nep-law New Economics Papers
on Law and Economics
Issue of 2021‒03‒15
twelve papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. The impact of Presidential appointment of judges: Montesquieu or the Federalists? By Sultan Mehmood
  2. Market-Share Contracts, Exclusive Dealing, and the Integer Problem By Zhijun Chen; Greg Shaffer
  3. Depowering Risk: Vehicle Power Restriction and Teen Driver Accidents in Italy By Balia, S.; Brau, R.; Nieddu, M.G.
  4. Deviant or Wrong? The Effects of Norm Information on the Efficacy of Punishment By Cristina Bicchieria; Eugen Dimanta; Erte Xiao
  5. Raising productivity through structural reform in Brazil By Jens Matthias Arnold; Robert Grundke
  6. New dimensions of regulatory complexity and their economic cost. An analysis using text mining By Juan de Lucio; Juan S. Mora-Sanguinetti
  7. Are Efficient Bargaining Power Disparities Unfair? An Experimental Test By Aaron Nicholas; Birendra Rai
  8. Immigration, Crime, and Crime (Mis)Perceptions By Ajzenman, Nicolas; Dominguez-Rivera, Patricio; Undurraga, Raimundo
  9. Does homeownership reduce crime? A radical housing reform from the UK By Disney, Richard; Gathergood, John; Machin, Stephen; Sandi, Matteo
  10. How effective are different social policies in Brazil? A simulation experiment By Jens Matthias Arnold; Matheus Bueno
  11. Do audits improve future tax compliance in the absence of penalties? Evidence from random Audits in Norway By Shafik Hebous; Zhiyang Jia; Knut Løyland; Thor O. Thoresen; Arnstein Øvrum
  12. Identifying the corrupt cog in the wheel: Dimensions of supply chain logistics and cross‐country corruption By Goel, Rajeev K.; Mazhar, Ummad; Saunoris, James W.

  1. By: Sultan Mehmood (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.)
    Abstract: A central idea in the institutions and development literature is whether the executive is adequately checked by the legislature and judiciary (North, 1990; Acemoglu et al., 2001; La Porta et al., 2004). This paper provides plausibly causal evidence on how increased constraints on the executive, through removal of Presidential discretion in judicial appointments, impacts judicial decision-making. In particular, we find that when the judge selection procedure in Pakistan changed, from the President appointing judges to appointments by judge peers, rulings in favor of the government decreased significantly and the quality of judicial decisions improved. The age structure of judges at the time of the reform and the mandatory retirement age law provide us with an exogenous source of variation in the implementation of the selection reform. We test for and provide evidence against potential threats to identification and alternative explanations for our findings. The analysis of mechanisms reveals that our results are explained by rulings in politically salient cases and by “patronage” judges who hold political office prior to their appointments. According to our estimates, Presidential appointment of judges results in additional land expropriations by the government worth 0.14 percent of GDP every year.
    Keywords: president, judges, property rights, court subversion, expropriation risk
    JEL: D02 O17 K11 K40
    Date: 2021–03
  2. By: Zhijun Chen; Greg Shaffer
    Abstract: Exclusionary contracts have long been a focus of antitrust law and the subject of much scholarly debate. This paper compares two types of exclusionary contracts, exclusive-dealing and market-share contracts, in a model of naked exclusion. We discuss the different mechanisms through which each works and identify a fundamental tradeoff that arises: market-share contracts are better at maximizing a seller’s benefit from foreclosure (because they allow the seller to obtain any foreclosure level it desires) whereas exclusive-dealing contracts are better at minimizing a seller’s cost of foreclosure (because, unlike with market-share contracts, the seller does not have to overpay for the units it forecloses). We identify settings in which each can be more profitable and show that welfare can be worse under market-share contracts
    Keywords: Exclusive dealing, Market-share contracts, Dominant Firm, Foreclosure
    JEL: L13 L41 L42 K21 D86
    Date: 2019–06
  3. By: Balia, S.; Brau, R.; Nieddu, M.G.
    Abstract: This paper investigates how a vehicle power limit on young novice drivers impacts teen traffic accidents in Italy. First introduced in 2011, the reform prevents drivers from using high performance vehicles during their first license year. We combine rich administrative data on severe accidents over the period 2006-2016 with the driving license census to assess whether undergoing the power limit lowers the likelihood of causing a traffic accident. Our difference-in-difference estimates – we leverage on the between-cohort differences in the exposure to the reform – reveal that the power limit reduces road accidents per capita by about 18%, and accidents per licensee by 13%. The effect is entirely determined by a drop in accidents caused by above-limit vehicles and is primarily driven by fewer speed violations. Moreover, the beneficial impact of the one-year restriction period persists even after its expiration. Our findings highlight the importance of policies that, instead of directly targeting risky behaviours, are aimed at reducing exposure to high-risk settings. In frameworks where deterrence policies and screening mechanisms are hard to implement and maintain, these policies stand out as an effective, yet feasible strategy to increase teen road safety.
    Keywords: youth road accidents; driving restriction; graduated licensing; risky behaviours; risk exposure;
    JEL: D04 I12 I18 K32
    Date: 2021–03
  4. By: Cristina Bicchieria; Eugen Dimanta; Erte Xiao
    Abstract: A stream of research examining the effect of punishment on conformity indicates that punishment can backfire and lead to suboptimal social outcomes. In such studies, the enforcement of a behavioral rule to cooperate originates from a single party. This feature may raise concern about the legitimacy of the rule and thereby make it easy for the agents to take a penalty and excuse their selfish behavior. We address the question of punishment legitimacy in our experiment by shedding light upon the importance of social norms and their interplay with punishment mechanisms. We show that the separate enforcement mechanisms of punishment and norms cannot achieve higher cooperation rates. In fact, conformity is significantly increased only in those cases when social norms and punishment are combined, but only when cooperation is cheap. Interestingly, when cooperation is expensive we find that the combination of punishment and empirical information about others conformity can also have traceable detrimental effects on conformity levels. Our results have important implications for researchers and practitioners alike.
    Keywords: Conformity, Experiments, Punishment, Social Norms, Trust Game
    JEL: C91 D03 D73 H26
    Date: 2019–06
  5. By: Jens Matthias Arnold; Robert Grundke
    Abstract: The recovery from the current deep recession caused by the COVID-19 pandemic will require raising productivity through structural reforms. This implies a number of challenges for economic policies. With large parts of the economy shielded from competition, firms face weak incentives to become more productive. Sizeable shares of labour and capital are trapped in low-productivity firms that survive on the back of support from distortive policies. Reallocation mechanisms such as continuous firm entry, exit or the growth of stronger firms on the expense of less productive ones appear weaker than elsewhere. Domestic regulatory burdens and market entry barriers are high, reducing domestic competitive pressures. External competition is hampered by high trade barriers that have precluded Brazil from the opportunities that an increasingly integrated world economy can offer. A fragmented tax system gives rise to one of the world’s highest tax compliance costs and a wide array of exemptions and special regimes reduces fairness and the redistribution effect of taxes. Financial markets used to be dominated by directed credit, but thanks to a successful policy reform that aligned directed lending rates with market rates, they are now undergoing a profound transformation. Challenges in contract enforcement suggest scope for changes in the organisation of the judiciary to reduce judicial uncertainty and reduce trial durations.
    Keywords: allocative efficiency, Brazil, judicial efficiency, product market regulation, productivity, structural policies, trade policy
    JEL: D24 O47 O54 F13 F15 L51 K23 K41 H20
    Date: 2021–03–16
  6. By: Juan de Lucio (Universidad de Alcalá de Henares and Universidad Nebrija); Juan S. Mora-Sanguinetti (Banco de España)
    Abstract: Complex or poorly drafted regulations are more difficult for economic agents to implement, eroding economic efficiency. The literature has so far concentrated on the analysis of regulatory complexity as a phenomenon related to the “quantity” of norms. Regulation can also be complex because of “qualitative” reasons such as its linguistic ambiguity or its relational structure (references between legal documents). This article innovates by analyzing these new dimensions of complexity: we develop new indicators for legibility and regulatory interconnectedness. To do so, we constructed a new database (RECOS - Regulatory Complexity in Spain) extracting information from 8,171 norms (61 million words) covering the regulation set of all the Spanish autonomous regions. We analyze the relationship between these new indicators and productivity (as a relevant economic variable) and judicial efficacy (as a relevant institutional-structural variable). While each of these areas should be analyzed in separate articles, this research shows that the new dimensions of regulation complexity matter and also have significant results.
    Keywords: Regulatory Complexity, productivity, linguistic complexity, relational complexity, legal corpus
    JEL: O43 K2 R11 O47
    Date: 2021–01
  7. By: Aaron Nicholas; Birendra Rai
    Abstract: A key question in labor and contract law is when does bargaining power disparity become too large to be considered `impermissible'? It has largely been debated from the potentially conflicting perspectives of efficiency and fairness. These debates exhibit the intuitively plausible but empirically untested presumption that efficient bargaining power disparities can be unfair. The paper focuses on ex-post bargaining between agents locked in a relationship without a complete contract wherein surplus may ultimately be realized with or without mutual consent. We propose a consent-based definition to categorize a bargaining power disparity as either efficient or inefficient by treating surplus realized without mutual consent as an imperfect substitute for surplus realized with mutual consent. In order to categorize a power disparity as either fair or unfair, we draw upon some legal doctrines to propose a two-sided definition that accounts for the perspectives of both the weaker and the stronger bargaining parties. The experiment provides no robust evidence to support the presumption that economically efficient power disparities can be unfair.
    Keywords: Bargaining power, consent, efficiency, fairness, law, contract, experiment
    JEL: K0 C72 C91 D63
    Date: 2019–06
  8. By: Ajzenman, Nicolas (São Paulo School of Economics-FGV); Dominguez-Rivera, Patricio (Inter-American Development Bank); Undurraga, Raimundo (University of Chile)
    Abstract: This paper studies the effects of immigration on crime and crime perceptions in Chile, where the foreign-born population more than doubled in the last decade. By using individual-level victimization data, we document null effects of immigration on crime but positive and significant effects on crime-related concerns, which in turn triggered preventive behavioral responses, such as investing in home-security. Our results are robust across a two-way fixed effects model and an IV strategy based on a shift-share instrument that exploits immigration inflows towards destination countries other than Chile. On mechanisms, we examine data on crime-related news on TV and in newspapers, and find a disproportionate coverage of immigrant-perpetrated homicides as well as a larger effect of immigration on crime perceptions in municipalities with a stronger media presence. These effects might explain the widening gap between actual crime trends and public perceptions of crime.
    Keywords: crime, immigration, crime perception, media, crime beliefs
    JEL: O15 F22 K1
    Date: 2021–02
  9. By: Disney, Richard; Gathergood, John; Machin, Stephen; Sandi, Matteo
    Abstract: "Right to Buy" (RTB), a large-scale natural experiment by which incumbent tenants in public housing could buy properties at heavily-subsidised prices, increased the UK homeownership rate by over 10 percentage points between 1980 and the late 1990s. This paper studies its impact on crime, showing that RTB generated significant reductions in property and violent crime that persist up to today. The behavioural changes of incumbent tenants and the renovation of public properties were the main drivers of the crime reduction. This is evidence of a novel means by which subsidised homeownership and housing policy may contribute to reduce criminality.
    Keywords: Crime,Homeownership,Public Housing
    JEL: H44 K14 R31
    Date: 2020
  10. By: Jens Matthias Arnold; Matheus Bueno
    Abstract: Brazil spends around 15% of GDP on different social benefits, but within these expenditures, different benefits have different social impacts. While the small conditional cash transfer programme Bolsa Família is well-targeted to the poor and has a strong diminishing effect on inequality, pension benefits largely reach those with above-median incomes. Over many years, and as a result of different indexation mechanisms, the real value of pension benefits has increased rapidly, while conditional cash transfers have struggled to keep pace with inflation. This paper presents a simulation experiment using household data to demonstrate the significant potential that changes in the annual benefit indexation mechanism of social security benefits could have had for reducing inequality. Maintaining the purchasing power of pension benefits while shifting the increased pension spending that resulted from automatic indexation towards conditional cash transfers would have allowed significantly stronger progress in reducing inequality. This strengthens the case for rethinking the current indexation mechanism of social security benefits in Brazil.
    Keywords: Brazil, conditional cash transfers, inequality, pension system, poverty, social protection
    JEL: D24 O47 O54 F13 F15 L51 K23 K41 H20
    Date: 2021–03–16
  11. By: Shafik Hebous; Zhiyang Jia (Statistics Norway); Knut Løyland; Thor O. Thoresen (Statistics Norway); Arnstein Øvrum
    Abstract: The Norwegian Tax Administration operated multi-year random audits of personal income tax returns. We exploit this exceptional randomized setup to estimate the effects of tax audits on future compliance explicitly distinguishing between dynamic responses of compliant and noncompliant audited taxpayers. A priori, the literature has suggested two competing effects: A post-audit deterrence effect—whereby audits prompt taxpayers to comply in subsequent years—or a “bombcrater” effect—whereby audits lower taxpayers’ subjective probability of detecting future evasion and hence weaken compliance. Our results show improved future compliance for five post-audit years by those that were found noncompliant in the audits, despite the absence of penalty, suggesting that it is not the monetary payment per se that carries a deterrence effect. Those that were found compliant, however, show no signs of behavioral adjustments. Although the findings are consistent with the deterrence effect, mainly stemming from being caught of wrongdoing rather than a penalty, we argue that there is also a “learning” effect with the important implication that better information for taxpayers critically complements tax audits.
    Keywords: Tax administration; tax evasion; tax compliance; tax audits; administrative data
    JEL: H26 C23
    Date: 2020–11
  12. By: Goel, Rajeev K.; Mazhar, Ummad; Saunoris, James W.
    Abstract: Reliable supply chains are crucial to the competitiveness, survival and profitability of businesses. While various aspects of supply chain logistics have been studied, their impacts on corrupt activity have not been fully understood. This paper examines the impact of the different stages of supply chain logistics on corruption. Besides adding insights into channels of potential corruption or rent‐seeking, the research identifies potential stages of bureaucratic holdups related to the supply chain and can prove useful in the formulation of a more effective corruption‐control policy. We use data for about 150 nations over the period 2000–2018 and the econometric methodology controls for potential reverse feedback from corruption to logistics. Our results show that an improvement in overall logistics performance reduces cross‐country corruption, with individual dimensions of logistics having a differential corruption‐reducing impact. The main policy implication is that governmental efforts to reduce supply chain bottlenecks will have positive spillovers in terms of reduced corruption.
    Keywords: corruption,COVID-19,economic freedom,infrastructure,internet,logistics,shipments,supply chain,timeless,tracking,customs
    JEL: K42 L91 L98
    Date: 2020

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