nep-law New Economics Papers
on Law and Economics
Issue of 2022‒05‒23
eleven papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Conflicts of interest, ethical standards, and competition in legal services By BOUCKAERT, Jan; STENNEK, Johan
  2. Risky Moms, Risky Kids? Fertility and Crime after the Fall of the Wall By Arnaud Chevalier; Olivier Marie
  3. Global lessons from climate change legislation and litigation By Eskander, Shaikh; Fankhauser, Sam; Setzer, Joana
  4. Privacy Costs and Consumer Data Acquisition: An Economic Analysis of Data Privacy Regulation By Zhijun Chen
  5. Regulation enforcement By Gmeiner, Michael; Gmeiner, Robert
  6. Advisory algorithms and liability rules By Marie Obidzinski; Yves Oytana
  7. Value Creation by Ad-Funded Platforms By Gregor Langus; Vilen Lipatov
  8. Does Social Capital Matter? A Study of Hit-and-Run in US Counties By Castriota, Stefano; Rondinella, Sandro; Tonin, Mirco
  9. Settling Lawsuits with Pirates By Xinyu Hua; Kathryn E. Spier
  10. Efficient Level of SEPs Licensing By Gregor Langus; Vilen Lipatov

  1. By: BOUCKAERT, Jan; STENNEK, Johan
    Abstract: We study how the legal profession manages representational conflicts of interest. Such conflicts arise when the same law firm represents clients with adverse interests. They may compromise the legal process, ultimately jeopardizing social welfare. We argue that current ethical standards, emphasizing disqualification over Chinese walls, may actually worsen the clients’ situation. Instead, the clients’ interests are today mainly protected by law firms being small. Despite low market concentration, law firms enjoy high earnings as representational conflicts create negative network externalities at the firm level. These profits are not eroded even in the long run as entry occurs through firm splitups.
    Keywords: Law firms, Professional services, Dual representation, Representational conflicts of interest, Ethical standards, Chinese walls, Recusals, Negative network externalities, Competition, Self-regulation
    JEL: K40 L13 L22 L44 L84
    Date: 2022–04
  2. By: Arnaud Chevalier; Olivier Marie
    Abstract: Following the collapse of the Berlin Wall, the birth rate halved in East Germany. Despite their small sizes, the cohorts conceived during this period of socio-economic turmoil were, as they grew up in reunified Germany, markedly more likely to be arrested than cohorts conceived a few years earlier. This is consistent with negative parental selection during the period of turmoil. We highlight risk attitude as an important selection mechanism, beyond education and other observable characteristics, which explains: (i) why some women did not alter their fertility decisions during these uncertain economic times, (ii) that this risk preference was passed on to their children and (iii) that risk preference is correlated with criminal participation. Maternal selection along risk preference might thus be an important mechanism explaining the greater criminal activity of the children conceived after the fall of the Wall.
    Keywords: fertility, crime, parental selection, economic uncertainty, risk attitude
    JEL: J13 K42
    Date: 2022
  3. By: Eskander, Shaikh; Fankhauser, Sam; Setzer, Joana
    Abstract: There is no country in the world that does not have at least one law or policy dealing with climate change. The most prolific countries have well over 20, and globally there are 1,800 such laws. Some of them are executive orders or policies issued by governments, others are legislative acts passed by parliament. The judiciary has been involved in 1,500 court cases that concern climate change (more than 1,100 of which were in the United States). We use Climate Change Laws of the World, a publicly accessible database, to analyze patterns and trends in climate change legislation and litigation over the past 30 years. The data reveal that global legislative activity peaked around 2009–14, well before the Paris Agreement. Accounting for effectiveness in implementation and the length of time laws have been in place, the United Kingdom and South Korea are the most comprehensive legislators among G20 countries and Spain within the Organization for Economic Cooperation and Development. Climate change legislation is less of a partisan issue than is commonly assumed: the number of climate laws passed by governments of the left, center, and right is roughly proportional to their time in office. We also find that legislative activity decreases in times of economic difficulty. Where courts have gotten involved, judges outside the United States have ruled in favor of enhanced climate protection in about half of the cases (US judges are more inclined to rule against climate protection).
    Keywords: climate change; laws; litigation; Grantham Foundation for the Protection of the Environment; and from the UK Economic and Social Research Council (ESRC) through its support of the Centre for Climate Change Economics and Policy (CCCEP).
    JEL: K32 Q54 Q58
    Date: 2021–01–01
  4. By: Zhijun Chen (Monash University, Department of Economics)
    Abstract: General Data Protection Regulation (GDPR) aims to protect consumer data privacy, however, its adverse effects have been widely documented. We present a new model for the analysis of consumer data acquisition under privacy regulation. We treat both data and analytics as separate strategic variables and consider the heterogeneity of privacy costs across consumers. Using this model to examine the impact of GDPR, we identify a market failure before GDPR and find that GDPR activates a market for data acquisition by imposing consent requirements on data acquisition. We further study the optimal design of the mechanism for consumer data acquisition and deliver important policy implications for implementing the social optimum.
    Keywords: Data acquisition, Privacy Costs, and Data Analytics
    JEL: D47 L11 L40 K21
    Date: 2022–04
  5. By: Gmeiner, Michael; Gmeiner, Robert
    Abstract: This paper compares the effectiveness of two mechanisms of regulation enforcement: (1) the frequency of inspections and (2) penalties for violations. Threat effects of increased penalties and inspection rates, rather than corrective effects upon receiving an inspection or penalty, are the focus of analysis. Mining industry data from 2004–2009 are used to analyze the responses of mines to separate increases in inspections and citation penalties regarding regulations of safety standards. Mines did not improve safety in response to increased penalties at the ex-ante inspecting rates; however, mines significantly reduced accidents under increased inspections when implemented at those higher penalty rates. The identification strategy results in a local average treatment effect that implies increasing inspection rates from current levels would likely increase social welfare. Results are shown to be robust to bandwidth changes and model specification. The interpretation of the estimated local effect in the context of selection is analyzed. Robustness checks regarding selection exploit staffing changes and restrict to similar samples of treated and non-treated mines, justifying that results are representative.
    Keywords: threat effects; regulation enforcement; worker safety; compliance; inspections; mining; Springer deal
    JEL: J08 K23 K42
    Date: 2022
  6. By: Marie Obidzinski (Université Paris Panthéon Assas, CRED EA 7321, 75005 Paris, France); Yves Oytana (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France)
    Abstract: We study the design of optimal liability rules when the use of an advisory algorithm by a human operator (she) may generate an external harm. An artificial intelligence (AI) manufacturer (he) chooses the level of quality with which the algorithm is developed and the price at which it is distributed. The AI gives a prediction about the state of the world to the human operator who buys it, who can then decide to exert a judgment effort to learn the payoffs in each possible state of the world. We show that when the human operator overestimates the algorithm's accuracy (overestimation bias), imposing a strict liability rule on her is not optimal, because the AI manufacturer will exploit the bias by under-investing in the quality of the algorithm. Conversely, imposing a strict liability rule on the AI manufacturer may not be optimal either, since it has the adverse effect of preventing the human operator from exercising her judgment effort. We characterize the liability sharing rule that achieves the highest possible quality level of the algorithm, while ensuring that the human operator exercises a judgment effort. We then show that, when it can be used, a negligence rule generally achieves the first-best optimum. To conclude, we discuss the pros and cons of each type of rule.
    Keywords: Liability rules, Decision-making, Artificial intelligence, Cognitive bias, Judgment, Prediction
    JEL: K4
    Date: 2022–05
  7. By: Gregor Langus; Vilen Lipatov
    Abstract: We identify features of interactions on online platforms that make an ad-funded business model attractive for the platform, but also for consumers. We then show that ad-funded platforms heavily rely on data for their ability to create value for their users. Formally, we show that data restrictions may trigger a switch away from ad-funded to fee-funded model, resulting in a loss of consumer welfare. We also argue that restricting the effort to increase data quality weakens competition to the detriment of consumers.
    Keywords: ad-funded business model, data aggregation restrictions, targeted advertising, platform competition, merchant competition, transaction costs
    JEL: K21 L22 L40 M37
    Date: 2022
  8. By: Castriota, Stefano (University of Pisa); Rondinella, Sandro (University of Naples Federico II); Tonin, Mirco (Free University of Bozen/Bolzano)
    Abstract: We investigate the relationship between social capital and the decision to flee after a fatal road accident. This event is unplanned, and the decision is taken under great emotional distress and time pressure, thus providing a test of whether social capital matters for behaviour in extreme conditions. We merge data from the universe of fatality accidents involving pedestrians in the US over the period 2000–2018 with a unique dataset on social capital measures at the county level. Using within-state-year variation, our results show that one standard deviation increase in social capital is associated with a reduction in the probability of hit-and-run of around 10.5%. The causal interpretation of this evidence is supported by a number of falsification tests based on differences in social capital endowment between the county where the accident occurs and the county where the driver resides, as well as by the IV approach proposed by Lewbel (2012). Our findings show the importance of social capital in a new context, suggesting a broad impact on pro-social behaviour and adding to the positive returns of promoting civic norms.
    Keywords: hit-and-run, crime, social capital, road accidents
    JEL: Z13 D91 K42 R41
    Date: 2022–04
  9. By: Xinyu Hua (Department of Economics, The Hong Kong University of Science and Technology); Kathryn E. Spier (Harvard Law School and NBER)
    Abstract: A firm licenses a product to overlapping generations of heterogeneous consumers. Consumers may purchase the product, pirate/steal it, or forego it. Higher consumer types enjoy higher gross benefits and are caught stealing at a higher rate. In this framework, the firm may commit to an out-of-court settlement policy that is “soft†on pirates, so high-types purchase the product and low-types steal the product until caught and subsequently settle. Settlement contracts, which include both cash payments and licenses for future product use, facilitate price discrimination. License duration is (weakly) longer when property rights are stronger, network externalities are significant, and entry threats exist. Settlement may either create social value by expanding the market or destroy social value by limiting market access and possibly deterring more efficient entrants.
    Date: 2021–02
  10. By: Gregor Langus; Vilen Lipatov
    Abstract: We study the question whether a holder of standard essential patents (SEPs) should be allowed to choose the level in the value chain at which to offer a FRAND license to its SEPs. We give a pos-itive answer to this question for two reasons. First, the SEP holder and the social planner tend to choose the licensing level that, other things being equal, minimizes transaction costs. Second, the SEP holder maximizes total output, which is often aligned with social welfare maximization by the planner. These two factors make it likely that the SEP holder chooses the efficient level of SET licensing.
    Keywords: standard-essential patents, SEP licensing, FRAND, telecommunications, royalty base, licensing level, alignment of incentives
    JEL: K21 L40 O34
    Date: 2022
  11. By: C.S.C.Sekhar (Institute of Economic Growth, Delhi)
    Abstract: Indian Parliament has recently enacted three laws related to agricultural marketing (two laws and an amendment to an existing Act), which are popularly called the ‘Farm Laws’. The enactment of these laws led to largescale unrest and protests in some parts of the country, particularly the northwestern states of Punjab, Haryana and Uttar Pradesh. Several concerns have been raised, particularly related to continuance of the minimum support price, possible abolition of APMC markets and privatization of agriculture leading to corporate takeover of small farms. This essay is an attempt to find answers to some of these questions. The essay delves into the important aspects of these laws – the background and the rationale; the actual provisions (of these laws) & their implications; the main shortcomings and the needed improvements. The broad conclusion of the study is that the broad intent and content of the laws appear to be in the right direction but some serious flaws need to be corrected. Also, the laws need to be complemented with a set of structural reforms in agricultural support system and land markets to be really effective.
    Keywords: Agricultural marketing: farm laws; India; contract farming; essential commodities Act
    Date: 2021–04

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