American Law and Economics Review - recent issues

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Mon, 18 Jan 2010 04:11:30 PST

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Mon, 18 Jan 2010 04:11:30 PST

Introduction to the Death Penalty Symposium

Donohue, J. J., Shavell, S. — Thu, 04 Feb 2010 03:12:10 PST

Estimating the Impact of the Death Penalty on Murder

Donohue, J. J., Wolfers, J. — Mon, 18 Jan 2010 04:11:30 PST

This paper reviews the econometric issues in efforts to estimate the impact of the death penalty on murder, focusing on six recent studies published since 2003. We highlight the large number of choices that must be made when specifying the various panel data models that have been used to address this question. There is little clarity about the knowledge potential murderers have concerning the risk of execution: are they influenced by the passage of a death penalty statute, the number of executions in a state, the proportion of murders in a state that leads to an execution, and details about the limited types of murders that are potentially susceptible to a sentence of death? If an execution rate is a viable proxy, should it be calculated using the ratio of last year's executions to last year's murders, last year's executions to the murders a number of years earlier, or some other values? We illustrate how sensitive various estimates are to these choices. Importantly, the most up-to-date OLS panel data studies generate no evidence of a deterrent effect, while three 2SLS studies purport to find such evidence. The 2SLS studies, none of which shows results that are robust to clustering their standard errors, are unconvincing because they all use a problematic structure based on poorly measured and theoretically inappropriate pseudo-probabilities that are designed to capture the key deterrence elements of a state's death penalty regime, and because their instruments are of dubious validity. We also discuss the appropriateness of the implicit assumption of the 2SLS studies that OLS estimates of the impact of the death penalty would be biased against a finding of deterrence.

Does Capital Punishment have a "Local" Deterrent Effect on Homicides?

Hjalmarsson, R. — Mon, 18 Jan 2010 04:11:30 PST

The vast majority of death penalty studies use geographically or temporally aggregated data. Such aggregation can make it virtually impossible to identify small amounts of variation in homicides due to executions. Therefore, this study uses data that are disaggregated down to daily and city levels to test whether executions have a short-term deterrent effect. Little consistent evidence is found that Texas executions deter Dallas, San Antonio, and Houston homicides from 1999 to 2004. The analysis also does not consistently support the hypotheses that the deterrent effect should be more evident for local executions or executions that received local media coverage.

Model Uncertainty and the Deterrent Effect of Capital Punishment

Cohen-Cole, E., Durlauf, S., Fagan, J., Nagin, D. — Mon, 18 Jan 2010 04:11:30 PST

The reintroduction of capital punishment in 1976 that ended the four-year moratorium on executions generated by the Supreme Court in the 1972 decision Furman v. Georgia has permitted researchers to employ state-level heterogeneity in the use of capital punishment to study deterrent effects. However, no scholarly consensus exists as to their magnitude. A key reason that this has occurred is that the use of alternative models across studies produces differing estimates of the deterrent effect. Because differences across models are not well motivated by theory, the deterrence literature is plagued by model uncertainty. We argue that the analysis of deterrent effects should explicitly recognize the presence of model uncertainty in drawing inferences. We describe methods for addressing model uncertainty and apply them to understand the disparate findings between two major studies in the deterrence literature, finding that evidence of deterrent effects appears, while not nonexistent, weak.

Statistical Variability and the Deterrent Effect of the Death Penalty

Zimmerman, P. R. — Mon, 18 Jan 2010 04:11:31 PST

In a recent paper Donohue and Wolfers (D&W) critique a number of modern econometric studies purporting to demonstrate a deterrent effect of capital punishment. This paper focuses on D&W's central criticism of a study by Zimmerman; specifically, that the estimated standard errors on the subset of his regressions that suggest a deterrent effect are downward biased due to autocorrelation. The method that D&W rely upon to adjust Zimmerman's standard errors is, however, potentially problematic, and is also only one of several methods to address the presence of autocorrelation. To this end, Zimmerman's original models are subjected to several parametric corrections for autocorrelation, all of which result in statistically significant estimates that are of the same magnitude to his original estimates. The paper also presents results obtained from an alternative model whose specification is motivated on theoretical and statistical grounds. These latter results also provide some evidence supporting a deterrent effect. Finally, the paper discusses D&W's use of randomization testing and their contention that executions are not carried out often enough to plausibly deter murders.

Property Rights and Contract Form in Medieval Europe

Volokh, A. — Mon, 18 Jan 2010 04:11:31 PST

Throughout western Europe, beginning about 1200, leasing of lords' estates became more common relative to direct management. In England, however, direct management increased beginning around the same time and until the fourteenth century, and leasing increased thereafter. This article models contract choice as a trade-off between incentives and insurance. Leasing increases as living standards improve. In England, the increase in direct management can be explained by improved security of freehold tenure, and the increase in leasing can be explained not only by living standards but also by improved security of leasehold tenure.

The Deterrent Effect of Death Penalty Eligibility: Evidence from the Adoption of Child Murder Eligibility Factors

Frakes, M., Harding, M. — Mon, 18 Jan 2010 04:11:31 PST

We draw on variations in the reach of capital punishment statutes between 1977 and 2004 to identify the deterrent effects associated with capital eligibility. Focusing on the most prevalent eligibility expansion, we estimate that the adoption of a child murder factor is associated with an approximately 20% reduction in the child murder rate. Eligibility expansions may enhance deterrence by (i) paving the way for more executions and (ii) providing prosecutors with greater leverage to secure enhanced noncapital sentences. While executions themselves are rare, this latter channel may be triggered fairly regularly, providing a reasonable basis for a general deterrent response.

Potential Savings from Abolition of the Death Penalty in North Carolina

Cook, P. J. — Mon, 18 Jan 2010 04:11:31 PST

Despite the long-term decline in the number of death sentences and the lack of executions, the cost of the death penalty in North Carolina remains high. To document this cost, the empirical analysis here focuses on a recent two-year period, comparing actual costs associated with capital proceedings, with likely costs in the absence of the death penalty. The conclusion: the state would have spent almost $11 million less each year on criminal justice activities (including appeals and imprisonment) if the death penalty had been abolished. Additional criminal justice resources would have been freed up and available to be redirected to other cases.

Reassessing the Cost of the Death Penalty Using Quasi-Experimental Methods: Evidence from Maryland

Roman, J. K., Chalfin, A. J., Knight, C. R. — Mon, 18 Jan 2010 04:11:31 PST

Extant research on the cost of the death penalty consistently finds that pursuit of a death sentence adds costs to case processing. However, these studies have important limitations in either the sampling frame or in their failure to include adequate statistical controls. This research draws upon a rich dataset of capital-eligible cases in Maryland to estimate the additional cost of filing a death notice. Multivariate models are used to control for selection into capital case processing and for competing explanations of cost. We find that filing a death notice is associated with an additional one million dollars in costs.

A Loan Modification Approach to the Housing Crisis

Posner, E. A., Zingales, L. — Mon, 18 Jan 2010 04:11:31 PST

The housing crisis threatens to destroy hundreds of billions of dollars of value by causing homeowners with negative equity to walk away from their houses. We advocate a legal reform that would allow homeowners to reduce principal while giving mortgage holders an equity interest. Such a plan would give homeowners an incentive to keep or resell their homes, thus reducing the market value loss of homes while protecting the effective value of creditors’ interests. Two further elements of the plan are that it uses prices based on the average house price in a particular ZIP code; and it is automated.

Corporate Voting versus Market Price Setting

Listokin, Y. — Mon, 18 Jan 2010 04:11:31 PST

This paper examines the relation between two means of corporate information aggregation–-corporate voting and stock market pricing. If the median voter and the price-setting shareholder share similar information, then close proxy contest outcomes should not have systematic effects on stock prices. The paper shows, however, that close dissident victories cause positive movements in stock prices, while close management victories lead to negative price effects. The median voter values management control more than the price-setting shareholder. Voting and market pricing aggregate information in very different ways, with important implications for the role of voting and market pricing in corporate law.

Editors

Fri, 07 Aug 2009 07:59:47 PDT

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Fri, 07 Aug 2009 07:59:47 PDT

Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis

White, M. J. — Fri, 07 Aug 2009 07:59:47 PDT

This paper discusses four bankruptcy-related policy issues. First, what is the economic rationale for having a bankruptcy procedure at all and what defines an economically efficient bankruptcy procedure? Second, why did the number of U.S. bankruptcy filings increase so dramatically between 1980 and 2005? Third, a major bankruptcy reform went into effect in the United States in 2005—what did it do and how did it affect credit and mortgage markets? Finally, the paper discusses the mortgage crisis, the high social cost of foreclosures, and the difficulty of avoiding foreclosure by voluntarily renegotiation of mortgage contracts, even when such renegotiations are in the joint interest of debtors and creditors. I also discuss the pros and cons of government programs to refinance mortgages and the argument for giving bankruptcy judges new power to change the terms of residential mortgage contracts in bankruptcy.

The Impact of Legalized Abortion on Teen Childbearing

Donohue, J. J., Grogger, J., Levitt, S. D. — Fri, 07 Aug 2009 07:59:47 PDT

After 41 consecutive years of increase, out-of-wedlock teen childbearing unexpectedly reversed course in 1991 and by 2002 was 20% below its peak. Explanations for that reversal have proven elusive. In this paper, we present evidence that exposure to legalized abortion in utero for the cohort of women that became teenagers in the 1990s is one factor contributing to this decline. We estimate that the legalization of abortion in the 1970s changed the composition of women at risk of bearing children out of wedlock some 15–24 years later. This composition effect reduced out-of-wedlock teen birth rates by 6%, which accounts for roughly 25% of the observed decline in unmarried teen birth rates over this period. It also lowered rates of unmarried births for women aged 20–24. At the same time, it increased the number of married births to women 20–24, so that there is only a small reduction in total fertility over the ages 15–24. The detailed information available on birth certificates enables a more direct identification of in utero abortion exposure than prior studies looking at other outcomes such as crime.

Convictions versus Conviction Rates: The Prosecutor's Choice

Rasmusen, E., Raghav, M., Ramseyer, M. — Fri, 07 Aug 2009 07:59:47 PDT

It is natural to suppose that a prosecutor's conviction rate—the ratio of convictions to cases prosecuted—is a sign of his competence. Prosecutors, however, choose which cases to prosecute. If they prosecute only the strongest cases, they will have high conviction rates. Any system that pays attention to conviction rates, as opposed to the number of convictions, is liable to abuse. As a prosecutor's budget increases, he allocates it between prosecuting more cases and putting more effort into existing cases. Either can be socially desirable, depending on particular circumstances. We model the tradeoffs theoretically in two models, one of a benevolent social planner and one of a prosecutor who values not just the number of convictions but the conviction rate and unrelated personal goals. We apply the model to U.S. data drawn from county-level crime statistics and a survey of all state prosecutors by district. Conviction rates do have a small negative correlation with prosecutorial budgets, but conditioning on other variables in regression analysis, higher budgets are associated both with more prosecutions and higher conviction rates.

Long-Term Contracts and Short-Term Commitment: Price Determination for Heterogeneous Freight Transactions

Masten, S. E. — Fri, 07 Aug 2009 07:59:47 PDT

This paper considers a class of contracts in which parties write detailed, long-term performance obligations that leave one or both parties with broad discretion to terminate the agreement on short notice with little or no penalty. I argue that formal contracts may be valuable, even where trade involves little or no relationship-specific investment and termination is the only remedy, as a way of economizing on the cost of determining prices for a series of heterogeneous transactions. Evidence from a survey of truck drivers shows both the general structure of contracts between freight carriers and drivers and the manner in which hauls are priced to be consistent with the goal of economizing on renegotiation costs.

Do Masculine Names Help Female Lawyers Become Judges? Evidence from South Carolina

Coffey, B., McLaughlin, P. A. — Fri, 07 Aug 2009 07:59:47 PDT

This paper provides the first empirical test of the Portia Hypothesis: Females with masculine monikers are more successful in legal careers. Utilizing South Carolina microdata, we look for correlation between an individual's advancement to a judgeship and his/her name's masculinity, which we construct from the joint empirical distribution of names and gender in the state's entire population of registered voters. We find robust evidence that nominally masculine females are favored over other females. Hence, our results support the Portia Hypothesis.

Comparative Vigilance

Feldman, A. M., Singh, R. — Fri, 07 Aug 2009 07:59:47 PDT

A growing body of literature suggests that courts and juries are inclined toward division of liability between two strictly non-negligent or "vigilant" parties. In this paper, we explore the economic efficiency of liability rules based on comparative vigilance. We devise rules that are efficient and that reward vigilance. Commonly used liability rules have discontinuous liability shares. We develop a liability rule, which we call the "super-symmetric rule," that is both efficient and continuous, that is based on comparative negligence when both parties are negligent and on comparative vigilance when both parties are vigilant, and that is always responsive to increased care.

Who Wins in Settlement Negotiations?

Korobkin, R., Doherty, J. — Fri, 07 Aug 2009 07:59:47 PDT

When lawsuits are resolved out of court, what determines the settlement price? This article uses a laboratory simulation and path analysis to estimate the relative importance of measurable variables in determining who wins the battle for the cooperative surplus. In the simulated negotiation conditions, seven variables explained more than half of the variation in settlement outcomes achieved by participants, with negotiators’ predictions of their opponent's reservation prices the most important, followed by negotiator gender and amount of first offer. Although the specific context of this article is settlement, the insights generated are applicable to any two-party, distributive negotiation.

Crime and Expected Punishment: Changes in Perceptions at the Age of Criminal Majority

Hjalmarsson, R. — Fri, 07 Aug 2009 07:59:47 PDT

This paper assesses whether perceived punishment severity changes discontinuously when an individual becomes an adult in the eyes of the courts. I find that the perceived chance of jail increases by 5.2 percentage points at the age of criminal majority, which is over and above the general effect of aging. The magnitude of this subjective change in the chance of jail at the age of majority appears to be substantially smaller than that found in objective data. Finally, a reduced-form analysis of whether self-reported criminal behavior changes discontinuously at the age of criminal majority finds little consistent evidence of deterrence.

Management Always Wins the Close Ones

Listokin, Y. — Wed, 17 Dec 2008 07:07:41 PST

While much has been made of "shareholder democracy" as a lever of corporate governance, there is little evidence about the efficacy of voting. This paper empirically examines votes on management-sponsored resolutions and finds widespread irregularities in the distribution of votes received by management. Management is overwhelmingly more likely to win votes by a small margin than lose by a small margin. The results indicate that, at some point in the voting process, management obtains highly accurate information about the likely voting outcome and, based on that information, acts to influence the vote. The precise point at which this occurs is unclear, though it is likely to be near the "poll-closing" time. Whatever the cause of management's advantage, it is clear that shareholder voting does not constitute a "representative" direct democracy.

Defense Costs and Insurer Reserves in Medical Malpractice and Other Personal Injury Cases: Evidence from Texas, 1988-2004

Black, B., Hyman, D. A., Silver, C., Sage, W. M. — Wed, 17 Dec 2008 07:07:41 PST

We study defense costs for commercially insured personal injury tort claims in Texas over 1988–2004, and insurer reserves for those costs. We rely on detailed case-level data on defense legal fees and expenses, and Texas state bar data on lawyers’ hourly rates. We study medical malpractice ("med mal") cases in detail, and other types of cases in less detail. Controlling for payouts, real defense costs in med mal cases rise by 4.6 percent per year, roughly doubling over this period. The rate of increase is similar for legal fees and for other expenses. Real hourly rates for personal injury defense counsel are flat. Defense costs in med mal cases correlate strongly with payouts, both in ordinary least squares (OLS) and in an instrumental variable analysis. They also correlate with the stage at which a case is resolved, and case duration. Mean duration declined over time. Med mal insurers predominantly use outside counsel. Case-level variation in initial expense reserves predicts a small fraction of actual defense costs. In other areas of tort litigation (auto, general commercial, multi-peril, and other professional liability), defense costs rose by 2.2 percent per year. Defense costs in these cases are predicted by the same factors as in med mal cases, plus the presence of multiple defendants.

Insurer reserving practices raise some puzzles. Med mal insurers did not react to the sustained rise in defense costs by adjusting their expense reserves, either in real dollars or relative to reserves for payouts. Thus, expense reserves declined substantially relative to defense costs. In other litigation areas, expense reserves rose along with defense costs.

Does Post-Accident Drug Testing Reduce Injuries? Evidence from a Large Retail Chain

Morantz, A. D., Mas, A. — Wed, 17 Dec 2008 07:07:41 PST

This study examines the effects on occupational injury claims of a recently implemented post-accident drug testing (PADT) program in a large retail chain. We find that claims have fallen significantly in affected districts, suggesting that PADT programs can reduce injury claims, even in workplaces that already utilize other forms of drug testing. Our results also suggest that some types of employees—such as full-time workers, male workers, and higher-tenure workers—are particularly responsive. Finally, we find some "circumstantial evidence" that a portion of the observed decline could be caused by employees’ reduced willingness to report workplace accidents.

Bankruptcy Law and Entrepreneurship

Armour, J., Cumming, D. — Wed, 17 Dec 2008 07:07:41 PST

Recent initiatives in a number of countries have sought to promote entrepreneurship through relaxing the legal consequences of personal bankruptcy. Whilst there is an intuitive link, relatively little attention has been paid to the question empirically, particularly in the international context. We investigate the relationship between bankruptcy laws and entrepreneurship using data on self-employment over 16 years (1990–2005) and fifteen countries in Europe and North America. We compile new indices reflecting how "forgiving" personal bankruptcy laws are. These measures vary over time and across the countries studied. We show that bankruptcy law has a statistically and economically significant effect on self-employment rates when controlling for GDP growth, MSCI stock returns, and a variety of other legal and economic factors.

Evidentiary Standards and Information Acquisition in Public Law

Stephenson, M. C. — Wed, 17 Dec 2008 07:07:41 PST

This article considers the type of evidence that an overseer (e.g., a court) should require before allowing a government agent to take some proposed action. The court can increase agency research incentives by prohibiting actions unless the agent produces supporting evidence, and/or by permitting action even when the agent uncovers adverse evidence. The court thus faces a trade-off between an evidentiary standard's ex post effects on the agent's policy decision and its ex ante effects on the agent's incentive to do research. An extension allows the court to make research effort a precondition for action, regardless of the evidence produced.

The Optimal Penalty for Sexually Transmitting HIV

Francis, A. M., Mialon, H. M. — Wed, 17 Dec 2008 07:07:41 PST

We develop an endogenous signaling model of sexual behavior and testing under risk of HIV infection to determine whether current criminal laws against exposure to HIV are efficient and to identify the socially optimal law. We consider a law to be socially optimal if it induces information revelation, so that non-fully-informed HIV transmission does not occur. We find that current HIV-specific criminal laws in the United States, which stipulate a single penalty for knowingly exposing another individual to risk of HIV infection, are not generally optimal. The optimal law stipulates a single penalty for knowingly or unknowingly transmitting HIV, and no penalty for exposing another individual to risk of infection without transmitting the virus. The optimal expected penalty is estimated to be approximately 1–2 years of prison.

The Economics of US Civil War Conscription

Perri, T. J. — Wed, 17 Dec 2008 07:07:41 PST

US conscription in the Civil War is analyzed. Conscription was designed to gain federal control of enlistments, leaving state and local governments much of the fiscal and administrative responsibility for raising troops. Due to the hiring of substitutes, the payment of a fee to avoid service (commutation), and community-provided funds, only 2% of those who served were conscripted. Theory suggests that federal pay and local government bonuses increase as the marginal opposition by citizens to the number of reluctant draftees increases, and commutation could have lowered social cost. Instead, commutation was a binding ceiling on the price of substitutes.

Global Market Surveillance

Cumming, D., Johan, S. — Wed, 17 Dec 2008 07:07:41 PST

This paper provides evidence on market surveillance from exchanges and securities commissions from twenty-five jurisdictions in North, Central and South America, Western and Eastern Europe, Africa, and Asia. Exchanges as SROs engage in a greater range of single-market surveillance of market manipulative practices than securities commissions, but the scope of cross-market surveillance activity is very similar among exchanges and securities commissions. Cross-market surveillance is more effective with information-sharing arrangements, and securities commissions are more likely to engage in information sharing than exchanges are. Relative to the scope of single-market surveillance, the scope of cross-market surveillance shows a stronger positive association with trading velocity, the number of listed companies, and market capitalization. The data also indicate that as at 2005, there is ample scope for jurisdictions to expand their cross-market surveillance and thereby stimulate investor confidence and trading activity.

American Law and Economics Review - recent issues

Editors

Contents

Subscriptions

Introduction to the Death Penalty Symposium

Estimating the Impact of the Death Penalty on Murder

Does Capital Punishment have a "Local" Deterrent Effect on Homicides?

Model Uncertainty and the Deterrent Effect of Capital Punishment

Statistical Variability and the Deterrent Effect of the Death Penalty

Property Rights and Contract Form in Medieval Europe

The Deterrent Effect of Death Penalty Eligibility: Evidence from the Adoption of Child Murder Eligibility Factors

Potential Savings from Abolition of the Death Penalty in North Carolina

Reassessing the Cost of the Death Penalty Using Quasi-Experimental Methods: Evidence from Maryland

A Loan Modification Approach to the Housing Crisis

Corporate Voting versus Market Price Setting

Editors

Contents

Subscriptions

Bankruptcy: Past Puzzles, Recent Reforms, and the Mortgage Crisis

The Impact of Legalized Abortion on Teen Childbearing

Convictions versus Conviction Rates: The Prosecutor's Choice

Long-Term Contracts and Short-Term Commitment: Price Determination for Heterogeneous Freight Transactions

Do Masculine Names Help Female Lawyers Become Judges? Evidence from South Carolina

Comparative Vigilance

Who Wins in Settlement Negotiations?

Crime and Expected Punishment: Changes in Perceptions at the Age of Criminal Majority

Management Always Wins the Close Ones

Defense Costs and Insurer Reserves in Medical Malpractice and Other Personal Injury Cases: Evidence from Texas, 1988-2004

Does Post-Accident Drug Testing Reduce Injuries? Evidence from a Large Retail Chain

Bankruptcy Law and Entrepreneurship

Evidentiary Standards and Information Acquisition in Public Law

The Optimal Penalty for Sexually Transmitting HIV

The Economics of US Civil War Conscription

Global Market Surveillance