nep-law New Economics Papers
on Law and Economics
Issue of 2021‒11‒29
ten papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Cross-Examination. By Claude Fluet; Thomas Lanzi
  2. Leaders in Juvenile Crime By Díaz, Carlos; Patacchini, Eleonora; Verdier, Thierry; Zenou, Yves
  3. Intellectual Property licenses in cross-border insolvency: Lessons from In Re Qimonda By Ram Mohan, M.P.; Gupta, Aditya
  4. Dynamic Pricing of Credit Cards and the Effects of Regulation By Suting Hong; Robert M. Hunt; Konstantinos Serfes
  5. Cash: Leave the Door Open? Prison Conditions and Recidivism By Giovanni Mastrobuoni; Daniele Terlizzese
  6. Scoring 50 years of US industrial policy, 1970–2020 By Gary Clyde Hufbauer; Euijin Jung
  7. Bad Lighting: Effects of Youth Indoor Tanning Prohibitions By Christopher S. Carpenter; Brandyn F. Churchill; Michelle M. Marcus
  8. Data governance and the regulation of the platform economy By Oscar Borgogno; Michele Savini Zangrandi
  9. Untying the Knot: How Child Support and Alimony Affect Couples’ Decisions and Welfare By Hanno Foerster
  10. Corruption under Austerity By Gianmarco Daniele; Tommaso Giommoni

  1. By: Claude Fluet; Thomas Lanzi
    Abstract: Two opposed parties seek to ináuence an uninformed decision maker. They invest in acquiring information and select what to disclose. The decision maker then adjudicates. We compare this benchmark with a procedure allowing adversarial cross-examination. A cross-examiner tests the opponent in order to persuade the decision maker that the opponent is deceitful. How does the opportunity or threat of crossexamination affect the parties' behavior? How does it affect the quality of decision-making? We show that decision-making deteriorates because parties are less likely to acquire information and because crossexamination too often makes the truth appear as falsehood. Next, we consider a form of controlled cross-examination by permitting the cross-examined to be re-examined by his own advocate, i.e., counterpersuasion. More information then reaches the decision maker. Decision-making may or may not improve compared to the benchmark depending on how examination is able to trade off type 1 and 2 errors.
    Keywords: Bayesian persuasion, disclosure game, adversarial, redirect examination, procedural rules.
    JEL: C72 D71 D82 D83 K41
    Date: 2021
  2. By: Díaz, Carlos (Catholic University of Uruguay); Patacchini, Eleonora (Cornell University); Verdier, Thierry (Paris School of Economics); Zenou, Yves (Monash University)
    Abstract: This paper presents a new theory of crime where leaders transmit a crime technology and act as a role model for other criminals. We show that, in equilibrium, an individual's crime effort and criminal decisions depend on the geodesic distance to the leader in his or her network of social contacts. By using data on friendship networks among U.S. high-school students, we structurally estimate the model and find evidence supporting its predictions. In particular, by using a definition of a criminal leader that is exogenous to the network formation of friendship links, we find that the longer is the distance to the leader, the lower is the criminal activity of the delinquents and the less likely they are to become criminals. We finally perform a counterfactual experiment that reveals that a policy that removes all criminal leaders from a school can, on average, reduce criminal activity by about 20% and the individual probability of becoming a criminal by 10%.
    Keywords: crime leaders, social distance, criminal decisions, closeness centrality
    JEL: C31 D85 K42
    Date: 2021–10
  3. By: Ram Mohan, M.P.; Gupta, Aditya
    Abstract: Introduced in 2016, the Insolvency and Bankruptcy Code overhauled the Indian insolvency regime. Five years young, the work in progress Code is now in the process of adopting the Cross-Border insolvency, which was omitted from its original mandate. In 2018, a legislatively appointed committee suggested that the Code should adopt the UNCITRAL Model Law on Cross Border Insolvency. However, the Committee overlooked a crucial jurisprudential guideline, which coloured the interpretation of the Model Law, which was delivered in a cross-border insolvency dispute between American and German regimes. An American bankruptcy court subjected the German administration of American Intellectual Property assets to a protection exclusively available within the American Bankruptcy Code. This paper studies the American judicial decisions in the Samsung v. Jaffe dispute to identify and underline the importance of its directive. The study reveals that there is virtually no guidance on how an intellectual property license is treated within the Indian insolvency regime. The authors underline the importance of such guidance considering the proposed adoption of the Model Law and suggest legislative inquiry in the issue.
    Date: 2021–11–19
  4. By: Suting Hong; Robert M. Hunt; Konstantinos Serfes
    Abstract: We construct a two-period model of revolving credit with asymmetric information and adverse selection. In the second period, lenders exploit an informational advantage with respect to their own customers. Those rents stimulate competition for customers in the first period. The informational advantage the current lender enjoys relative to its competitors determines interest rates, credit supply, and switching behavior. We evaluate the consequences of limiting the repricing of existing balances as implemented by recent legislation. Such restrictions increase deadweight losses and reduce ex-ante consumer surplus. The model suggests novel approaches to identify empirically the effects of this law. We find the pattern of changes to interest rates and balance transfer activity before and after the CARD Act are consistent with the testable implications of the model.
    Keywords: Financial contracts; Credit Card Accountability Responsibility and Disclosure Act; holdup; risk-based pricing; credit supply
    JEL: D14 D18 D86 G28 K12
    Date: 2021–11–23
  5. By: Giovanni Mastrobuoni (Collegio Carlo Alberto and University of Essex); Daniele Terlizzese (EIEF and Bank of Italy)
    Abstract: We estimate the effect on recidivism of replacing time served in a common closed-cell prison with time served in an open-cell one. We deal with the endogenous assignment of inmates to different prison regimes using variation that is driven by nearby prisons’ overcrowding. Switching regimes for a year reduces recidivism by around 6 percentage points (or pp). The effects are largest for inmates with low levels of education and are weak for violent and for hardened criminals.
    Date: 2021
  6. By: Gary Clyde Hufbauer (Peterson Institute for International Economics); Euijin Jung (Peterson Institute for International Economics)
    Abstract: Industrial policy is making a comeback in the United States. It is more urgent than ever to understand how and whether industrial policy has worked to strengthen the US economy. This study analyzes and scores 18 US industrial policy episodes implemented between 1970 and 2020, in an effort to assess what went right and what went wrong—and how the current initiatives might fare. These case studies can guide policymakers as they embark on what appears to be a major initiative in US government involvement in the economy today. The authors divide the 18 case studies into three broad categories: cases where trade measures blocked the US market or opened foreign markets, cases where federal or state subsidies were targeted to specific firms, and cases where public and private R&D was funded to advance technology. The outcome of each episode is scored by grading three criteria: (1) the effect on US competitiveness in global markets (or in some cases the national market), (2) whether the annual cost per job saved or created in the sector was reasonable (i.e., no more than the prevailing average wage), and (3) whether support advanced the technological frontier. Some of the episodes are partly or entirely successful while others are complete failures. Industrial policy can save or create jobs, but often at high cost. A major political selling point for industrial policy is to save or create jobs in a specific industry or location. In most cases, import protection does not create a competitive US industry, and it imposes extreme costs on household and business users per job-year saved. Trade policy concentrated on opening markets abroad is a better bet. Designating a single firm to advance technology yields inconsistent results. The highly successful model of Operation Warp Speed vividly demonstrates that competition is an American strength. R&D industrial policy has the best track record by far. Among the 18 cases, the Defense Advanced Research Projects Agency (DARPA) has the outstanding record.
    Date: 2021–11
  7. By: Christopher S. Carpenter; Brandyn F. Churchill; Michelle M. Marcus
    Abstract: Indoor tanning beds (ITBs) emit UV light at high intensity and have been classified as carcinogenic to humans by the World Health Organization since 2009. We are the first to study the role of state laws prohibiting youths from indoor tanning using a difference-in-differences research design. We find that youth ITB prohibitions reduced population search intensity for tanning-related information. Among white teen girls, ITB prohibitions reduced self-reported indoor tanning and increased sun protective behaviors. We also find that youth ITB prohibitions significantly reduced the size of the indoor tanning market by increasing tanning salon closures and reducing tanning salon sales.
    JEL: I1
    Date: 2021–10
  8. By: Oscar Borgogno (Bank of Italy); Michele Savini Zangrandi (Bank of Italy)
    Abstract: Systematic data exploitation through digital means lays at the very heart of the current platform economy. The regulatory boundaries posed by legislation to what firms and individuals can do with this intangible asset fall under the broad concept of data governance. We argue that the three major regulatory policy fields critical in shaping a country’s data governance framework are data control, national security and competition law. These legislative strands have a profound impact on the platform economy and overlap with each other in a significant manner. In exploring the complex trade-offs, this paper reaches three broad conclusions. First, multiple and diverse regulatory domains intersect the digital space, with overlapping and sometimes unpredictable consequences. Second, given the transnational nature of digital activity, international coordination and dialogue are of the utmost importance. Third, as the data governance framework has important consequences for the financial sector, sectoral regulators should be open to taking an active part in national and international discussions.
    Keywords: digital platforms, data, competition policy, national security, data access, privacy.
    JEL: F53 K21 K24 L38
    Date: 2021–11
  9. By: Hanno Foerster (Boston College)
    Abstract: In many countries divorce law mandates post-marital maintenance payments (child support and alimony) to insure the lower earner in married couples against financial losses upon divorce. This paper studies how maintenance payments affect couples’ intertemporal decisions and welfare. I develop a dynamic model of family labor supply, housework, savings and divorce and estimate it using Danish register and survey data. The model captures the policy trade off between providing insurance to the lower earner and enabling couples to specialize efficiently, on the one hand, and maintaining labor supply incentives for divorcees, on the other hand. I use the estimated model to study various counterfactual policy scenarios. I find that alimony payments come with strong labor supply disincentives and as a consequence fail to provide consumption insurance. The welfare maximizing policy involves increasing the lump sum component of child support, increasing the dependence of child support on the payer’s income and reducing alimony payments relative to the Danish status quo. Switching to the welfare maximizing policy makes women better and men worse off, but comparisons to first best allocations show that Pareto improvements are feasible, highlighting a limitation of child support and alimony policies.
    Keywords: marriage and divorce, child support, alimony, household behavior, labor supply, limited commitment
    JEL: D10 D91 J18 J12 J22 K36
    Date: 2020–03–30
  10. By: Gianmarco Daniele; Tommaso Giommoni
    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 reeligible mayors. We then estimate the impact of the extension of the DSP on local public goods 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 public goods provision.
    Keywords: Corruption; Austerity; Fiscal rules; European funds; Local public finance; Public procurement
    JEL: D72 D73 H62 H72 K34
    Date: 2021–11–12

This nep-law issue is ©2021 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.