nep-law New Economics Papers
on Law and Economics
Issue of 2021‒05‒10
fifteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Business responsibilities and investment treaties By David Gaukrodger
  2. Mental Health Effects of Same-Sex Marriage Legalization By Chen, Shuai; van Ours, Jan C.
  3. Market Concentration in Europe: Evidence from Antitrust Markets By Affeldt, Pauline; Duso, Tomaso; Gugler, Klaus; Piechucka, Joanna
  4. Unequal Jury Representation and Its Consequences By Anwar, Shamena; Bayer, Patrick; Hjalmarsson, Randi
  5. The Effect of Constitutional Provisions on Education Policy and Outcomes By Scott Dallman; Anusha Nath; Filip Premik
  7. Enforcement of Labor Regulation and the Labor Market Effects of Trade: Evidence from Brazil By Ponczek, Vladimir; Ulyssea, Gabriel
  8. Hybrid Collusion: Algorithmic Pricing in Human-Computer Laboratory Markets By Hans-Theo Normann; Martin Sternberg
  9. The Speed of Justice By Florence Kondylis; Mattea Stein
  10. A simple mathematical model for the legal concept of balancing of interests By Frederike Zufall; Rampei Kimura; Linyu Peng
  11. Breaking Bad: How Health Shocks Prompt Crime By Andersen, Steffen; Parise, Gianpaolo; Peijnenburg, Kim
  12. Freedom of Speech, Deterrence, and Compellence in the Parliament By Altindag, Duha T.; Mocan, Naci; Zhang, Jie
  13. Reputational Bargaining with Ultimatum Opportunities By Mehmet Ekmekci; Hanzhe Zhang
  14. Whistle the Racist Dogs: Political Campaigns and Police Stops By Grosjean, Pauline; Masera, Federico; Yousaf, Hasin
  15. Corruption under Austerity By Daniele, Gianmarco; Giommoni, Tommaso

  1. By: David Gaukrodger (OECD)
    Abstract: Investment treaty policy increasingly interacts with business responsibilities. This scoping paper first surveys the converging approaches to responsible business conduct (RBC) and business and human rights (BHR) as reflected in the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights and core ILO standards. Legislative developments and court cases are examined. The paper focuses primarily on government action as part of a flexible “smart mix” to address RBC and maximise the positive contribution of business to sustainable development, but also examines some business and civil society action.Three aspects of trade and investment treaty interaction with business responsibilities are considered: treaty impact on policy space for governments including for the non-discriminatory regulation of business; treaty provisions that buttress domestic environmental, labour or other law; and provisions that speak directly to business by, for example, encouraging RBC or establishing conditions for access to investment treaty benefits.
    Keywords: bilateral investment treaties, business and human rights, environmental law, human rights, investment treaties, investment treaty policy, investor-state dispute settlement, policy space, regulatory autonomy, responsible business conduct, right to regulate, sustainable development
    JEL: F13 F21 F23 F60 K23 K29 K32 K33 K38 M14
    Date: 2021–05–04
  2. By: Chen, Shuai; van Ours, Jan C.
    Abstract: Sexual minorities have had worse than average mental health, which may have to do with actual or perceived discrimination. Same-sex marriage legalization (SSML) is a typical anti-discrimination policy removing marital restrictions for sexual minorities. We study how this legislation affected mental health of sexual minorities in the Netherlands. Conducting a difference-in-differences analysis, we compare changes in mental health following the legalization between sexual minorities and heterosexuals. We fi nd that SSML improved mental health of both married and non-married sexual minorities, which implies that marriage is not the only channel. Examinations of alternative mechanisms combined with literature suggest that the legislation may also take effect by improving societal tolerance as well as stabilizing partnerships and enriching the choice basket of partnership forms for sexual minorities.
    Keywords: mental health; Same-sex marriage; Sexual minorities
    JEL: I12 I18 J12 J15 K36
    Date: 2021–01
  3. By: Affeldt, Pauline; Duso, Tomaso; Gugler, Klaus; Piechucka, Joanna
    Abstract: An increasing body of empirical evidence is documenting trends toward rising concentration, profits, and markups in many industries around the world since the 1980s. Two major criticisms of these studies is that concentration and market shares are poorly measured at the national industry level while firm level revenues are a poor indicator of product sales. We use a novel database that identifies over 20,000 product/geographic antitrust markets affected by over 2,000 mergers scrutinized by the European Commission between 1995 and 2014. We show that concentration, as measured by the market-specific post-merger HHI, is larger than reported in the extant literature (at least) by a factor of ten. We also show that concentration has increased over time on average. Yet, there is a great deal of heterogeneity across geographic markets and within broader industries. In a regression analysis that exploits this within-industry variation, we show that barriers to entry are unambiguously positively related to concentration irrespective of time periods, sectors of activity, and geographical market dimension analyzed. Strict past merger enforcement negatively correlates with concentration. Yet, this effect is stronger in the earlier decade (1995-2004) than subsequently. Intangibility of investments consistently displays positive correlation with concentration only for EU wide and worldwide services markets. In contrast, the correlation is negative in national markets. This underscores the importance of the large heterogeneity present in concentration developments across markets.
    Keywords: Concentration; Entry Barriers; HHI; Intangibles; Market Definition; Merger Control; mergers
    JEL: K21 L24 L44 O32
    Date: 2021–01
  4. By: Anwar, Shamena; Bayer, Patrick; Hjalmarsson, Randi
    Abstract: We analyze the extent and consequences of unequal representation on juries in Harris County, Texas. We first document that residents from predominantly white and high-income neighborhoods are substantially over-represented on juries. Using quasi-random variation in those called for jury duty each day, we next establish that Black defendants are more likely to be convicted and receive longer sentences from juries with more residents from these over-represented neighborhoods. We estimate that equal representation would reduce Black defendants' median sentence length by 50 percent and the probability of receiving a life sentence by 67 percent. Straightforward remedies could mitigate this severe bias.
    Keywords: crime; inequality; jury; race; Representation; sentences
    Date: 2021–03
  5. By: Scott Dallman; Anusha Nath; Filip Premik
    Abstract: Education services in the United States are determined predominantly by non-market institutions, the rules of which are defined by state constitutions. This paper empirically examines the effect of changes in constitutional provisions on education outcomes in the United States. To show causal effects, we exploit discontinuities in the procedure for adopting constitutional amendments to compare outcomes when an amendment passed with those when an amendment failed. Our results show that adoption of an amendment results in higher per-pupil expenditure, higher teacher salaries, smaller class size, and improvements in reading and math test scores. We examine the underlying mechanism driving these results by studying the actions of the legislature and the courts after an amendment is passed. We find that, on average, the legislature responds with a one-year lag in enacting education policies satisfying the minimum standards imposed by the amendment, and there is no increase in the number of education cases reaching appellate courts. Using school finance reforms, we also show that in situations where the legislature fails to enact education policies, courts intervene to enforce constitutional standards to improve outcomes. This enforcement mechanism is more impactful in states that have higher constitutional minimum standards. Taken together, the causal effects on education outcomes and the patterns in legislative bill enactments and court cases provide a novel test of the hypothesis that a strong constitutional provision improves the bargaining position of citizens vis-à-vis that of elected leaders. If citizens do not receive education services as mandated in the constitution, they can seek remedy in court.
    Keywords: Educational outcomes; Litigation; Legislative bills; Effects of constitutions; Education; Amendments
    JEL: I24 D02 P48 H75
    Date: 2021–04–26
  6. By: Yury Fogelson (National Research University Higher School of Economics); Dmitry Poldnikov (National Research University Higher School of Economics)
    Abstract: The rule of law, understood as ideology and legal rules, is believed to be a competitive advantage of Western civilization, supporting its sustainable development. Yet it can also be viewed as a social norm of citizens who respect the law and follow its commands. How does this social norm emerge in different societies? This question must be answered through the social history of the law in Western and non-Western societies from a comparative perspective. This paper outlines the main features of comparative socio-legal history and tests it on some significant historical examples. In the first part of the article, the authors propose a functional classification of legal systems into three ideal Weberian types—the law of judges, learned law, and the law of the authorities. It allows us to consider the origin of the social norm of the rule of law. In the second part of the article, the authors trace the transition from the ideal types to natural legal systems and identify the factors that determine the stability of the social norm of the rule of law where it originated. In the final part of the article, the authors conclude that, first, the social norm of the rule of law emerged in the societies where the law had been treated either as a means of resolving disputes (the law of judges) or as the rules of fair, correct conduct (learned law), for example, the Roman Republic, medieval England, continental Europe, and the Ottoman Empire. Secondly, the stability of the social norm of the rule of law seems to be explained by a "triangle" of factors, namely: 1) political competition where all participants understand the inevitability of compromise on the basis of the law, 2) law which is suitable for finding a compromise due to its internal merits, 3) a professional community of jurists who develop and apply law independently of the administration. Such a triangle is possible in any society where the law of judges or learned law prevails and where the majority of participants in the political process are ready to compromise based on the current law.
    Keywords: rule of law, social norm, comparative socio-legal history, law of judges, learned law, law of the authorities
    JEL: K K K
    Date: 2020
  7. By: Ponczek, Vladimir; Ulyssea, Gabriel
    Abstract: How does enforcement of labor regulations shape the labor market effects of trade? Does the informal sector introduce greater de facto flexibility, reducing employment losses during bad times? To tackle these questions, we exploit local economic shocks generated by trade liberalization and variation in enforcement capacity across local labor markets in Brazil. In the aftermath of the trade opening, regions with stricter enforcement observed: (i) lower informality effects; (ii) larger losses in overall employment; and (iii) greater reductions in the number of formal plants. Regions with weaker enforcement observed opposite effects. All these effects are concentrated on low-skill workers. Our results indicate that greater de facto labor market flexibility introduced by informality allows both formal firms and low-skill workers to cope better with adverse labor market shocks.
    Keywords: Informality; Labor market flexibility; Trade
    JEL: F16 J32 J46
    Date: 2021–03
  8. By: Hans-Theo Normann (Heinrich Heine University, Düsseldorf); Martin Sternberg (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: We investigate collusive pricing in laboratory markets when human players interact with an algorithm. We compare the degree of (tacit) collusion when exclusively humans interact to the case of one firm in the market delegating its decisions to an algorithm. We further vary whether participants know about the presence of the algorithm. We find that threefirm markets involving an algorithmic player are significantly more collusive than human-only markets. Firms employing an algorithm earn significantly less profit than their rivals. For four-firm markets, we find no significant differences. (Un)certainty about the actual presence of an algorithm does not significantly affect collusion.
    Keywords: algorithms, collusion, human-computer interaction, laboratory experiments
    JEL: C90 L41
    Date: 2021–05–06
  9. By: Florence Kondylis (Italian Ministry of Economy and Finance Department of Finance); Mattea Stein (Università di Napoli Federico II and CSEF)
    Abstract: Can procedural reforms improve judicial efficiency? And do improvements in judicial efficiency benefit firms? We study a reform that gave judges in Senegal the powers to desk reject cases and the responsibility to complete pre-trials within four months. We combine three years of hearing-level caseload data and monthly firm tax filings with the staggered roll-out of the reform to produce three key results. First, the reform improved judicial efficiency, with no detrimental effect on quality. Second, firm monthly revenues drop by 8-11 percent upon entering pre-trial, with the effect concentrated on slower pre-trials. Third, monthly firm revenues decline by on average 3.2-5.0 percent for every 100 days a case spends in pre-trial. Survey results show firms are willing to pay higher legal fees to achieve post-reform speed, suggesting net positive benefits of the reform on firms.
    Keywords: Economic development, Firms, Judicial efficiency.
    JEL: K41 D73 O12
    Date: 2021–05–01
  10. By: Frederike Zufall (Max Planck Institute for Research on Collective Goods, Bonn, Germany); Rampei Kimura (Waseda University, Waseda Institute for Advanced Study, Tokyo, Japan); Linyu Peng (Keio University, Department of Mechanical Engineering, Yokohama, Japan)
    Abstract: We propose simple mathematical models for the legal concept of balancing of interests, to resolve the conflict between the rights to privacy and to the protection of personal data in Art. 7 and Art. 8 of the EU Charter of Fundamental Rights (EUCh) against the right of access to information derived from Art. 11 EUCh. Our approach is based on the idea of transforming legal criteria into arguments (or inputs) of a function. For simplicity, we assume that the balancing depends on only selected legal criteria such as the social status of affected person, and the sphere from which the information originated, which are represented as inputs of the models, called legal parameters. Additionally, we take “time” into consideration as a legal criterion, building on the European Court of Justice’s ruling on the right to be forgotten: by considering time as a legal parameter, we model how the outcome of the balancing changes over the passage of time. To catch the dependence of the balancing's outcome by these criteria as legal parameters, data were created by a fully-qualified lawyer. Two mathematical models, a time-independent model and a time-dependent model, are proposed, that are fitted by using the data.
    Keywords: mathematical model; balancing of interests; legal tech; automated decision-making; applied mathematics; AI and law; law and technology; AI; privacy of information; right to the protection of personal data; right to access; data protection law; operationalisation; legal methodology
    Date: 2021–04–28
  11. By: Andersen, Steffen; Parise, Gianpaolo; Peijnenburg, Kim
    Abstract: We explore the impact of health shocks on criminal behavior. Exploiting variations in the timing of cancer diagnoses, we find that health shocks elicit an increase in the probability of committing crime by 13%. This response is economically significant at both the extensive (first-time criminals) and intensive margin (reoffenders). We uncover evidence for two channels explaining our findings. First, diagnosed individuals seek illegal revenues to compensate for the loss of earnings on the legal labor market. Second, cancer patients face lower expected cost of punishment through a lower survival probability. We do not find evidence that changes in preferences explain our findings. The documented pattern is stronger for individuals who lack insurance through preexisting wealth, home equity, or marriage. Welfare programs that alleviate the economic repercussions of health shocks are effective at mitigating the ensuing negative externality on society.
    Keywords: Economics of crime; event study; Health shocks; Human Capital
    Date: 2021–03
  12. By: Altindag, Duha T. (Auburn University); Mocan, Naci (Louisiana State University); Zhang, Jie (Hunan University)
    Abstract: In most countries Parliamentary immunity protects lawmakers from civil or criminal charges while in office, and it shields them from prosecution for their political speech or political actions. This paper presents the first empirical analysis in the literature of the impact of Parliamentary immunity on the behavior and performance of politicians. Leveraging a Constitutional Amendment, the adoption of which lifted the immunity of 132 of the 550 members of the Turkish Parliament, we find that immunity from prosecution impacts how the Members of the Parliament (MPs) act and perform their duties in the Parliament. Losing immunity (and the resultant presumed fear of prosecution) pacifies the MPs of the opposition parties. They become less diligent in the Parliament (drafting fewer pieces of legislation, initiating fewer investigation inquiries, delivering fewer and shorter speeches) and become less aggressive (interrupting other MPs less frequently). They also reduce their tendency to cast dissenting votes against the government. MPs of the opposition parties who lose their immunity are less likely to get re-nominated by their parties in the next election, and they are less likely to get re-elected. We find no evidence that more outspoken and active opposition MPs or those who are more valuable for their parties have been targeted for immunity revocation. There is no evidence that the MPs, who retained immunity, have increased their Parliamentary efforts in reaction to their same-party colleagues losing immunity. We find that laws are passed faster after the Constitutional Amendment was adopted, possibly as a consequence of reduced opposition and deliberation. Using Eurobarometer surveys, we find that citizens' reactions to the revocation of MP immunity are polarized. An individual's trust in the Parliament is decreased or increased based on whether an MP from the individual's province lost immunity and if that MP subscribes to the same or opposing ideology as the individual.
    Keywords: parliamentary immunity, constitution, effort, prosecution, member of parliament, opposition party
    JEL: P16 K40 D72 H0
    Date: 2021–05
  13. By: Mehmet Ekmekci; Hanzhe Zhang
    Abstract: We study two-sided reputational bargaining with opportunities to issue an ultimatum -- threats to force dispute resolution. Each player is either a justified type, who never concedes and issues an ultimatum whenever an opportunity arrives, or an unjustified type, who can concede, wait, or bluff with an ultimatum. In equilibrium, the presence of ultimatum opportunities can harm or benefit a player by decelerating or accelerating reputation building. When only one player can issue an ultimatum, equilibrium play is unique. The hazard rate of dispute resolution is discontinuous and piecewise monotonic in time. As the probabilities of being justified vanish, agreement is immediate and efficient, and if the set of justifiable demands is rich, payoffs modify Abreu and Gul (2000), with the discount rate replaced by the ultimatum opportunity arrival rate if the former is smaller. When both players' ultimatum opportunities arrive sufficiently fast, there may exist multiple equilibria in which their reputations do not build up and negotiation lasts forever.
    Date: 2021–05
  14. By: Grosjean, Pauline; Masera, Federico; Yousaf, Hasin
    Abstract: Did Trump radicalize xenophobes? Using data from nearly 12 million traffic stops, we show that the probability that a police officer stops a Black driver increases by 4.2% after a Trump rally during his 2015-2016 campaign. The effect is immediate, specific to Black drivers, lasts for up to 50 days after the rally, and is due to discretionary stops only. The effects are significantly larger in areas with more racist attitudes today, those that experienced more racial violence during the Jim Crow era, or those that relied more heavily on slavery. Results from a 2016 online experiment reveal how Trump's campaign speech specifically aggravated respondents' prejudice that Blacks are violent. We take this as evidence that although not explicitly anti-Black, Trump's campaign radicalized racial prejudice against Blacks -- a phenomenon known as dog-whistling-- and the expression of such prejudice in a critical and potentially violent dimension: police behavior.
    Keywords: Police stops; political campaign; racial prejudice
    JEL: D72 J15 K42
    Date: 2021–01
  15. By: Daniele, Gianmarco; Giommoni, Tommaso
    Abstract: We study how policies limiting the spending capacity of local governments may reduce corruption. We exploit the extension of one such policy, the Domestic Stability Pact (DSP), to small Italian municipalities. The DSP led to a decrease in both recorded corruption rates and corruption charges per euro spent. This effect emerges only in areas in which the DSP put a binding cap on municipal capital expenditures. The reduction in corruption is linked to accountability incentives as it emerges mostly in pre-electoral years and for re-eligible mayors. We then estimate the impact of the extension of the DSP on local public good provision in the following years, finding a null effect in the short run. Overall, our findings suggest that budget constraints might induce local governments to curb expenditures in a way that dampens their exposure to corruption without depressing local welfare.
    Keywords: austerity; Corruption; European funds; fiscal rules; local public finance; public procurement
    JEL: D72 D73 H62 H72 K34
    Date: 2021–03

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