nep-law New Economics Papers
on Law and Economics
Issue of 2021‒05‒17
sixteen papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Consumer protection for financial inclusion in low and middle income countries: Bridging regulator and academic perspectives By Garz, Seth; Giné, Xavier; Karlan, Dean S.; Mazer, Rafe; Sanford, Caitlin; Zinman, Jonathan
  2. The Right to Quit Work: An Efficiency Rationale for Restricting the Freedom of Contract By Müller, Daniel; Schmitz, Patrick W.
  3. Digital Platforms and the New 19a Tool in the German Competition Act By Jens-Uwe Franck; Martin Peitz
  4. Consumer Credit with Over-Optimistic Borrowers By Exler, Florian; Livshits, Igor; MacGee, Jim; Tertilt, Michèle
  5. Deviant or Wrong? The Effects of Norm Information on the Efficacy of Punishment By Cristina Bicchieri; Eugen Dimant; Erte Xiao
  6. Immigration, crime, and crime (Mis)perceptions By Nicolás Ajzenman; Patricio Domínguez; Raimundo Undurraga
  7. Prices, policing and policy: the dynamics of crime booms and busts By Kirchmaier, Thomas; Machin, Stephen; Sandi, Matteo; Witt, Robert
  8. The Role of Human Capital, Corruption and Quality of Life in Determining the Crime Rate: Empirics from Pakistan By Qamar, Alina; Safdar, Maria
  9. Are your tax problems an opportunity not to pay taxes? Evidence from a randomized survey experiment By Blesse, Sebastian
  10. Governmental (In)Eciencies on Detriment of Crime By Agustin A. Shehadi C.
  11. Up in the Air: Air Pollution and Crime – Evidence from India By Singh, Tejendra Pratap; Visaria, Sujata
  12. More Laws, More Growth? Evidence from U.S. States By Ash, Elliott; Morelli, Massimo; Vannoni, Matia
  13. Deposit competition and the securitisation boom By McGowan, Danny; Nguyen, Huyen
  14. Stronger Patent Regime, Innovation and Scientist Mobility By Ganguly, Madhuparna
  15. Can Legal Bans on Sex Detection Technology Reduce Gender Discrimination? By Aparajita Dasgupta; Anisha Sharma
  16. The Dynamics of Property Rights in Modern Autocracies By Dan Cao; Roger Lagunoff

  1. By: Garz, Seth; Giné, Xavier; Karlan, Dean S.; Mazer, Rafe; Sanford, Caitlin; Zinman, Jonathan
    Abstract: Markets for consumer financial services are growing rapidly in low and middle income countries and being transformed by digital technologies and platforms. With growth and change come concerns about protecting consumers from firm exploitation due to imperfect information and contracting as well as from their own decision-making limitations. We seek to bridge regulator and academic perspectives on these underlying sources of harm and five potential problems that can result: high and hidden prices, overindebtedness, post-contract exploitation, fraud, and discrimination. These potential problems span product markets old and new, and could impact micro- and macroeconomies alike. Yet there is little consensus on how to define, diagnose, or treat them. Evidence-based consumer financial protection will require substantial advances in theory and especially empirics, and we outline key areas for future research.
    Keywords: consumer protection; household finance
    JEL: D11 D12 D18 D81 D82 D83 D9 G21 K23 K31 K42 O12
    Date: 2020–12
  2. By: Müller, Daniel; Schmitz, Patrick W.
    Abstract: A principal hires an agent to provide a verifiable service. Initially, the agent can exert unobservable effort to reduce his disutility from providing the service. If the agent is free to waive his right to quit, he may voluntarily sign a contract specifying an inefficiently large service level, while there are insufficient incentives to exert effort. If the agent's right to quit is inalienable, the underprovision of effort may be further aggravated, but the service level is ex post efficient. Overall, it turns out that the total surplus can be larger when agents are not permitted to contractually waive their right to quit work. Yet, we also study an extension of our model in which even the agent can be strictly better off when the parties have the contractual freedom to waive the agent's right to quit.
    Keywords: efficiency wages; Incentive theory; Labor contracts; law and economics; moral hazard
    JEL: D23 D86 J83 K12 K31
    Date: 2020–12
  3. By: Jens-Uwe Franck; Martin Peitz
    Abstract: In this article we present and critically evaluate the newly introduced section 19a of the German Competition Act. The provision applies to operators of two-sided platforms and networks that the Bundeskartellamt classifies as being of ‘paramount significance for competition across markets’. Using examples of previous abuse cases, we discuss which firms may eventually be the addressees of the new instrument. We analyse the list of prohibitable practices and point to normative uncertainties as regards the assessment of platform activities. We discuss the merits of the abridged judicial review. Finally, we consider the prospect of continuing fragmentation in the legal treatment of digital platforms in the internal market and assess the interaction with the Digital Markets Act as proposed by the European Commission.
    Keywords: competition law, abuse of market power, digital platforms, gatekeeper, Big Tech
    JEL: K21
    Date: 2021–05
  4. By: Exler, Florian; Livshits, Igor; MacGee, Jim; Tertilt, Michèle
    Abstract: There is active debate over whether borrowers' cognitive biases create a need for regulation to limit the misuse of credit. To tackle this question, we incorporate over-optimistic borrowers into an incomplete markets model with consumer bankruptcy. Lenders price loans, forming beliefs - type scores - about borrowers' types. Since over-optimistic borrowers face worse income risk but incorrectly believe they are rational, both types behave identically. This gives rise to a tractable theory of type scoring as lenders cannot screen borrower types. Since rationals default less often, the partial pooling of borrowers generates cross-subsidization whereby over-optimists face lower than actuarially fair interest rates. Over-optimists make financial mistakes: they borrow too much and default too late. We calibrate the model to the US and quantitatively evaluate several policies to address these frictions: reducing the cost of default, increasing borrowing costs, imposing debt limits, and providing financial literacy education. While some policies lower debt and filings, they do not reduce overborrowing. Financial literacy education can eliminate financial mistakes, but it also reduces behavioral borrowers' welfare by ending cross-subsidization. Score-dependent borrowing limits can reduce financial mistakes but lower welfare.
    Keywords: bankruptcy; Consumer credit; Cross-subsidization; financial literacy; Financial Mistakes; financial regulation; Over-Optimism; Type Score
    JEL: E21 E49 G18 K35
    Date: 2020–12
  5. By: Cristina Bicchieri; Eugen Dimant; Erte Xiao
    Abstract: Research examining the effect of weak punishment on conformity indicates that punishment can backfire and lead to suboptimal social outcomes. We examine whether this effect is due to a lack of perceived legitimacy of rule enforcement, which would enable agents to justify selfish behavior. We address the question of legitimacy by shedding light upon the importance of social norms and their interplay with weak punishment in the context of a trust game. Across six conditions, we systematically vary the combination of existence of weak punishment and norm information. Norm information may refer either to what most others do (empirical) or to what most others deem appropriate (normative). We show that in isolation, neither weak punishment nor empirical/normative information increase prosocial, reciprocal behavior. We instead find that reciprocity significantly increases when normative information and weak punishment are combined, but only when compliance is relatively cheap. When compliance is more costly, we find that the combination of punishment and generic empirical information about others’ conformity can have detrimental effects. In additional experiments, we show that this negative effect can be attributed to the punishment being perceived as unjustified, at least in some individuals. Our results have important implications for researchers and practitioners alike.
    Keywords: conformity, punishment, social norms, trust
    JEL: C91 D03 D73 H26
    Date: 2021
  6. By: Nicolás Ajzenman (Sao Paulo School of Economics - FGV); Patricio Domínguez (Inter-American Development Bank); Raimundo Undurraga (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: 2021–04
  7. By: Kirchmaier, Thomas; Machin, Stephen; Sandi, Matteo; Witt, Robert
    Abstract: In many historical episodes, criminal activity displays booms and busts. One clear example is the case of metal crime in the United Kingdom (and elsewhere) where, in the face of big increases in value driven by world commodity prices, thefts rose very sharply in the 2000s, after which they fell. This paper studies the respective roles of prices, policing and policy in shaping this crime boom and bust. Separate study of each reveals metal crime being driven up via sizeable and significant metal crime-price elasticities and driven down by changes in policing and policy. A regression-based decomposition analysis confirms that all three of the hypothesised factors considered in the paper-prices, policing and policy-were empirically important in the different stages of metal theft's boom and bust.
    Keywords: metal crime; metal prices; commodity prices
    JEL: K42
    Date: 2020–04–01
  8. By: Qamar, Alina; Safdar, Maria
    Abstract: Crime is an evil that is increasing day by day in Pakistan. Different factors contribute to the increasing crime trend. This study investigates the impact of human capital, corruption, quality of life, economic misery and rule of law on the crime rate in Pakistan over the period 1985-2019. To find out short-term and long-term dynamics, the Vector Error Correction Model (VECM) is used. For checking casual relationships among variables, the Toda Yamamoto Causality test is used. The results confirm the significant and long-term impact of human capital, corruption, quality of life, economic misery and rule of law on the crime rate in Pakistan. Three channels of bidirectional causality are found with the economic misery index from corruption and human capital, and between the rule of law and corruption. Unidirectional causality runs from human capital, corruption, quality of life and economic misery to crime.
    Keywords: Crime Rate, Human Capital, Quality of Life, Economic Misery
    JEL: J16 K1 O15
    Date: 2021–04
  9. By: Blesse, Sebastian
    Abstract: Taxpayers often view tax rules and filing processes as complicated. In this paper I study whether the perceived tax uncertainty among peers leads to a reduction of voluntary tax compliance. I find strong supportive evidence for this hypothesis using a survey experiment for a large representative sample of the German population. Providing randomized information that others are uncertain about how to file their taxable income decreases individual tax morale. This suggests that subjects use negative peer signals as an excuse in order to opt-out of tax compliance. Studying related heterogeneous treatment effects, I find that both older and left-wing subjects are more responsive to tax uncertainty of others. I also show persistent treatment effects among very honest taxpayers in a follow-up survey.
    Keywords: Tax Complexity,Taxpayer Uncertainty,Tax Morale,Survey Experiments
    JEL: H26 Z13 K42 C9
    Date: 2021
  10. By: Agustin A. Shehadi C.
    Abstract: By using data from the Ministry of Security of the Argentine Republic for the year 2017, this paper aims to estimate the degree of substitution between public and private spending, placing in the core of study the relationship between the level of government efficiency and private spending on security. With information about the 24 Argentine jurisdictions, this work uses an autoregressive spatial model (SAC), to control for presumed autocorrelation in the residuals, in order to achieve consistent and unbiased estimations. In this line, the discrepancy between reported crimes and the number of convicts jailed under the respective sentence is taken as an efficiency measure of the government. In this way, the results show the expected signs, except for threats, for which the measure of efficiency takes the opposite sign (i.e. as greater the public spending is, greater private expenses), denoting an inefficiency of government spending. We attribute this finding to the fact that individuals perceive governmental action upon threats as insufficient, hence inducing private spending to cover the public inefficiency.
    JEL: C54 D12 H23 H53 K40
    Date: 2020–11
  11. By: Singh, Tejendra Pratap; Visaria, Sujata
    Abstract: Recent work from developed parts of the world has documented a positive association between air pollution and criminal activity. We use high-frequency complaints and air pollution data to estimate air pollution’s causal effects on crime in a developing country. In order to establish causality, we exploit plausibly exogenous local variation in wind direction in an instrumental variable setup. We find that a lower number of complaints are received on the days of high air pollution levels. This effect is more pronounced for property crimes than for violent crimes. Our results are robust to a host of robustness checks and falsification checks. Exploring the potential mechanisms, we find that the decline in criminal activity might result from increased costs of indulging in criminal activity.
    Date: 2021–05–09
  12. By: Ash, Elliott; Morelli, Massimo; Vannoni, Matia
    Abstract: This paper analyzes the conditions under which more detailed legislation contributes to economic growth. In the context of U.S. states, we apply natural language processing tools to measure legislative flows for the years 1965-2012. We implement a novel shift-share design for text data, where the instrument for legislation is leave-one-out legal-topic flows interacted with pre-treatment legal topic shares. We find that at the margin, higher legislative detail causes more economic growth. Motivated by an incomplete-contracts model of legislative detail, we test and find that the effect is driven by contingent clauses, that the effect is concave in the pre-existing level of detail, and that the effect size is increasing with economic policy uncertainty.
    Date: 2021–01
  13. By: McGowan, Danny; Nguyen, Huyen
    Abstract: We provide novel evidence that regulatory-induced deposit market competition provoked banks to enter the securitisation market. Exploiting the state-specific removal of interstate bank branching restrictions across U.S states between 1994 and 2006 as an exogenous source of deposit competition, we document four key results. First, the interstate branching deregulation leads to an intensification of deposit market competition. Second, this rise in the cost of deposits increases the probability that a bank operates an 'originate-to-distribute' model by 6%. Third, the securitisation effect holds across bank asset classes but is most pronounced for mortgages. Finally, the results are strongest among small and single state banks owing to their reliance on deposit funding. The evidence is consistent with theories where increasing the cost of deposits creates incentives for banks to use securitisation as a cheaper loan funding model. The findings highlight a hitherto neglected supply-side explanation for the rapid expansion in securitisation before the financial crisis and speak to the debate about banking competition policy.
    Keywords: competition,deregulation,OTD,securitisation
    JEL: G21 G28 K11
    Date: 2021
  14. By: Ganguly, Madhuparna
    Abstract: This paper analyzes the effects of a stronger patent regime on innovation incentives, patenting propensity and scientist mobility when an innovating firm can partially recover its damage due to scientist movement from the infringing rival. The strength of the patent system, which is a function of litigation success probability and damage recovery proportion, stipulates expected indemnification. We show that stronger patents fail to reduce the likelihood of infringement and further, decrease the innovation's expected profitability. Higher potential reparation also reduces the scientist's expected return on R&D knowledge, entailing greater R&D investment. Our results suggest important considerations for patent reforms.
    Keywords: Damage rules; Infringement; Patent strength; Scientist mobility
    JEL: J60 K40 L13 O34
    Date: 2021
  15. By: Aparajita Dasgupta (Ashoka University); Anisha Sharma (Ashoka University)
    Abstract: Bans on sex-selective abortions, typically implemented to make sex ratios more equitable, may have adverse welfare consequences in terms of increased gender discrimination against surviving ‘unwanted’ girls. Exploiting geographic and intertemporal variation in the implementation of a ban on sex-screening and sex-selection across different states in India, we examine the extent to which prenatal gender discrimination is substituted by postnatal discrimination after the enforcement of the ban. In particular, we study whether the ban on sex-selective abortions worsens relative health and mortality outcomes for girls as compared to boys. Using the observation that sex-selective abortions are more likely to occur among families with firstborn girls, we compare our treatment effects across families with firstborn girls and firstborn boys. Our findings indicate that the ban increased the gender gap in mortality, health outcomes and health investments through two main channels: an increase in the proportion of unwanted girls who face increased discrimination and an increase in fertility in intensively treated families with firstborn girls, leading to greater competition among siblings for resources. We contrast our results with the impact of a policy that, in addition to strengthening supply-side measures, also contains demand-side elements aimed at shifting social norms through a mass media gender sensitisation intervention. Our results suggest that demand-side interventions that directly target social norms reduce the adverse welfare consequences of pure supply-side restrictions.
    Keywords: sex selective abortion; missing women, PNDT, ultrasound, legal ban, son preference, gender discrimination, skewed sex ratio
    Date: 2021–05
  16. By: Dan Cao (Department of Economics, Georgetown University); Roger Lagunoff (Department of Economics, Georgetown University)
    Abstract: This paper studies a dynamic model of property ownership and appropriation in modern autocracies. An autocrat represents the interests of an elite ``in-group." It chooses whether and how much to appropriate from public assets and from private assets of an ``out-group" at each date. To maintain the appearance of the rule of law, the autocrat implements an ownership assignment only if it is accepted by the affected citizens. However, because its enforcement of property rights is tied to the duration of its commitment, the autocrat's enforcement is conditional and temporary. Consequently, the autocrat systematically appropriates property from the out-group and from public assets. Under some initial conditions, the autocrat initially implements popular land reform only reverse course later on. More generally, wealth shares of both public property and private property of the out-group decline monotonically after an initial adjustment period. The model rationalizes the connection between increasing wealth inequality and privatization in autocracies such as Russia and China. Simulations of these countries' wealth distributions to mid 21st century display widening gaps in wealth between elites and the rest of the populace. Finally, we show that the ruling group under anocracy, an autocratic system that admits civil society groups, will generally be better off than under a traditional autocracy. The dilemma is that the anocratic system might enable the growth of an opposition party that eventually displaces the ruling group. Classification-C73, D72, H13, H41, P5
    Keywords: Authoritarian legalism, autocracy, anocracy, property rights, appropriation constraint, takings, civil society groups, Samuelson condition
    Date: 2021–05–11

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