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Abstract: The process of ethnogenesis (i.e., the formation of new ethnic groups) is here considered equivalent to the production of “governance goods” in situations where the state is weak or absent. In these cases, the process of ethnogenesis is a response to (1) the problem of social distance between heterogeneous groups which functions as a barrier to trade, and (2) the problem of providing public goods. As an investment in governance, ethnogenesis reduces the costs of trading and cooperating, and expands the scope for specialization. We rely on two examples of peaceful and productive relations between First Nations and European settlers in Canada between the early seventeenth and mid-nineteenth centuries to support our hypothesis. The emergence of “hybrid” cultural groups and identities fostered peaceful relations and facilitated trade in borderland areas in which state rule was virtually nonexistent. It also permitted these new groups to provide key collective goods within their own communities. This, in turn, facilitated international trade (especially in furs). Both of our examples suggest that cultural processes can be endogenous responses aimed at the production of governance. PubDate: 2023-05-07
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Abstract: We develop a game-theoretic model of strategic crime in which a criminal organization chooses the profile of the operative it recruits to carry out illegal activities and a law enforcement agency allocates screening capacity across different population groups. Our model incorporates heterogeneity in both criminal effectiveness and recruitment costs across population groups. Restricting the use of profiling by law enforcement officers prevents them from adopting the best response to the criminal organization’s recruitment strategy. But, rather than simply leaving law enforcement worse off, the restrictions can change the recruitment patterns of the criminal organization in ways that could have positive or negative effects on the total amount of successful criminal activity. We formally explore these mechanisms. Whether profiling restrictions reduce crime depends on how different types of heterogeneity across population groups are aligned. When profiling restrictions do reduce crime, weak restrictions on the use of profiling are generally more effective than strong restrictions. PubDate: 2023-04-18
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Abstract: The aim of this paper is to evaluate the impact of the 2010 French judicial reform of commercial courts on firms’ financial bankruptcy rate at the municipality level. The research is based on a panel dataset containing microdata between 2004 and 2015, taken from Banque de France and the French National Institute of Statistics. We use a difference-in-differences analysis comparing the economic behaviour of firms in municipalities where the reform was implemented with those where it was not before and after the reform. The econometric findings indicate that municipalities that changed commercial courts because of the reform experienced a decrease in firms’ bankruptcy rate but that changing the judicial map did not impact the arbitrage between liquidation and reorganisation of the insolvent companies. Some policy implications conclude the work. PubDate: 2023-04-02
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Abstract: We undertake a meta-analysis of 1296 estimates of the effect of target-country legal environments on cross-border mergers and acquisitions (CBMAs) compiled from 60 published studies. Although these studies provide effect estimates that are statistically significant, none of the legal variables considered, save civil law, has an effect on either CBMA intensity or the CBMA premium that is large enough to be meaningful. Thus, the studies fail to provide support for legal origins theory or for theories based on cultural distance as explanations for CBMA activity. Studies of the CBMA premium are plagued by inadequate statistical power, by unexplained inter-study differences in effect and by publication-selection bias. Based on our meta-analysis, we suggest reasons why the empirical evidence fails to support theories that have wide acceptance. PubDate: 2023-04-01 DOI: 10.1007/s10657-022-09751-8
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Abstract: We study a model that establishes a novel theoretical rationale for the empirically well-documented relation between inequality and corruption. According to our model, inequality can nurture corruption by empowering organized crime because collusion between local police forces and criminal organizations is more likely in societies characterized by high inequality or weak security forces. Law enforcement and organized crime have a strong incentive to collude due to efficiency gains from specialization. However, their agreement breaks down when the mobsters can no longer credibly commit to joint rent maximization and thus start to compete with law enforcement for citizens’ wealth. The mobsters then non-violently monopolize the market for extortion by undercutting the police forces, similar to a strategy of predatory pricing. Criminal collusion is thus not very different from its corporate equivalent; hence, similar policy measures should be promising. In addition, our model also suggests that the criminal organization’s higher efficiency in extracting rents has a greater impact when the relative power between law enforcement and organized crime is rather balanced. Accordingly, when violent conflict becomes less predictable, non-violent elements of relative power become more relevant. Our model also allows for the interpretation that in the absence of strong social norms against corruption, organized crime is more difficult to challenge. PubDate: 2023-03-23
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Abstract: This article puts into perspective enforcement as conducted by the French Financial Market Authority since its creation in 2003 until 2021 with respect to the current state of the literature on financial crimes. The three main channels of action are exhaustively surveyed: sanctions, settlements (since 2012), and alerts (since 2010). The sample is comprised of 393 sanctions standing for cumulated 371 million euros of fines, of 86 settlements standing for cumulated 13 million euros of fines, and of 194 alerts. The article also underlines the complex challenges of information acquisition regarding financial crimes, despite increased efforts of enforcers in terms of transparency. Financial innovations and internationalization of financial markets also contribute to challenge enforcement. This review is supplemented by investigating the translation of regulatory changes into the verdicts for breaking the law, measured as the fines. The results stress that the majority of legal criteria introduced in 2016 were already accounted for, with room for improvement for enforcers and defendants. The ultimate goal of this article is to fuel regulatory debates on how to enforce financial regulations more efficiently in light of the recent history, in a European and globalized context. PubDate: 2023-03-04 DOI: 10.1007/s10657-023-09761-0
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Abstract: We analyze the introduction of capitation taxes as a mean of regulating professional services in a Principal-Agent moral-hazard framework. Although the tax increases cost and lowers participation, we find that it reduces the marginal price associated with quality. The optimal capitation system balances these opposing effects. We use the setup to derive comparative statics results and discuss possible impacts of improvements in ICT on occupational regulation. We find that the results are more ambiguous than often suggested. PubDate: 2023-02-15 DOI: 10.1007/s10657-023-09762-z
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Abstract: Using data on 4784 completed mergers and acquisitions in China announced between 2002 and 2016, we find that the adoption of the Chinese Anti-Monopoly Law substantially reduces the shareholder returns for horizontal acquisitions. Based on our findings on reduced post-merger sales and returns, we argue that a loss of market power drives this negative relationship. We also find that the acquiring firms’ cost efficiency does not significantly change as a result of the combination, suggesting that the decline in shareholders’ wealth after horizontal mergers is not because of reduced cost efficiency. Furthermore, we conduct a series of robustness checks to examine how adopting antitrust law decreases the wealth of producing firms’ shareholders. Overall, our results indicate that the government must implement stricter guidelines for antitrust policies to protect consumer welfare. PubDate: 2023-02-14 DOI: 10.1007/s10657-023-09763-y
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Abstract: Competition investigations start with market definition, which establishes the perimeter of the competitive analysis. In this paper, we focus on the definition of economic markets in the pharmaceutical industry, where the entry of generics in different therapeutic areas provides a sequence of quasi-natural experiments involving a significant competitive shock for the originator producer. We show how generic entry modifies price and non-price competitive constraints over time, generating market-wide effects. Paradoxically, generic entry may soften the competitive pressure for brands other than the originator. We obtain these results by econometrically estimating time-varying price elasticities. We then apply the logic of the Hypothetical Monopolist Test to gauge the strength of competitive constraints under different market structures. Our results provide strong empirical support for an approach that defines relevant markets contingent on the theory of harm. We discuss the relevance of these findings in the context of ongoing cases. PubDate: 2023-02-09 DOI: 10.1007/s10657-022-09760-7
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Abstract: Empirical studies on the economic theory of crime have extensively analyzed the importance of the probability of punishment with regard to premeditated criminal activities. Unplanned crimes also occur, however, and this paper will focus on a very serious and widespread example: the hit-and-run road accident. Using police records for every road accident with injuries or mortalities that took place in Italy in the period 1996–2016, we rely on changes in daylight, both when switching between daylight saving time and winter time and across seasons, as an exogenous source of variation affecting the probability of apprehension and find that the likelihood of hit-and-run conditional on an accident taking place increases by around 20% with darkness. Our results suggest that policies increasing the likelihood of apprehension could be effective in reducing hit-and-run. PubDate: 2023-02-01 DOI: 10.1007/s10657-022-09747-4
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Abstract: We analyse the legal and economic background and implications of the destandardisation of digital contracts, with a focus on consumer protection and overall efficiency. We argue that firms can exploit destandardisation paired with asymmetric information to extract rents. We propose the introduction of a numerus clausus principle in the digital licensing realm (a limit to the contractual freedom of parties to create proprietary rights) as a way of reducing rent extraction by firms and increasing consumer surplus. With a simple economic model, we account for the tradeoff between the benefit from reduced market power and the social cost of legally enforced standardisation, and show that some degree of enforced standardisation can be optimal. PubDate: 2023-02-01 DOI: 10.1007/s10657-022-09745-6
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Abstract: Measures of access to justice mainly use indicators from judicial statistics or legislation whereas subjective perceptions or attitudes are often measured by survey questions related to judicial services. Using Turkey’s Life Satisfaction Survey, we consider reluctance to report an experienced criminal incident, which is a factual statement, as an objective indicator affecting demand for and access to justice. We identify correlates of reluctance to report and find that poor socio-economic status is negatively associated with the probability of reporting a criminal incident, and that the impact is greater for women. Perceived social pressures related to gender and level of income adversely affect their probability of reporting, whereas men are not affected by social pressure in their decision to report criminal incidents. We then relate the probability of reluctance to report to the probability of giving a no opinion response to questions on perceptions of satisfaction with judicial services. We find that the two are correlated, providing evidence for the relationship between exclusion from access to justice and voice. PubDate: 2023-02-01 DOI: 10.1007/s10657-022-09748-3
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Abstract: The effect of digital piracy is often framed as a creator having to compete against unauthorized copies of their own creation, despite intellectual property rights laws. This framing has empirical and theoretical support, but the empirical findings often suggest that the magnitude and even sign of piracy effects depend on the characteristics of the software and the market. For example, piracy seems to have a larger negative effect on sales of high-profile works, but a smaller and perhaps even positive effect on lesser-known works. This paper seeks a theoretical explanation of differential piracy effects. It is unique in that it gives considerable focus to the market size, and also to budgetary limitations of the consumer base, motivated by high piracy rates in developing countries. The models imply that piracy is more likely to help developers when the market for the software is smaller; when network effects are neither too weak nor too strong; when piracy is neither to accessible nor too inaccessible; when the cost of piracy is relatively homogeneous; and when the consumer base is not too poor. All things considered, the inclusion of market size, consumer budgets, and heterogeneous piracy costs suggest that piracy is less likely to be beneficial to developers than previous literature suggest. Developer profit may be higher or lower with piracy, but buyer welfare is no worse, and is sometimes better, with piracy. PubDate: 2023-02-01 DOI: 10.1007/s10657-022-09750-9
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Abstract: Much political conflict in the world revolves around the issue of how much freedom to accord people. Liberal democracies are characterized by, e.g., the rule of law and a strong protection of civil rights, giving individuals a great deal of legally guaranteed freedom to lead their lives as they see fit. However, it is not known whether legal freedom suffices to make people satisfied with freedom. Our study explores that issue by relating seven indicators of legal freedom to the satisfaction people express with their freedom of choice. Using a sample of 133 countries over the period 2008–2018, and taking a panel-data approach, we find no robust baseline relationship. However, when exploring conditional associations by interacting the indicators with social trust, the rule of law is positively and increasingly related to satisfaction with freedom above and below a threshold level. Freedom of assembly is more positive for satisfaction with freedom the higher the GDP per capita and in democracies. Thus, for some types of legal freedom, formal legal institutions are complementary with culture, income and the political system in generating satisfaction with freedom. PubDate: 2023-02-01 DOI: 10.1007/s10657-022-09753-6
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Abstract: In this article, we study the decision-making of judges in an experimental setting resembling real world judicial decision-making in order to measure the impact of advisory guidelines on judges’ decisions in divorce cases. We gave 312 French future judges 48 case vignettes, built from real data related to divorce cases involving children. We compared two different subject pools: judges who were asked to set child support awards with an advisory guideline and judges who were asked to set child support awards without any guidelines. We find that guidelines help to reduce the disparity between judges: the variance in similar cases is lower when the subjects have the opportunity to use guidelines. On the other hand, this effect is not systematic since we observe an increase in heterogeneity in some particular cases. We interpret this result by considering that the guidelines may generate a conflict of norms: the judge may be torn between the social norm represented by the guidelines and based on the child’s interest and the legal norm that limits her decisions which need to stay within the parties’ proposals. An increase of heterogeneity would result from different trade-offs between judges. PubDate: 2023-02-01 DOI: 10.1007/s10657-022-09749-2
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Abstract: Since 1939, an artwork in Italy can be subject to an “export veto” if it was created more than 50 years before the date of sale by an artist who is no longer living at the time of the sale. When the Italian bureau decides to exercise its right to veto exportation, these artworks cannot circulate outside the territory of Italy. Using original data from a hand-collected dataset covering all artworks made by non-living modern and contemporary Italian artists, auctioned at Christie’s and Sotheby’s in London and Milan between 2012 and 2016, we estimate a threshold model to consider the effect of the export veto law on price while controlling for the potential presence of a sample selection bias. We found that, while artwork prices are increasing in the time span between the year of creation and the date of sale, this effect reverses for artworks sold in Italy and created more than 50 years before the sale date. A similar pattern is also found in pre-sale estimates fixed by the auction houses, suggesting they exhibit rational behaviour in anticipating the export veto effect. PubDate: 2022-12-10 DOI: 10.1007/s10657-022-09759-0
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Abstract: Prosecution of criminals is costly and subject to errors. In contrast to adversarial court procedures, in inquisitorial systems the prosecutor is regarded as an impartial investigator and an aide to the judge. We show in a sequential prosecution game of a Bayesian court that a strategic interaction between these two impartial agents exists where each player may hope to free ride on the other one´s investigative effort. This gives rise to inefficient equilibria. The model demonstrates that the effectiveness of some policy measures that intend to curb the free-riding problem critically depends on the assumed benevolence of the prosecutor. We find that, if policy makers are unable to infer the true preferences of the prosecutorial body, the high burden of proof in criminal law may reduce the probability of court errors. Our analysis, therefore, substantiates claims made in the literature that inquisitorial procedures are introduced to avoid wrongful acquittals. PubDate: 2022-12-09 DOI: 10.1007/s10657-022-09757-2
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Abstract: In order to prevent judicial bias and increase transparency within the court system, case distribution among judges is often subjected to specific rules. The question which arises, however, is whether these rules are obeyed in practice. In this paper, looking at the example from the Constitutional Tribunal of the Republic of Poland in the period 2011–2014, we check whether assigning judges to panels is consistent with the alphabetical rule that should govern the appointment of judges to cases. Our results show that the rule was fully obeyed only rarely and in fact, in most cases, it was notably disrupted. We test several potential explanations that may account for this issue. We find that the most obvious explanations such as formal preclusions, random events or other duties at the Tribunal can account for a minor share of the violations at best. Among the factors that we considered, a strategic composition of adjudication panels appears to have the highest explanatory potential. PubDate: 2022-12-01 DOI: 10.1007/s10657-022-09733-w
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Abstract: In this paper we provide an empirical analysis of German casino locations. Due to the “mercantilistic background” of casinos, we assume that casinos are more likely to be found at borders and in tourist areas. Even though location decisions have been made in the past, we use cross-sectional data at county level to analyze whether the current locations of casinos are consistent with present-day policy objectives. We discuss whether fiscal incentives and/or regulatory objectives to prevent harmful gambling are relevant for today's locations of German casinos. For our empirical analysis we use location and tourism indicators which are both significant factors for the location of German casinos. We find that the likelihood of a casino location increases if a county is located at a state border. We conjecture that border locations are chosen to share negative externalities of gambling with neighboring states while attracting revenues from out-of-state gamblers. This can be viewed as a type of beggar-thy-neighbor policy, which is inconsistent, however, with the objectives of the State Treaty, which is to provide legal gambling opportunities for the population within the state. For better implementation of the objectives, a more balanced distribution of casinos throughout the urbanized regions in Germany is recommended. PubDate: 2022-11-23 DOI: 10.1007/s10657-022-09758-1
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Abstract: Using a novel dataset, this paper explores the link between cross-border flows of illicit money and anti-money laundering (AML) regulatory and judicial system regimes. To this extent, we explore the information contained in thousands of suspicious activity reports filed by US banks and recently disseminated within the FinCEN files investigation. For a sample of 106 jurisdictions, we relate money laundering (ML) flows as well as the central role of each country’s banks within the international ML network to several variables capturing the AML regulatory stance and ML enforcement. The results point to the crucial role played by judicial system performance variables in explaining the layering phase patterns observed in the underlying data. PubDate: 2022-11-06 DOI: 10.1007/s10657-022-09756-3
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