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The Journal of Law and Economics, Volume 53, Issue 2, Page 289-306, May 2010.
Abstract Many communities are concerned about the reuse of potentially contaminated land (brownfields) and believe that environmental liability is a hindrance to redevelopment. However, with land price adjustments, liability might not impede the reuse of this land. This article studies state liability rules—specifically, strict liability and joint and several liability—that affect the level and distribution of expected costs of private cleanup. It explores the effects of this variation on industrial land prices and vacancy rates and on reported brownfields in a panel of cities across the United States. In the estimated equations, joint and several liability reduces land prices and increases vacancy rates in central cities. The results suggest that liability is at least partly capitalized but does still deter redevelopment. [...]
The Journal of Law and Economics, Volume 53, Issue 2, Page 399-416, May 2010.
Abstract There is concern that patent examiners lack the resources, capabilities, and incentives to properly identify the prior art against which patent applications are evaluated and that, as a result, they issue a large number of low‐quality patents. In this context, the extent to which applicants have incentives to contribute prior art is an important question. This paper uses data on examiner and applicant citations in U.S. patents to examine this question. The data show that applicants contribute a surprisingly low share of citations to previous patents and routinely fail to identify even their own previous patents. However, there are also stark differences across fields. Within fields, and even within firms, there is self‐sorting: applicants contribute more prior art for their more important inventions. The results suggest that incentives to search for prior art vary across industries and inventions, which reflects underlying differences in the strategic reasons for obtaining patent protection. [...]
The Journal of Law and Economics, Volume 53, Issue 2, Page 239-261, May 2010.
Abstract While several studies have examined the effects of cartels, in few instances are data available that allow us to examine postcartel behavior. In this paper, I use data on interisland airfares to examine the effects of an antitrust immunity agreement that allowed two airlines to coordinate capacity for a limited period of time. I find not only that prices rose during the period of coordination but that they remained high until the entry of a new competitor, 2$\frac{1}{2}$ years after immunity expired. That the incumbent airlines were able to sustain supracompetitive fares well past the end of immunity suggests that even short‐lived grants of immunity can have persistent effects. Policymakers should view even temporary grants of immunity with great skepticism, particularly in markets that already exhibit characteristics that may facilitate coordination. [...]
The Journal of Law and Economics, Volume 53, Issue 2, Page 263-287, May 2010.
Abstract We embed an ultimatum game in a stylized legal bargaining framework. This changes the framing of the standard ultimatum game in several ways but also moves the bargaining closer to what is found in some naturally occurring settings. In this context, the ultimatum game is played over the joint surplus, which is achieved from settlement rather than a dispute. In our embedded ultimatum game, the median offer contains only 8 percent of the joint surplus from settlement. When we replicate the simple ultimatum game, we find that 50 percent of the joint surplus is contained in the median offer. [...]
The Journal of Law and Economics, Volume 53, Issue 2, Page 359-378, May 2010.
Abstract This paper characterizes the choice between centralization and decentralization as a risk‐return trade‐off and examines it in a model that integrates ideas from committee decision‐making and portfolio theories. Centralization, by pooling expertise, rarely yields erroneous decisions; however, when it fails, the consequences are global. In contrast, in a decentralized system, erroneous decisions are more frequent, but their consequences are locally confined. We assess the relative desirability of (de‐)centralization in various scenarios with independent versus interdependent risks. We further discuss the robustness of the model and the relevance of our results for policymaking. [...]
The Journal of Law and Economics, Volume 53, Issue 2, Page 329-358, May 2010.
Abstract Property rights, whose security may be threatened by terrorism and civil conflict, are a necessary condition for a market economy. Yet a fundamental and unresolved empirical question is whether the lack of political and civil freedoms is a cause of greater insecurity. This paper takes a new approach to an answer by using microdata on 106,170 people in 61 nations for 1981–97. Controlling for country and year fixed effects, we find that freedom has strong and robust negative effects on revolutionary support. A 1‐standard‐deviation rise in freedom, equivalent to a shift from Argentina to the United States, decreases support by 3 percentage points, or 37 percent of the standard deviation of the proportion of people who want to revolt. Greater growth in the gross domestic product can buy off part of the increase in support when freedoms are constrained. Being religious reduces revolutionary tastes. [...]
The Journal of Law and Economics, Volume 53, Issue 2, Page 307-328, May 2010.
Abstract A number of recent papers have analyzed leasing in the new‐car market as a response to the adverse‐selection problem in the used‐car market originally explored in the seminal 1970 paper by George Akerlof. In this paper we consider a model characterized by both adverse selection, as in these earlier papers, and moral hazard concerning the maintenance choices of new‐car drivers. We show that this approach provides explanations for a number of empirical findings concerning real‐world new‐ and used‐car markets, including that leasing has become more popular over time, very high income new‐car drivers lease more, and used cars that were leased when new sell for more than used cars that were purchased when new. We also compare and contrast our approach to new‐car leasing with alternative approaches. [...]
The Journal of Law and Economics, Volume 53, Issue 2, Page 379-398, May 2010.
Abstract The U.S. Department of Veterans Affairs compensates 13 percent of the nation’s military veterans for service‐related disabilities through the Disability Compensation (DC) program. In 2001, a legislative change made it easier for Vietnam veterans to receive benefits for diabetes associated with military service. In this paper, we investigate this policy’s effect on DC enrollment and expenditures as well as the behavioral response of potential beneficiaries. Our findings demonstrate that the policy increased DC enrollment by 6 percentage points among Vietnam veterans and that an additional 1.7 percent experienced an increase in their DC benefits, which increased annual program expenditures by $2.85 billion in 2007. Using individual‐level data from the Veterans Supplement to the Current Population Survey, we find that the induced increase in DC enrollment had little average impact on the labor supply or health status of Vietnam veterans but did reduce labor supply among their spouses. [...]
The Journal of Law and Economics, Volume 53, Issue 1, Page 95-136, February 2010.
Abstract We investigate the evolution of the legal institution of citizenship from a political economy perspective. We first present a median‐voter model of the determination of citizenship laws. Next we test the implications of the model on a new set of data on citizenship laws across countries. We show that citizenship laws respond to economic and institutional determinants endogenously. When facing increasing immigration, countries with a jus soli regime tend to restrict their legislation, whereas countries with a jus sanguinis regime resist innovation. The welfare burden does not prove to be an obstacle to jus soli legislation, but demographic stagnation encourages it. A high degree of democracy promotes the adoption of jus soli elements, whereas instability of state borders determined by decolonization impedes it. Religion and ethnic diversity have no residual effect. [...]
The Journal of Law and Economics, Volume 53, Issue 1, Page 137-165, February 2010.
Abstract We develop a legal contract enforcement theory of the decision to own or lease. The allocation of ownership rights will minimize enforcement costs when the legal system is inefficient. In particular, when legal enforcement of contracts is costly, there will be a shift from arrangements that rely on such enforcement (such as a rental agreement) toward other forms that do not (such as direct ownership). We then test this prediction and show that costly enforcement of rental contracts hampers the development of the rental housing market in a cross section of countries. We argue that this association is not the result of reverse causation from a developed rental market to more investor protective enforcement and is not driven by alternative institutional channels. The results provide supportive evidence for the importance of legal contract enforcement for market development and the optimal allocation of property rights. [...]
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