay; Magne Mogstad; Jack Mountjoy
  8. The Leniency Rule Revisited: Experiments on Cartel Formation with Open Communication By Maximilian Andres; Lisa Bruttel; Jana Friedrichsen
  9. How do laws and regulations affect competitiveness: The role for regulatory impact assessment By Paul Davidson; Céline Kauffmann; Marie-Gabrielle de Liedekerke
  10. Information versus Investment By Stephen J. Terry; Toni M. Whited; Anastasia A. Zakolyukina
  11. Reversing the Resource Curse: Foreign Corruption Regulation and Economic Development By Hans B. Christensen; Mark Maffett; Thomas Rauter
  12. Do Employees Benefit from Worker Representation on Corporate Boards? By David Arnold; Will Dobbie; Peter Hull
  13. Comparing Conventional and Machine-Learning Approaches to Risk Assessment in Domestic Abuse Cases By Jeffrey Grogger; Sean Gupta; Ria Ivandic; Tom Kirchmaier
  14. Bayesian Persuasion with Lie Detection By Florian Ederer; Weicheng Min
  15. Governance of Data Sharing : a Law & Economics Proposal By Graef, Inge; Prüfer, Jens

  1. By: Thibaud Giddey (Uppsala Universitet [Uppsala])
    Abstract: During the 1970s and 1980s, economic and financial crime turned into a societal issue in Switzerland. The perpetrators of white-collar crime often enjoyed total impunity: legal proceedings were very time consuming, authorities in charge of judicial investigation were under-resourced. This paper investigates how the political and judicial authorities responded to this challenge. By the end of the 1980s, a strong shift towards a more specialized handling of financial crime by public prosecutors occurred. Specialized departments were set up and judges were trained in commercial matters. This transformation breached with a long tradition of leniency and inefficient judicial handling of economic crime. Based on archival evidence, this paper sheds new light on the drivers of an institutionalization process which affected not only the Swiss financial centre, but also all the global judicial proceedings which relied on it. Professionalizing the response to financial crime also aimed at restoring the corporate reputation of Swiss financial firms, in a context of growing competition among offshore financial centers. Secrecy and subterfuge are the white collar criminal's best friends. The surest invitation to illegal conduct that man can devise is a hidden conduit for transmission of funds safe from the eyes of law enforcement officials. That is exactly what secret foreign bank accounts do. Although such accounts may be used with perfect innocence by some depositors, they are too tempting a lure for the tax evader, the securities swindler, the corrupter of public employees, the fraud and the cheat. The 'little tin box' of the 1930's has been replaced by the Swiss bank account of the 1970's.
    Date: 2020–12–27
  2. By: Johannes Buckenmaier (University of Zurich); Eugen Dimant (University of Pennsylvania & CESifo); Ann-Christin Posten (University of Cologne); Ulrich Schmidt (Kiel Institute for the World Economy)
    Abstract: Economic theory suggests that the deterrence of deviant behavior is driven by a combination of severity and certainty of punishment. This paper presents the first controlled experiment to study a third important factor that has been mainly overlooked: the swiftness of formal sanctions. We consider two dimensions: the timing at which the uncertainty about whether one will be punished is dissolved and the timing at which the punishment is actually imposed, as well as the combination thereof. By varying these dimensions of delay systematically, we find a surprising non-monotonic relation with deterrence: either no delay (immediate resolution and immediate punishment) or maximum delay (both resolution and punishment as much as possible delayed) emerge as most effective at deterring deviant behavior and recidivism. Our results yield implications for the design of institutional policies aimed at mitigating misconduct and reducing recidivism.
    Keywords: Deterrence; Institutions; Punishment; Swiftness; Uncertainty
    JEL: C91 D02 D81 K42
    Date: 2021–02
  3. By: Arora, Kim
    Abstract: This research report offers a comparative analysis of privacy and data protection in Germany and India. It compares the two regimes on four counts. First, it examines how the right to privacy and/or its allied rights have developed in the two countries historically. In this, it explores the political factors contributing to the understanding and acceptability of the principles of privacy in the decades after the Second World War. Second, it delves into the instruments and forms of state surveillance employed by both the countries and analyses how the presence of parliamentary and judicial oversight on intelligence agencies impacts individual privacy. In the third section, it compares how biometric identity systems have been deployed in the two countries, the safeguards designed around the same, and the legal challenges they have thrown up. Lastly, it evaluates data subject rights as defined under the General Data Protection Regulation (GDPR) together with the Bundesdatenschutzgesetz-Neu (BDSG-Neu) and how they compare with those as defined under the Draft Personal Data Protection Bill, 2018 in the Indian context.
    Keywords: data protection,surveillance,biometrics,Internet regulation,comparative analysis,India,Germany
    Date: 2020
  4. By: Thomas Kirchmaier; Monica Langella; Alan Manning
    Abstract: People care about crime, with the spatial distribution of both actual and perceived crime affecting the amenities from living in different areas and residential decisions. The literature finds that crime tends to happen close to the offender's residence but does not clearly establish whether this is because the location of likely offenders and crime opportunities are close to each other or whether there is a high commuting cost for criminals. We use a rich administrative dataset from one of the biggest UK police forces to disentangle these two hypotheses, providing an estimate of the cost of distance and how local socio-economic characteristics affect both crimes that are committed and the offenders' location. We find that the cost of distance is very high and has a great deterrence effect. We also propose a procedure for controlling for the selection bias induced by the fact that offenders' location is only known when they are caught.
    Keywords: crime, commuting
    JEL: K42
    Date: 2021–02
  5. By: Dewey, Matías; Woll, Cornelia; Ronconi, Lucas
    Abstract: The legal order is the legitimate foundation of liberal democracy. Its incomplete enforcement of the law can therefore appear dysfunctional, reflecting weak institutions, state capture, and corrupt practices. This paper casts doubt on such categorical assessments by systematically examining the reasons for and intentions behind incomplete enforcement. It argues that law enforcement is part of the political process that is deeply affected by the constellation of actors concerned. Choices over law enforcement produce social order that is analytically distinct from the production of legal norms and their formal implementation. By analyzing different types of partial enforcement, its rationales, and intended effects, we propose an approach that studies law enforcement as an integral part of public policy analysis and of the study of socioeconomic orders.
    Keywords: corruption,economic development,forbearance,informal institutions,law enforcement,policy implementation,state capacity
    Date: 2021
  6. By: Prem, M; Colonnelli, E; Lagaras, S; Ponticelli, J; Tsoutsoura, M
    Abstract: We study how the disclosure of corrupt practices affects firms and their employees. We construct novel firm-level measures of involvement in corrupt practices using randomized audits and public procurement suspensions in Brazil. On average, exposed firms grow larger after the audits. However, this result masks large heterogeneity depending on the degree of firm involvement in the corruption scheme. Using contract-, loan-, and worker- level data, we show that highly corrupt firms suffer after anti-corruption initiatives, while other exposed firms grow by changing their investment strategy when shifting away from doing business with the government.
    Keywords: Corruption, Firms, Anti-corruption programs, Brazil
    JEL: D72 D73 G38 H57 H83 K00 L22 O10 O43
    Date: 2021–01–25
  7. By: Ivan A. Canay (Northwestern University - Department of Economics); Magne Mogstad (University of Chicago - Department of Economics; Statistics Norway; IFS; NBER); Jack Mountjoy (University of Chicago - Booth School of Business)
    Abstract: The decisions of judges, lenders, journal editors, and other gatekeepers often lead to disparities in outcomes across affected groups. An important question is whether, and to what extent, these group-level disparities are driven by relevant differences in underlying individual characteristics, or by biased decision makers. Becker (1957) proposed an outcome test for bias leading to a large body of related empirical work, with recent innovations in settings where decision makers are exogenously assigned to cases and vary progressively in their decision tendencies. We carefully examine what can be learned about bias in decision making in such settings. Our results call into question recent conclusions about racial bias among bail judges, and, more broadly, yield four lessons for researchers considering the use of outcome tests of bias. First, the so-called generalized Roy model, which is a workhorse of applied economics, does not deliver a logically valid outcome test without further restrictions, since it does not require an unbiased decision maker to equalize marginal outcomes across groups. Second, the more restrictive "extended" Roy model, which isolates potential outcomes as the sole admissible source of analyst-unobserved variation driving decisions, delivers both a logically valid and econometrically viable outcome test. Third, this extended Roy model places strong restrictions on behavior and the data generating process, so detailed institutional knowledge is essential for justifying such restrictions. Finally, because the extended Roy model imposes restrictions beyond those required to identify marginal outcomes across groups, it has testable implications that may help assess its suitability across empirical settings.
    Keywords: Outcome test, bias, discrimination, generalized Roy model, extended Roy model, marginal treatment effect, judge leniency, bail, pre-trial release
    Date: 2020
  8. By: Maximilian Andres (University of Potsdam); Lisa Bruttel (University of Potsdam); Jana Friedrichsen (WZB, Humboldt-Universität zu Berlin, DIW Berlin)
    Abstract: The experimental literature on antitrust enforcement provides robust evidence that communication plays an important role for the formation and stability of cartels. We extend these studies through a design that distinguishes between innocuous communication and communication about a cartel, sanctioning only the latter. To this aim, we introduce a participant in the role of the competition authority, who is properly incentivized to judge communication content and price setting behavior of the firms. Using this novel design, we revisit the question whether a leniency rule successfully destabilizes cartels. In contrast to existing experimental studies, we find that a leniency rule does not affect cartelization. We discuss potential explanations for this contrasting result.
    Keywords: cartel, judgment of communication, corporate leniency program, price competition, experiment
    JEL: C92 D43 L41
    Date: 2021–02
  9. By: Paul Davidson (OECD); Céline Kauffmann (OECD); Marie-Gabrielle de Liedekerke (OECD)
    Abstract: The impacts of laws and regulations on competitiveness have strong implications for OECD economies, as they can lead to unforeseen negative externalities and considerable regulatory costs for businesses and citizens. Nevertheless, the use of regulatory policy to assess the impacts of regulations on competitiveness has seldom been examined. This paper fills this gap by reviewing OECD members’ regulatory impact assessment (RIA) frameworks and the extent to which the competitiveness effects are currently appraised. It categorises regulatory impacts on competitiveness into three strongly interrelated components – cost competitiveness, innovation, and international competitiveness – and builds upon the OECD’s expertise to examine how regulations affect each component of competitiveness in turn. In doing so, the paper proposes a more complete structure that regulators can use to define and assess the competitiveness impacts of regulation as part of their RIA processes framework.
    Keywords: competitiveness, regulatory impact assessment, Regulatory policy
    JEL: E61 F68 L51
    Date: 2021–02–03
  10. By: Stephen J. Terry (Boston University - Department of Economics); Toni M. Whited (University of Michigan - Stephen M. Ross School of Business; NBER); Anastasia A. Zakolyukina (University of Chicago - Booth School of Business)
    Abstract: The accuracy of firm information disclosures and the efficiency of long-term investment both play crucial roles in the economy and capital markets. We estimate a dynamic model that captures a trade-off between these two goals that arises when managers confront realistic incentives to misreport financial statements and distort their real investment choices. Managers in our model distort reported profits by 6.7% of sales on average. Counterfactual analysis reveals that while eliminating this misreporting through disclosure regulation is possible, it incentivizes managers to distort real investment, which results in a 1% drop in average firm value, reflecting a quantitatively meaningfully tradeoff.
    Keywords: Information, disclosure, r&d, growth
    JEL: E22 G31 G34 M41 K22 K42
    Date: 2020
  11. By: Hans B. Christensen (University of Chicago - Booth School of Business); Mark Maffett (University of Chicago - Booth School of Business); Thomas Rauter (University of Chicago - Booth School of Business)
    Abstract: We examine whether foreign corruption regulation reduces corruption and increases the local economic benefits of resource extraction. After a mid-2000s increase in enforcement of the US Foreign Corrupt Practices Act (FCPA), economic activity (measured by nighttime luminosity) increases by 14% (3%) in African communities within a 10- (25-) kilometer radius of resource extraction facilities whose owners are subject to the FCPA. Local perceptions of corruption decline by 8%. Consistent with changes in existing extraction firms’ business practices contributing to the increase in development, the association between resource production, instrumented by world commodity prices, and local economic activity increases by 40%.
    Keywords: Foreign corruption regulation; Foreign Corrupt Practices Act (FCPA); economic development; natural resource extraction
    JEL: F50 F60 K2 M4 O1
    Date: 2020
  12. By: David Arnold (University of California, San Diego - Department of Economics); Will Dobbie (Harvard University - Harvard Kennedy School; NBER); Peter Hull (University of Chicago - Department of Economics; NBER)
    Abstract: Do employees benefit from worker representation on corporate boards? Economists and policymakers are keenly interested in this question – especially lately, as worker representation is widely promoted as an important way to ensure the interests and views of the workers. To investigate this question, we apply a variety of research designs to administrative data from Norway. We find that a worker is paid more and faces less earnings risk if she gets a job in a firm with worker representation on the corporate board. However, these gains in wages and declines in earnings risk are not caused by worker representation per se. Instead, the wage premium and reduced earnings risk reflect that firms with worker representation are likely to be larger and unionized, and that larger and unionized firms tend to both pay a premium and provide better insurance to workers against fluctuations in firm performance. Conditional on the firm’s size and unionization rate, worker representation has little if any effect. Taken together, these findings suggest that while workers may indeed benefit from being employed in firms with worker representation, they would not benefit from legislation mandating worker representation on corporate boards.
    JEL: C26 J15 K42
    Date: 2020
  13. By: Jeffrey Grogger (University of Chicago - Harris School of Public Policy; NBER); Sean Gupta (London School of Economics and Political Science - Center for Economic Performance); Ria Ivandic (London School of Economics and Political Science - Center for Economic Performance); Tom Kirchmaier (London School of Economics and Political Science - Center for Economic Performance)
    Abstract: We compare predictions from a conventional protocol-based approach to risk assessment with those based on a machine-learning approach. We first show that the conventional predictions are less accurate than, and have similar rates of negative prediction error as, a simple Bayes classifier that makes use only of the base failure rate. Machine learning algorithms based on the underlying risk assessment questionnaire do better under the assumption that negative prediction errors are more costly than positive prediction errors. Machine learning models based on two-year criminal histories do even better. Indeed, adding the protocol-based features to the criminal histories adds little to the predictive adequacy of the model. We suggest using the predictions based on criminal histories to prioritize incoming calls for service, and devising a more sensitive instrument to distinguish true from false positives that result from this initial screening.
    JEL: K14 K36
    Date: 2020
  14. By: Florian Ederer (Cowles Foundation, Yale University); Weicheng Min (Yale Department of Economics)
    Abstract: We consider a model of Bayesian persuasion in which the Receiver can detect lies with positive probability. We show that the Sender lies more when the lie detection probability increases. As long as the lie detection probability is sufficiently small the Sender’s and the Receiver’s equilibrium payoffs are unaffected by the lie detection technology because the Sender simply compensates by lying more. When the lie detection probability is sufficiently high, the Sender’s (Receiver’s) equilibrium payoff decreases (increases) with the lie detection probability.
    Keywords: Bayesian persuasion, Lying, Communication, Lie detection
    JEL: D83 D82 K40 D72
    Date: 2021–01
  15. By: Graef, Inge (Tilburg University, TILEC); Prüfer, Jens (Tilburg University, TILEC)
    Keywords: Data sharing; data-driven markets; economic governance; competition law; data protection; regulation
    Date: 2021

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