Showing papers in "American Law and Economics Review in 2019"
TL;DR: This article used a novel estimation approach to measure the impact of police hiring, which exploits variation in federal Community Oriented Policing Services (COPS) hiring grants, while also controlling for the endogenous decisions of police departments to apply for these grants.
Abstract: Understanding the impact of police on crime is critical to designing policies that maximize safety. In this article, I use a novel estimation approach to measure the impact of police hiring, which exploits variation in federal Community Oriented Policing Services (COPS) hiring grants, while also controlling for the endogenous decisions of police departments to apply for these grants. Using data from nearly 7,000 U.S. municipalities, I find that a 10% increase in police employment rates reduces violent crime rates by 13% and property crime rates by 7%. The results also provide suggestive evidence that law enforcement leaders are forward-looking.
21 citations
TL;DR: In this article, the authors analyzed a contest in which property owners have private information about the property value they are trying to protect from thieves and determine whether or not to make their defense efforts observable.
Abstract: This article analyzes a contest in which property owners have private information about the property value they are trying to protect from thieves and determine whether or not to make their defense efforts observable. Using a framework with two property values and the intuitive criterion for equilibrium refinement, we show that a Perfect Bayesian equilibrium with observable defense effort always exists. Under restrictive circumstances, unobservable defense effort by both defender types may also constitute an equilibrium. In our framework, the classical distinction between observable and unobservable private precautions against crime thus results as an endogenous outcome.
16 citations
TL;DR: In this paper, the causal effect of in-person visitation on recidivism using unique, administrative data from the Iowa Department of Corrections was investigated. And the authors found that visitation itself, as currently implemented in Iowa, has no impact on the likelihood of recidivate.
Abstract: Tightening corrections budgets, the lack of a legal right to in-person prison visitation, and the increasing availability of video visitation have led many prison and jail administrators to consider limiting opportunities for in-person visitation. This is concerning given the large literature which argues inmates receiving in-person visits are less likely to recidivate upon release. On the other hand, these studies have not determined whether this relationship is causal or is instead driven by the correlation between receiving visits and having a network of family and friends that can offer support upon release. In this article, I estimate the causal effect of in-person visitation on recidivism using unique, administrative data from the Iowa Department of Corrections. I find that visitation itself, as currently implemented in Iowa, has no impact on recidivism. Instead, my results suggest prison policies that create meaningful support networks available to prisoners upon release may yield significant benefits.
10 citations
TL;DR: In this paper, the effects of law within a macroeconomic model using the investment-savings and liquidity-money (IS/LM) model at the heart of short-run macroeconomics are investigated.
Abstract: This article considers the effects of law within a Keynesian macroeconomic model Using the investment-savings and liquidity-money (IS/LM) model at the heart of “short-run” macroeconomics, I argue that law affects spending (“aggregate demand”) and that the changes in spending induced by law can affect output I contrast the law and macroeconomic perspective with the law and microeconomic approach that has dominated law and economics I demonstrate that law’s effects on aggregate demand, invariably ignored in law and economics, become particularly important when monetary policy is constrained by the “zero lower bound” (ZLB) on nominal interest rates At the ZLB, interest rates cannot adjust to bring aggregate demand into balance with the economy’s supply potential Economic output falls short of its potential due to inadequate demand At the ZLB, I argue that some micro-economically disfavored legal instruments, such as command and control regulation crafted to increase spending, become appealing relative to seemingly superior alternative instruments such as Pigovian taxation I conclude by arguing that law offers a potentially important but unexplored instrument of macroeconomic policy
8 citations
TL;DR: In this paper, the behavioral response of patentees to a change in patent term rules, due to passage of the TRIPS agreement, was measured by measuring the behavioral responses of patentee to a rare natural experiment.
Abstract: How much do market participants in different industries value a marginal change in patent term (i.e., duration of patent protection)? We explore this research question by measuring the behavioral response of patentees to a rare natural experiment: a change in patent term rules, due to passage of the TRIPS agreement. We find significant heterogeneity in patentee behavior across industries, some of which follows conventional wisdom (patent term is important in pharmaceuticals) and some of which does not (it also appears to matter for some software). Our measure is highly correlated with patent renewal rates across industries, suggesting the marginal value of patent term increases with higher expected profits toward the end of term.
7 citations
TL;DR: This paper found that increases in workers' compensation generosity lead to a significant decrease in fatality rates, while decreases in workers’ compensation generosity do not significantly increase fatality rate, and they also found that increased workers compensation generosity leads to increased fatality risk.
Abstract: With irreversible investments in safety, changes in workers’ compensation laws should affect employer incentives asymmetrically: increases in workers’ compensation generosity should cause employers to invest more in safety, but comparable decreases might not cause them to disinvest in existing precautionary programs or equipment. Although maximum weekly benefits caps have been fairly stable, state laws have expanded or restricted workers’ compensation on multiple other dimensions. State laws may impose new requirements regarding burdens of proof, access to medical care, and the duration of benefits. This article estimates the effect of changes in these more comprehensive measures of workers’ compensation laws on workplace safety. Using confidential, restricted data from the Census of Fatal Occupational Injuries, the article finds that increases in workers’ compensation generosity lead to a significant decrease in fatality rates, while decreases in workers’ compensation generosity do not significantly increase fatality rates.
6 citations
TL;DR: In this article, the authors show that the optimal number of hearings increases with an increment in the courts' concern for uniformity, and they also show that if hearing costs are linear then the hearing policies of all courts can be classified in only two types.
Abstract: While civil law courts of last resort—e.g., cassation courts in France, Italy, and Chile—review up to 90% of appealed cases, common law courts of last resort—e.g., supreme courts of the United States, United Kingdom, and Canada—hear as few as 1% of the same petitions. In this study, we postulate that these different policies can be explained by a comparatively larger commitment from common law courts of last resort to judicial law-making rather than judicial uniformity. While courts require few hearings to update the law (in theory one decision is sufficient), they need a large number of hearings to maximize consistency in the lower courts’ interpretation of the law. We show that the optimal number of hearings increases with an increment in the courts’ concern for uniformity. We also show that if hearing costs are linear then the hearing policies of all courts can be classified in only two types. In addition, we predict important changes in hearing policies when the number of petitions increases. Finally, we find that hearing rates and reversal disutility operate as two ways in which a legal system can achieve a given level of judicial uniformity.
5 citations
TL;DR: This article examined the impact of state exemption laws and state garnishment laws on bankruptcy and found that high garnishment rates have a positive impact on bankruptcy, which is increasing in income and assets.
Abstract: This article examines the heterogeneous impact of state exemption laws and state garnishment laws on bankruptcy. Using a new household-level dataset, my empirical specification simultaneously examines the impact these laws have on a household’s bankruptcy decision as well as a household’s assets and unsecured debts. I find that high exemption laws have a positive impact on bankruptcy and that this effect is increasing in assets. Additionally, I find that high garnishment rates have a positive impact on bankruptcy, which is increasing in income. Moreover, I examine the policy implications of standardizing state exemption laws and state garnishments laws. Understanding the heterogeneous effects of these laws is crucial as they suggest that a household with a given set of financial characteristics will seek bankruptcy relief if it resides in one state but will have to use alternative consumption smoothing measures if it lives in a different state.
3 citations
TL;DR: In this article, the authors investigated the optimal nature of law making under uncertainty and showed that the optimal policy should strike a balance between benefits and costs of the measures, and attenuate the ex-ante risk.
Abstract: This study investigates the optimal nature of law making under uncertainty. I focus on a case in which a harmful activity will be subjected to some regulatory measures (a standard, exposure to liability, or a corrective tax). The benefits and costs of precaution are ex-ante uncertain, and this places a risk burden on both injurers and victims. The optimal policy should, at the same time, strike a balance between benefits and costs of the measures, and attenuate the ex-ante risk. Whether measures should be made stronger or softer depends on the size and the sign of the shocks affecting the parties (positive or negative) and their disposition towards risk. With corrective taxes, it also depends on the elasticity of precautions with respect to the tax rate.
3 citations
TL;DR: In this paper, the authors consider three possible variations of the negligence doctrine, based on its two elements, the standard of care and damages, and find that accounting for signaling costs affects the social desirability of the rule.
Abstract: This article offers an analysis of negligence law in an environment with asymmetric information and costly signaling. We consider three possible variations of the negligence doctrine, based on its two elements—the standard of care and damages. We find that accounting for signaling costs affects the social desirability of the negligence rule. In a nontrivial number of cases, the social costs are lowest under the variation of the negligence regime in which the standard of care is the same for all types of victims but damages vary according to the victim’s type. This analysis provides an efficiency-based justification for the use of negligence doctrine in bodily injuries and wrongful death cases, a practice that has been considered one of the greatest “misalignment puzzles” in negligence law
3 citations
TL;DR: In this article, the authors investigate under what circumstances promisees retaliate to breach and to what extent expectation damages fulfill the function of crowding out retaliatory behavior, and reveal how norms of fairness play a fundamental role in shaping parties' reactions to breach, as promisees did not punish any violation of a prior agreement.
Abstract: Contracts commit individuals to a future course of action and create feelings of entitlement on the parties. In a contractual gap, parties’ duties and rights are not univocal, and while promisors will often feel entitled to breach, promisees will feel entitled to receive the promised performance. This divergence leads to disputes, aggrievement, and retaliatory behavior whenever one of the parties feels shortchanged. Remedies for breach are then apt not only to induce performance by promisors, but also to minimize promisees’ aggrievement, reduce retaliation, and thereby keep the peace in society. This article reports results from an experiment that investigates under what circumstances promisees retaliate to breach and to what extent expectation damages fulfill the function of crowding out retaliatory behavior. It reveals how norms of fairness play a fundamental role in shaping parties’ reactions to breach, as promisees did not punish any violation of a prior agreement. They rather punished breach when the promisor profited from it, and the outcome was an unfair distribution of the gains from trade. Neither loss of expectancy nor the inefficiency of the result induced retaliation. Expectation damages successfully crowded out retaliation by disappointed promisees, and thereby avoided high welfare losses from decentralized forms of punishment of perceived wrongs.
TL;DR: In this paper, the authors show that when the victim's compensation is partial (e.g., due to death or serious bodily injury), there are inefficiencies associated with the exclusive use of ex-post liability.
Abstract: This article deals with the control of hazardous activities in situations where potential victims can affect their exposure to risk. Economists have generally considered ex ante regulation (safety standards) to be a substitute for ex post policies (exposure to tort liability) in order to control externalities. We show that when the victim’s compensation is partial (e.g., due to death or serious bodily injury) there are inefficiencies associated with the exclusive use of negligence liability and that an optimal policy may involve the combined use of ex-ante regulation and ex-post liability. A noteworthy feature of our explanation is that regulation is complementary to liability, in the sense that it may facilitate a higher and more efficient standard of negligence. In that case, it is efficient to set the regulatory safety standard below the standard of negligence, which is consistent with the legal doctrines of negligence per se and the (non) regulatory compliance defense.
TL;DR: This paper used the empirical distribution of daily stock returns to analyze the bias and develop bias-corrected estimators of price impact in securities litigation, and analyzed the adjustment for optimal deterrence and found that it is material, but is nowhere equal to the opposing truncation bias.
Abstract: The single-firm event studies that securities litigants use to detect the impact of a corrective disclosure on a firm’s stock price have low statistical power. As a result, observed price impacts are biased against defendants and systematically overestimate the effect on firm value. We use the empirical distribution of daily stock returns to analyze the bias and develop bias-corrected estimators of price impact in securities litigation. Because of low statistical power, the ex ante incentives against committing securities fraud are also too low. We analyze the adjustment for optimal deterrence and find that it is material, but is nowhere equal to the opposing truncation bias.