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on Law and Economics |
| By: | Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Jasmin Golder (University of Heidelberg); Rima-Maria Rahal (Max Planck Institute for Research on Collective Goods and University of Heidelberg) |
| Abstract: | Defendants should be judged on the merits of the case, not on prejudice, rumors, or evidence obtained through questionable methods. This is why criminal law of procedure regulates which information can be introduced in a trial. Two types of prohibited evidence are the criminal history of the defendant (the defendant shall not be considered more likely guilty since he had earlier been convicted for another crime), and information harvested from an unauthorized wiretap. In a series of online vignette experiments involving 1432 US participants, we show that character evidence never makes it significantly more likely that the defendant is judged guilty, whereas wiretap evidence has a strong effect. Various interventions aimed at debiasing the adjudicator have an effect, but this effect is insufficient to neutralize the bias. |
| Keywords: | criminal procedure, character evidence, wiretap, bias, debiasing |
| JEL: | C91 D02 D84 D91 K14 K41 K42 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:mpg:wpaper:2024_17 |
| By: | Gianluca Cafiso; Marco Ferdinando Martorana |
| Abstract: | We investigate the extent to which crime, and the inability to effectively suppress it, affect the performance of local banks in terms of credit extension, asset quality, and profitability. The analysis focuses on cooperative banks in Italy, typically small institutions with strong ties to their local communities, over the period 2013–2023. The findings suggest that both crime and judicial inefficiency, even when considered separately and after controlling for banks’ operational efficiency, significantly influence credit extension and the incidence of non-performing loans. While their impact on overall profitability appears limited, non-interest income is significantly reduced. |
| Keywords: | cooperative banks, crime, judicial inefficiency, loans, profitability |
| JEL: | G21 E51 K42 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12025 |
| By: | Mark Hoekstra; Suhyeon Oh; Meradee Tangvatcharapong |
| Abstract: | We implement five different tests of whether grand juries, which are drawn from a representative cross-section of the public, discriminate against Black defendants when deciding to prosecute felony cases. Three tests exploit that while jurors do not directly observe defendant race, jurors do observe the “Blackness” of defendants’ names. All three tests—an audit-study-style test, a traditional outcome-based test, and a test that estimates racial bias using blinded/unblinded comparisons after purging omitted variable bias—indicate juries do not discriminate based on race. Two additional tests indicate racial bias explains at most 0.3 percent of the Black-White felony conviction gap. |
| JEL: | J15 J71 K42 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34106 |
| By: | Daniel Engler (University of Kassel, Institute of Economics); Marvin Gleue (University of Kassel, Institute of Economics); Gunnar Gutsche (University of Kassel, Institute of Economics); Sophia Möller (University of Kassel, Institute of Economics); Andreas Ziegler (University of Kassel, Institute of Economics) |
| Abstract: | Legal norms can have a direct effect on individual behavior through their legal enforcement. However, according to the ‘expressive function of law, ’ they can also have indirect effects on individual behavior by shaping related social norms. Since evidence for this expressive function is scarce, we consider a new law on corporate due diligence for the protection of human rights and the environment (i.e. the German Supply Chain Act) and empirically examine its indirect effects on individual sustainable purchasing behavior, as indicated by the willingness to pay (WTP) for sustainable socks, where sustainability is ensured by the certification with a label of the Fair Wear Foundation. The empirical analysis is based on data from a pre-registered and incentivized experiment implemented in a representative survey of 1, 017 citizens in Germany. Before making socks purchasing decisions and the elicitation of related personal injunctive and perceived social norms, the respondents were randomly assigned to either a control group or a treatment group that received information about the German Supply Chain Act. We examine average treatment effects and, based on a causal mediation analysis, the mediating role of related personal injunctive and perceived social norms on individual sustainable purchasing behavior. A manipulation check shows that the treatment information has a significantly positive effect on individual knowledge about the objectives of the German Supply Chain Act. However, the treatment information has no significant effect on the WTP for sustainable socks with the Fair Wear Foundation label or on related norms. Although our mediation analysis reveals that personal injunctive and perceived social norms are significantly positively correlated with this WTP, our experimental analysis does not provide any evidence for the expressive function of law in the case of the German Supply Chain Act and individual sustainable purchasing behavior. |
| Keywords: | Legal norms, personal injunctive norm, perceived social norms, German Supply Chain Act, individual sustainable purchasing behavior |
| JEL: | D91 K38 Q58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:mar:magkse:202510 |
| By: | Sumana Kundu (Indira Gandhi Institute of Development Research) |
| Abstract: | Undertreatment, i.e., providing a minor treatment for a serious problem, may provide a partial benefit or may further worsen the actual condition. This paper studies the implications of undertreatment on a credence goods expert's pricing and treatment strategies and on the social welfare under two different liability regimes: strict liability rule and no liability rule. We characterize conditions under which a no liability rule is more socially efficient compared to a strict liability rule. When an expert's diagnosis is accurate, a no liability rule is efficient compared to a strict liabilit y rule unless the cost of serious treatment is relatively low or there is sufficient loss from undertreatment. Consequently, if undertreatment increases the loss from the serious problem, the strict liability rule results in higher social welfare than the no liability rule. In the presence of diagnosis errors, the strict liability rule leads to no trade, and the no liability rule is more efficient than the strict liability rule when the probability of the serious problem is low. This holds irrespective of whether undertreatment results in benefit or harm to the serious problem. |
| Keywords: | Credence Goods; Undertreatment; Diagnosis Error; Liability Rule; Social Welfare |
| JEL: | D40 D80 D82 D83 L10 |
| URL: | https://d.repec.org/n?u=RePEc:ind:igiwpp:2025-015 |
| By: | Andreas Kotsadam; Mette Løvgren |
| Abstract: | Using data from over 24, 000 respondents in the Norwegian Crime Victimization Survey, we conducted a double list experiment to measure domestic violence (DV). Both list experiments revealed a statistically significant decrease in reporting when including a sensitive DV item. This clear violation of the “no design effects” assumption is not only explained by floor effects. One possibility is that the results indicate a "fleeing" behavior whereby respondents try to avoid association with DV. Combined with the inherent power limitations of list experiments in many contexts, these results underscore the need for caution in employing list experiments to measure DV, even in large samples. |
| Keywords: | domestic violence, list experiment, Norway |
| JEL: | J16 K14 I14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12028 |
| By: | Daniel Engler (University of Kassel, Institute of Economics); Marvin Gleue (University of Kassel, Institute of Economics); Gunnar Gutsche (Paderborn University, Faculty of Business Administration and Economics); Gerrit Hornung (University of Kassel, Institute of Business Law); Sophia Möller (University of Kassel, Institute of Economics); Sabrina Schomberg (University of Kassel, Institute of Business Law); Andreas Ziegler (University of Kassel, Institute of Economics) |
| Abstract: | Inspired by the controversial public and political debate in the European Union (EU) about legal initiatives to protect human rights and the environment along supply chains (e.g., the Corporate Sustainability Due Diligence Directive, CSDDD), this paper examines individual preferences for different designs of supply chain laws that are stricter than the current national legislation. Our econometric analysis is based on data from a representative online survey of 507 citizens in Germany that especially included a stated choice experiment. Our estimation results show that individuals in Germany, on average, have a significantly positive preference for stricter supply chain laws compared to the existing national Supply Chain Act. In addition, the majority of the respondents expect positive sustainability impacts of supply chain laws, while there is ambiguity in the perceptions of whether the economic consequences are predominantly negative. With respect to political attitudes, our results show that citizens with a social or ecological political identification have significantly stronger preferences for stricter supply chain laws. However, in contrast to the strong opposition of conservative and liberal parties in Germany to stricter supply chain legislation, individuals with a liberal or conservative political identification do not have significantly different preferences for stricter supply chain laws than their counterparts. Our results therefore suggest that the political blockade of supply chain laws does not correspond to the views of the majority of the population in Germany. |
| Keywords: | Supply chain laws, individual preferences, stated choice experiment |
| JEL: | K23 K32 K38 Q56 Q58 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:mar:magkse:202509 |
| By: | Ashenafi Biru; Pia Arenius (EM - EMLyon Business School) |
| Abstract: | Entrepreneurs' rule-breaking behavior in its various forms is prevalent across settings, undermining economic and societal values. Previous research has explored rule-breaking in emerging economies, often attributing noncompliance to cumbersome regulatory frameworks. However, there is limited understanding of how entrepreneurs actively undermine enforcement efforts to normalize rule-breaking. In this study, we examine the actions entrepreneurs in an emerging economy adopt to weaken enforcement and normalize rule-breaking activities. We find that entrepreneurs perceive rule-breaking as a way to outsmart the regulatory system and act, both individually and collectively, to discourage authorities from applying penalties for activities deemed noncompliant. We highlight how these actions are inherently destructive, as they sustain enforcement weaknesses in the setting. Our study contributes to the growing literature on rule-breaking and destructive entrepreneurship, offering theoretical implications and policy suggestions aimed at redirecting destructive entrepreneurial behaviors toward more productive ends. |
| Keywords: | Enforcement weakness, Ambiguous regulatory environment, Destructive entrepreneurship, Rule breaking |
| Date: | 2025–07–08 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05196640 |
| By: | Vîntu, Denis |
| Abstract: | This paper examines the role of artificial intelligence (AI) in combating money laundering (AML), focusing on a comparative study between Romania and the Republic of Moldova. Romania demonstrates advanced AI integration within its financial institutions, employing machine learning and predictive analytics to enhance transaction monitoring, risk assessment, and regulatory compliance. In contrast, Moldova is in the early stages of adopting AI for AML, facing structural, technical, and regulatory challenges that limit the effectiveness of its anti-money laundering efforts. The study highlights how technological adoption, institutional capacity, and regulatory frameworks intersect to shape AML effectiveness. By analyzing similarities, differences, and lessons learned, the paper provides insights into how AI can strengthen financial integrity while addressing the evolving challenges of illicit financial flows in different national contexts. |
| Keywords: | Anti-Money Laundering, AML, Artificial Intelligence, AI, Financial Crime, Romania, Republic of Moldova, Regulatory Compliance, Transaction Monitoring, Risk Assessment |
| JEL: | G18 G21 K22 O33 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125824 |
| By: | John Zhuang Liu (University of Hongkong); Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Yun-chien Chang (Cornell Law School) |
| Abstract: | A real-world puzzle has eluded the attention of scholars and policymakers. Using unique data sets covering more than 8 million civil lawsuits in mainland China, Taiwan, and Japan, we observe that parties are often pro se even when high amounts of money are at stake. One (partial) explanation could be a “tipping point effect”: parties are more inclined to be represented by an attorney if they expect the case to be a close call – and less inclined if they believe the odds of winning to be very high or very low. We support the tipping point effect in survey experiments framed as litigation. If the otherwise identical experiment is an unframed lottery, the effect disappears. Based on this evidence, we argue that the effect results from the combination of two behavioral effects: reference point dependence, and competitive spirit. |
| Keywords: | pro se, attorney representation, reference point dependence, the near miss effect, anticipated regret, framing, competitive spirit |
| JEL: | C91 D86 D91 K41 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:mpg:wpaper:2025_01 |
| By: | Hanming Fang; Ming Li; Jia Xiang |
| Abstract: | This paper investigates how physicians adjust their clinical decision-making following medical malpractice lawsuits and how these responses are driven by mental rather than financial costs, and do not align with rational expectations. We combine a comprehensive health insurance claim database from a Chinese city with the universe of malpractice lawsuits to study changes in physician behavior and patient outcomes. We find that physicians respond to lawsuits by practicing more conservatively, rejecting high-risk patients, reducing surgery rates, and increasing the use of diagnostic tests and traditional Chinese medicine. These changes are associated with worse patient outcomes, consistent with defensive medicine. The effects are not limited to the directly involved departments but spill over to other departments within the same hospital. In addition, the changes are short-lived, with physicians reverting to their pre-lawsuit treatment patterns in eight weeks. We provide evidence that such responses are likely driven by mental cost (including fear) and deviate from rational expectations. First, physicians in hospitals with more and less frequent lawsuits exhibit similar responses to a new lawsuit; moreover, they respond similarly to winning and losing cases. Second, physicians’ reactions to a patient’s death vary depending on the recency of a salient lawsuit. Lastly, physician responses are especially strong following criminal violence against physicians, which is emotionally and psychologically salient. |
| JEL: | I11 I12 P36 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34115 |