nep-law New Economics Papers
on Law and Economics
Issue of 2022‒08‒22
twelve papers chosen by
Eve-Angeline Lambert, Université de Lorraine

  1. Endogenous market structures, product liability, and the scope of product differentiation By Eric Langlais; Andreea Cosnita-Langlais
  2. Chilling Effects from Anti-SLAPP Laws By Schaufele, Brandon
  3. Another Day, Another Visit: Impact of Arkansas' Mandatory Waiting Period for Women Seeking an Abortion by Demographic Groups By Altindag, Onur; Joyce, Theodore J.
  4. Conflicting fiduciary duties and fire sales of VC-backed start-ups By Bian, Bo; Li, Yingxiang; Nigro, Casimiro A.
  5. Brand bidding restraints revisited – What is the appropriate economic and legal framework for the antitrust analysis of vertical online search advertising restraints? By Elias Deutscher
  6. The executions of French soldiers during the Great War: A quantitative study. By Olivier Guillot; Antoine Parent
  7. Proud to belong: The impact of ethics training on police officers By Donna Harris; Oana Borcan; Danila Serra; Henry Telli; Bruno Schettini; Stefan Dercon
  9. How Do Insurers Price Medical Malpractice Insurance? By Black, Bernard; Traczynski, Jeffrey; Udalova, Victoria
  10. Proximity to Help Matters: The Effect of Access to Centers of Legal Aid on Bankruptcy Rates By Kristina Hrehova; Stefan Domonkos
  11. Legitimize through Endorsement By Andrea Gallice; Edoardo Grillo
  12. Investor-led sustainability in corporate governance By Ringe, Wolf-Georg

  1. By: Eric Langlais; Andreea Cosnita-Langlais
    Abstract: The paper considers how product liability may shape firm size, product specification choices and market structure. We introduce a spatial Cournot duopoly on the linear market, where firms make an initial decision of product differentiation, then invest in precaution, before competing in quantity. Our main results are fourfold; 1) with full coverage of the market by the duopoly, there exist two equilibria (in pure strategies): central agglomeration (which is stable for low liability costs), and dispersion (which is stable for not too large liabiliy costs); 2) for larger liability costs, a mixed market structure duopoly/monopoly sustains a unique equilibrium with product differentiation; 3) this equilibrium enables a scope of differentiation higher (smaller) than the full duopoly (the social optimum); 4) the impact of liability costs on firms size and profits is complex, since it depends on the impact on both product differentiation and market structure. Finally, we show that consumer surplus and social welfare are both higher under the mixed market structure than under the full duopoly in an equilibrium with product differentiation.
    Keywords: horizontal differentiation, Cournot competition, spatial model, endogenous market structures, product liability, strict liability, negligence
    JEL: L41 K21 D82
    Date: 2022
  2. By: Schaufele, Brandon
    Abstract: Anti-SLAPP legislation has proliferated across the US and Canada. SLAPPs are strategic lawsuits against public participation, "private claims whose objective is to chill opposition by limiting parties' ability to participate in public debate. SLAPPs involve a complementarity between a private harm, typically the tort of defamation, and an extra-judicial project, often a real estate development. This paper incorporates SLAPPS into a standard model of frivolous litigation, demonstrating that the economic implications of SLAPPs are narrower than frequently portrayed. A staggered adoption difference-in-differences research design is applied to empirically estimate the chilling effects of anti-SLAPP laws on construction investment and new home starts in Canada. Results demonstrate that anti-SLAPP laws do chill construction investment by roughly $80 million per month within Canadian cities. New starts of single family homes also decline by 120 per month relative to a counterfactual scenario where anti-SLAPP laws do not exist.
    Keywords: Anti-SLAPP laws, chilling effects, civil procedure, frivolous lawsuits, real estate development, tort.
    JEL: K13 K41 R31
    Date: 2022–06–27
  3. By: Altindag, Onur (Bentley University); Joyce, Theodore J. (Baruch College, City University of New York)
    Abstract: Twenty-six states require that women seeking an abortion wait between 18 and 72 hours after receipt of counseling before the abortion can be completed. Thirteen states require that the counseling be given in person necessitating at least two visits to the provider. In April of 2015, Arkansas increased the waiting period for an abortion from 24 to 48 hours and more significantly, required that women receive the counseling in person. We use a regression discontinuity design to analyze the immediate effect of Arkansas's 2015 mandatory waiting period (MWP) law on abortion rates. We use de-identified, individual-level data from the Arkansas Department of Health (DOH) on all abortions performed in Arkansas from 2000 to 2020. Abortion rates fell 17 percent among all women, but 22 percent among white non-Hispanics and 14 percent among black non-Hispanics immediately after the law went into effect. We show that the law decreased abortion rates the most among unmarried adults with children. Abortion is now illegal in Arkansas. Given the decline in abortion rates associated the MWP's two-visit requirement, abortion rates will likely fall further as travel distance to the nearest legal provider increases.
    Keywords: mandatory waiting period, abortion, Arkansas
    JEL: I11 I12 I18 J13 K23
    Date: 2022–07
  4. By: Bian, Bo; Li, Yingxiang; Nigro, Casimiro A.
    Abstract: This paper studies the interactions between corporate law and VC exits by acquisitions, an increasingly common source of VC-related litigation. We find that transactions by VC funds under liquidity pressure are characterized by (i) a substantially lower sale price; (ii) a greater probability of industry outsiders as acquirers; (iii) a positive abnormal return for acquirers. These features indicate the existence of fire sales, which satisfy VCs' liquidation preferences but hurt common shareholders, leaving board members with conflicting fiduciary duties and litigation risks. Exploiting an important court ruling that establishes the board's fiduciary duties to common shareholders as a priority, we find that after the ruling maturing VCs become less likely to exit by fire sales and they distribute cash to their investors less timely. However, VCs experience more difficult fundraising ex-ante, highlighting the potential cost of a common-favoring regime. Overall the evidence has important implications for optimal fiduciary duty design in VC-backed start-ups.
    Keywords: Acquisitions,Corporate Governance,Fiduciary Duties,Fire Sales,Liquidation Preferences,Trados,Venture Capital
    JEL: G24 G33 G34 K20 K22 K40 M13
    Date: 2022
  5. By: Elias Deutscher (Centre for Competition Policy and School of Law, University of East Anglia)
    Abstract: This paper explores the law and economics of brand bidding restraints. By means of this novel type of restraints, brand owners restrict how their licensed retailers use their brand names and trademarks as keywords in paid search advertising. The paper tests and critically reflects on the restrictive approach European competition watchdogs have recently adopted towards brand bidding restraints. It contends that this harsh antitrust treatment of brand bidding restraints is not sufficiently grounded in the economic analysis of vertical restraints. In proposing a comprehensive framework for the legal and economic analysis of brand bidding restraints, the paper makes three principal contributions. First, it asserts that brand bidding restraints can have a number of procompetitive effects by internalising advertising-related externalities, addressing free-riding on display and traditional advertising and facilitating fixed cost recovery through price discrimination. Second, the paper considers different ways through which brand bidding restraints may harm competition and consumer welfare when they disproportionately affect infra-marginal consumers, prevent meaningful intra- and inter-brand comparisons or result in price discrimination on the basis of search costs rather than brand preferences. Moreover, brand bidding restraints are of particular concern when adopted in the context of dual distribution systems where vertically integrated brand owners have an incentive to raise their retailers’ costs to prevent them from cannibalising their own sales channel. Third, the paper explores various legal filters to disentangle and balance the anti- and procompetitive effects of brand bidding restraints. In this respect, the paper makes a number of policy recommendations for the future antitrust analysis of brand bidding restraints. These proposals could also inform the ongoing revision of the Vertical Block Exemption Regulation and Vertical Guidelines in the EU and in the UK.
    Keywords: Antitrust, online advertising, restraints
    Date: 2022–07–08
  6. By: Olivier Guillot; Antoine Parent
    Abstract: This paper explores the issue of the executions of French soldiers during the Great War in a quantitative perspective. Based on the “Shot in the First World War” database of the French Ministry of Defense, we first describe the characteristics of these soldiers who were sentenced to death by a council of war or summarily executed, and examine whether their profile has changed over the war years. This statistical portrait is then complemented by two regression analyses. The first one focuses on the temporal distribution of executions. Specifically, we investigate whether the variations in the number of executions over time were related to the intensity of engagements. The second analysis aims to explain the inter-county differences in the proportion of soldiers executed. Two main findings emerge from our study. First, the profile of the soldiers shot in 1914 was quite different from that of those who were executed in the subsequent years: they were more often farmers, enlisted in the infantry, without previous convictions. By contrast, the soldiers executed in 1917, the year of the mutinies, did not greatly differ in their characteristics from those shot in 1916. Secondly, the results of our regressions suggest that the vast majority of the executed soldiers were “poilus” like the others who found themselves before a firing squad for having committed a fault in a moment of weakness, often after being involved in particularly bloody fighting, and sometimes under the influence of alcohol. Their acts were probably, in most cases, much more driven by survival instinct than by pacifist motives or other political considerations.
    Keywords: Military executions; World War I; French Army; Military History.
    JEL: N44 K14 K42 D74
    Date: 2022
  7. By: Donna Harris; Oana Borcan; Danila Serra; Henry Telli; Bruno Schettini; Stefan Dercon
    Abstract: We investigate whether ethics and integrity training can improve values, attitudes and behavior of police officers. We conducted a field experiment in Ghana, where we randomly selected traffic police officers to participate in a training program informed by theoretical work on the role of identity and motivation in organizations. The training was designed to re-activate intrinsic motivations to serve the public, and to create a new shared identity of “Agent of Change,” aimed at inducing a collective shift in attitudes and behaviors. Data generated by a survey and an incentivized cheating game conducted 20 months later, show that the program positively affected officers’ values and beliefs regarding on-the-job unethical behavior and improved their attitudes toward citizens. Moreover, the program significantly lowered officers’ propensity to behave unethically, as measured by their willingness to cheat in the incentivized game.
    Keywords: Ethics training, police, experiment
    JEL: H76 K42 M53 D73
    Date: 2022–05–30
  8. By: Anatoliy V Kostruba; Vitaliy L Yarotskiy (Yaroslav Mudryi National Law University)
    Abstract: This paper reviews the legal status of a corporation as a legal entity in the aspect of crisis changes in the global economy. The relevance of the subject under consideration is determined by the susceptibility of the modern world economy to crisis impacts and the significant influence exerted by such changes on the course of economic development of individual states as a whole, as well as their economic systems and the corporations associated with the economies of individual countries. The significance of the legal status of corporations as legal entities as a whole and the impact of economic changes associated with the crisis on the legal aspects of the corporation activities are indicated. The main directions of corporate governance are determined by impact on them of the current crisis changes in the global economy. Changes in the legal status of a corporation as a legal entity, caused by crisis economic impacts, have a significant effect on the activities of both the corporation itself and all entities economically connected with it in a particular sphere of business activity. More important is the practical value of the paper in determining trends in the impact of global economic crises on the legal status of legal entities, which are corporations. The practical significance of the research seems to be in identifying and stating the main trends that affect the change in the legal status of corporations in the context of the impact of economic crises on them. The research of this study can be of significant practical importance for employees in the field of legal support for corporations, when identifying the main consequences of crises in the global economy on the current position of the corporation in the legal field of the country in which it is registered and conducts its business.
    Keywords: corporate law,economic crisis,legal field,legal status,legislative regulation,crisis changes,Legal entities,corporation
    Date: 2022–07–02
  9. By: Black, Bernard (Northwestern University); Traczynski, Jeffrey (Federal Deposit Insurance Corporation); Udalova, Victoria (U.S. Census Bureau)
    Abstract: We study the factors that predict medical malpractice ("med mal") insurance premia, using national data from Medical Liability Monitor over 1990 to 2017. A number of core findings are not easily explained by standard economic theory. First, we estimate long run elasticities of premia to insurers' direct cost (payouts plus defense costs), allowing for lags of up to four years, of only around +0.40, when one might expect elasticities near one. Second, state caps on malpractice damages predict a roughly 50% higher ratio of premia to direct costs even though, in competitive markets, a damages cap should affect premia primarily through effect on cost. A difference-in-differences analysis of the "new cap" states that adopted caps during the early 2000's provides evidence supporting a causal link between cap adoption and the ratio of premium to direct cost. Third, the premium-to-cost ratio, which one might expect to be fairly constant over time, instead varies widely both across states at a given time and within states across time. Our results suggest that insurance companies do not fully adjust revenues to changes in direct costs even over long time periods. Insurers in new-cap states have been able to charge apparently supra-competitive prices for a sustained period.
    Keywords: insurance premium, medical malpractice, physicians
    JEL: D22 G22 K13
    Date: 2022–06
  10. By: Kristina Hrehova; Stefan Domonkos
    Abstract: Personal bankruptcy aims to provide a fresh start to debtors. While bankruptcy is often the only solution to financial distress, large spatial distance to affordable legal services may result in its underuse by eligible debtors. Using a large administrative dataset of personal bankruptcies, we study the impact of spatial distance from public Centers for Legal Aid (CLAs) on the regional incidence of personal bankruptcy in Slovakia. We avoid endogeneity by focusing on the increased availability of legal aid controlling for the expected distance from the nearest CLA, which serves as the first contact point in the process of filing for personal bankruptcy in the Slovak Republic. Distance from these legal aid centers has a significant impact on personal bankruptcy rates: the closer the nearest CLA is, the larger the prevalence of personal bankruptcy is in a given municipality. We quantify the impact of service access on personal bankruptcy rates, showing that improved access to free legal aid has both a statistically and substantively significant impact on the use of personal bankruptcy by the public. At the end of the almost 3-year-long period analyzed, municipalities with good access to CLAs had 3.3 bankruptcies more per 1,000 inhabitants than municipalities with weak access to CLAs. This effect is significant, as the average national bankruptcy rate until December 2019 reached 6.3 bankruptcies per 1,000 persons.
    Keywords: personal bankruptcy; insolvency; policy analysis; regional inequalities; spatial access, public services
    JEL: G51 O18 R53 K35 D63
    Date: 2022–06
  11. By: Andrea Gallice; Edoardo Grillo
    Abstract: Individuals dier in their propensity to violate social norms. Over time, the propensity of some individuals to violate these norms may change in response to socioeconomic shocks. When these changes are not publicly observable, norm abidance may remain high because individuals fear social costs. We study how an opinion leader who is privately informed about the direction and size of the societal change can boost or hinder the abidance by a social norm. We show that the opinion leader can impact individuals' behavior when she is neither too ideologically sided in favor of the norm violation, nor too concerned about her popularity. The impact of the opinion leader is stronger when social concerns are an important driver of individuals' behavior, the uncertainty concerning the deepness of the societal change is high, and citizens interact more often with like- minded individuals.
    Keywords: Social norms; societal change; opinion leaders; endorsements; legitimization
    Date: 2022
  12. By: Ringe, Wolf-Georg
    Abstract: The transition to a sustainable economy currently involves a fundamental transformation of our capital markets. Lawmakers, in an attempt to overcome this challenge, frequently seek to prescribe and regulate how firms may address environmental, social, and governance (ESG) concerns by formulating conduct standards. Deviating from this conceptual starting point, the present paper makes the case for another path towards achieving greater sustainability in capital markets, namely through the empowerment of investors. This trust in the market itself is grounded in various recent developments both on the supply side and the demand side of financial markets, and also in the increasing tendency of institutional investors to engage in common ownership. The need to build coalitions among different types of asset managers or institutional investors, and to convince fellow investors of a given initiative, can then act as an in-built filter helping to overcome the pursuit of idiosyncratic motives and supporting only those campaigns that are seconded by a majority of investors. In particular, institutionalized investor platforms have emerged over recent years as a force for investor empowerment, serving to coordinate investor campaigns and to share the costs of engagement. ESG engagement has the potential to become a very powerful driver towards a more sustainability-oriented future. Indeed, I show that investor-led sustainability has many advantages compared to a more prescriptive, regulatory approach where legislatures are in the driver's seat. For example, a focus on investor-led priorities would follow a more flexible and dynamic pattern rather than complying with inflexible pre-defined criteria. Moreover, investor-promoted assessments are not likely to impair welfare creation in the same way as ill-defined legal standards; they will also not trigger regulatory arbitrage and would avoid deadlock situations in corporate decision-making. Any regulatory activity should then be limited to a facilitative and supportive role.
    Keywords: sustainability,ESG,climate change,capital markets,institutional investors,investor coalitions
    JEL: G28 G34 K22
    Date: 2022

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