Playing by the rules
Disclosures About Disclosures: Can Conflict of Interest Warnings be Made More Effective?
Ahmed Taha & John Petrocelli
Journal of Empirical Legal Studies, June 2015, Pages 236-251
Abstract:
People regularly rely on advisors who have conflicts of interest. The law often requires advisors to disclose these conflicts. Despite these disclosures, people generally insufficiently discount conflicted advice. This might be partly due to people interpreting the very fact that the advisor is disclosing a conflict of interest as a sign that the advisor is trustworthy, undermining the purpose and effectiveness of the disclosure. This article presents the results of an experiment indicating that requiring advisors to also disclose that they are legally required to disclose their conflict of interest makes people discount their advice more. This occurs, at least in part, because such advisors are viewed as less trustworthy than advisors who merely disclose their conflict of interest without also stating that the disclosure is legally required.
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Efficiencies brewed: Pricing and consolidation in the US beer industry
Orley Ashenfelter, Daniel Hosken & Matthew Weinberg
RAND Journal of Economics, Summer 2015, Pages 328-361
Abstract:
Merger efficiencies provide the primary justification for why mergers of competitors may benefit consumers. Surprisingly, there is little evidence that efficiencies can offset incentives to raise prices following mergers. We estimate the effects of increased concentration and efficiencies on pricing by using panel scanner data and geographic variation in how the merger of the brewers Miller and Coors was expected to increase concentration and reduce costs. All else equal, the average predicted increase in concentration led to price increases of 2%, but at the mean this was offset by a nearly equal and opposite efficiency effect.
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Does Google Leverage Market Power through Tying and Bundling?
Benjamin Edelman
Journal of Competition Law & Economics, June 2015, Pages 365-400
Abstract:
I examine Google's pattern and practice of tying to leverage its dominance into new sectors. In particular, I show how Google used these tactics to enter numerous markets, to compel usage of its services, and often to dominate competing offerings. I explore the technical and commercial implementations of these practices and identify their effects on competition. I conclude that Google's tying tactics are suspect under antitrust law.
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Does Vertical Integration Decrease Prices? Evidence from the Paramount Antitrust Case of 1948
Ricard Gil
American Economic Journal: Economic Policy, May 2015, Pages 162-191
Abstract:
I empirically examine the impact of the 1948 Paramount antitrust case on ticket prices using a unique dataset collected from Variety magazine issues between 1945 and 1955. With information on prices, revenues, and theater ownership for an unbalanced panel of 393 theaters in 26 cities, I find that vertically integrated theaters charged lower prices and sold more admission tickets than nonintegrated theaters. I also find that the rate at which prices increased in theaters was slower while integrated than after vertical divestiture. These findings together with institutional details are consistent with the prediction that vertical integration lowers prices through the elimination of double marginalization.
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Jeffrey Cisyk & Pascal Courty
Journal of Sports Economics, forthcoming
Abstract:
There is little evidence in support of the main economic rationale for regulating athletic doping that doping reduces fan interest. The introduction of random testing for performance-enhancing drugs (PEDs) by Major League Baseball (MLB) offers unique data to investigate the issue. The announcement of a PED violation (a) initially reduces home-game attendance by 8%, (b) has no impact on home-game attendance after 15 days, and (c) has a small negative impact on the game attendance for other MLB teams. This is the first systematic evidence that doping decreases consumer demand for sporting events.
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Price Coherence and Excessive Intermediation
Benjamin Edelman & Julian Wright
Quarterly Journal of Economics, forthcoming
Abstract:
Suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary's technology. We develop a model to show that the intermediary would want to restrict sellers from charging buyers more for transactions it intermediates. With this restriction an intermediary can profitably raise demand for its services by eliminating any extra price buyers face for purchasing through the intermediary. We show that this leads to inflated retail prices, excessive adoption of the intermediaries' services, over-investment in benefits to buyers, and a reduction in consumer surplus and sometimes welfare. Competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise. We discuss applications to payment card systems, travel reservation systems, rebate services, and various other intermediaries.
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Does the Endowment Effect Justify Legal Intervention? The Debiasing Effect of Institutions
Jennifer Arlen & Stephan Tontrup
Journal of Legal Studies, January 2015, Pages 143-182
Abstract:
We claim that the endowment effect rarely justifies legal intervention in private ordering. We present the first theory, to our knowledge, to explain how institutions inhibit the endowment effect without altering people's rights to their entitlements. The endowment effect is substantially caused by anticipated regret. We show that people experience regret only when they feel responsible for the decision and can mute regret by trading through institutions that let them share responsibility with others. As entitlement holders typically transact through institutions, we expect most people to make unbiased trading decisions in real markets. We test two common institutions - agency relationships and voting - that divide responsibility between multiple actors. Each caused most subjects to debias and trade in our study. We also show that people intentionally debias by employing institutions in order to share responsibility. Thus, when people can freely transact, private ordering generally overcomes the endowment effect.
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The Hidden Cost of Regulation: Emotional Responses to Command and Control
David Just & Andrew Hanks
American Journal of Agricultural Economics, forthcoming
Abstract:
In economic models of behavior, consumers are assumed to value the goods and services they purchase based on stable preferences over externally identifiable attributes such as quality. These models predict that consumers will respond to changes in price in a way that is independent of the source of the price change. Yet research in the behavioral sciences indicates that consumers that are emotionally attached to a consumption good or other behavior might respond with resistance when policies threaten their consumption or behavior. Moreover, policies that in fact validate some emotional attachments can stir a stronger preference for the good or behavior. Reviewing both survey and experimental data from the literature, we demonstrate how such emotional responses can create hidden costs to policy implementation that could not be detected using standard welfare economic techniques. Building upon Rabin's work on fairness in games, we propose a partial equilibrium model of emotional response to policy whereby preferences are endogenous to policy choices. In accordance with evidence both from our own analysis and the field, we propose that confrontational policies (such as a sin tax) increase the marginal utility for a good, and that validating policies (such as a subsidy) also increases the marginal utility for a good. A social planner that ignores potential emotional responses to policy changes may unwittingly induce significant dead weight loss. Using our model, we propose a feasible method to determine if emotional deadweight costs exist, and to place a lower bound on the size of these costs.
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When Do People Prefer Carrots to Sticks? A Robust 'Matching Effect' in Policy Evaluation
Ellen Evers et al.
University of Pennsylvania Working Paper, June 2015
Abstract:
We find a "matching effect" in policy evaluations. For behaviors seen as positive but voluntary (such as organ donation) people prefer policies that are framed as advantaging those who act positively rather than disadvantaging those who fail to do so. Conversely, for behaviors seen as positive and obligatory, people prefer policies that are framed as disadvantaging those who fail to fulfill obligations rather than advantaging those who do so. We find that these differences in policy evaluations occur even when policy outcomes are identical, i.e., when the only difference between the policies is how they are framed. These differences emerge both for evaluations of hypothetical policies, as well as when implementation of the policy directly affects the evaluator. Furthermore, differences in evaluations are not the result of misunderstanding of - or lack of deliberation about - policy outcomes. Rather, the matching effect appears to follow from lay beliefs about when punishment is and is not appropriate.
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Productivity, Safety, and Regulation in Coal Mining: Evidence from Disasters and Fatalities
Gautam Gowrisankaran et al.
NBER Working Paper, April 2015
Abstract:
Coal mining is a dangerous occupation where safety is an important output. Fatalities and disasters may change future accident costs at or near a mine. We use this variation to understand the tradeoffs between mineral output and safety. We find that government inspections and penalties increase after fatalities and less-severe accident rates decrease by 10%. For mines in the state of a disaster, less-severe accident rates decrease by 23%, and fatalities by 68%, representing up to $2 per hour worked, with limited evidence that mineral productivity falls up to $14 per hour worked and that managers employed increases by 11%.
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Corporation Law and the Shift toward Open Access in the Antebellum United States
Eric Hilt
NBER Working Paper, May 2015
Abstract:
This paper analyses the general incorporation statutes for manufacturing firms adopted by the American states up to 1860. Prior to the enactment of a general law, a business could only incorporate by obtaining a special act of their state legislature; general statutes facilitated incorporation through a routine administrative procedure. A new chronology of the adoption of these statutes reveals that several states enacted them much earlier than previous scholarship has indicated. An analysis of the contents of these laws indicates that many imposed strict regulations on the corporations they created, whereas others granted entrepreneurs near-total freedom. Many Southern states enacted particularly liberal statutes, but sometimes also prohibited nonwhites from incorporating businesses or gave a government official discretion over access to the law. Finally, an analysis of the volume of incorporation through special charters reveals that the states that failed to adopt general incorporation laws tended to offer unusually generous access to incorporation through special legislative acts. Taken together, these results imply that the adoption of a general incorporation statute did not always represent a discrete transition to open access to the corporate form. Instead, general statutes sometimes included highly restrictive provisions governing access, and some states generously accommodated demands for incorporation in the absence of a general statute.
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Is No News (Perceived as) Bad News? An Experimental Investigation of Information Disclosure
Ginger Zhe Jin, Michael Luca & Daniel Martin
NBER Working Paper, April 2015
Abstract:
A central prediction of information economics is that market forces can lead businesses to voluntarily provide information about the quality of their products, yet little voluntary disclosure is observed in the field. In this paper, we demonstrate that the inconsistency between theory and reality is driven by a fundamental failure in consumer inferences when sellers withhold information. Using a series of laboratory experiments, we implement a simple disclosure game in which senders can verifiably report quality to receivers. We find that senders disclose less often than equilibrium would predict. Receivers are not sufficiently skeptical about undisclosed information - they underestimate the extent to which no news is bad news. Senders generally take advantage of receiver mistakes. We find that providing disclosure rates by quality score helps to improve receiver inferences.