Rules and Regulations

Kevin Lewis

September 17, 2009

Political pressure deflection

James Anderson & Maurizio Zanardi
Public Choice, October 2009, Pages 129-150

Much economic policy is deliberately shifted away from direct political processes to administrative processes — political pressure deflection. Pressure deflection poses a puzzle to standard political economy models which suggest that having policies to 'sell' is valuable to politicians. The puzzle is solved here by showing that incumbents will favor pressure deflection since it can deter viability of a challenger, essentially like entry deterrence. U.S. trade policy since 1934 provides a prime example, especially antidumping law and its evolution.


Changing to Daylight Saving Time Cuts Into Sleep and Increases Workplace Injuries

Christopher Barnes & David Wagner
Journal of Applied Psychology, September 2009, Pages 1305-1317

The authors examine the differential influence of time changes associated with Daylight Saving Time on sleep quantity and associated workplace injuries. In Study 1, the authors used a National Institute for Occupational Safety and Health database of mining injuries for the years 1983-2006, and they found that in comparison with other days, on Mondays directly following the switch to Daylight Saving Time-in which 1 hr is lost-workers sustain more workplace injuries and injuries of greater severity. In Study 2, the authors used a Bureau of Labor Statistics database of time use for the years 2003-2006, and they found indirect evidence for the mediating role of sleep in the Daylight Saving Time injuries relationship, showing that on Mondays directly following the switch to Daylight Saving Time, workers sleep on average 40 min less than on other days. On Mondays directly following the switch to Standard Time — in which 1 hr is gained-there are no significant differences in sleep, injury quantity, or injury severity.


When Social Norms and Pressures Are Not Enough: Environmental Performance in the Trucking Industry

Dorothy Thornton, Robert Kagan & Neil Gunningham
Law & Society Review, June 2009, Pages 405-436

Why do some business firms and not others work hard to advance regulatory values such as environmental protection and comply with regulations? Previous research indicates that business firms are influenced in that regard by a number of variables — not merely the perceived likelihood of legal punishment but also the risk of negative reactions by societal actors (which we call "social license pressures") and the intensity of managers' commitment to norms of law-abidingness and environmentalism. This article reports on a study of control of diesel emissions in the trucking industry, a highly competitive market with many small firms, mobile pollution sources, expensive "best control technologies," and weak regulatory demands. In contrast to findings in studies of large firms, we found that social license pressures on small trucking firms are minimal. Trucking companies' environmental performance — good and bad — flows from managers' economic choices, which are influenced by their particular market niche. In such highly competitive, small-firm market contexts, these findings imply, significant improvement in environmental performance is not likely without strong direct regulatory pressures.


Incorporating affirmative action into the welfare state

Tomer Blumkin, Yoram Margalioth & Efraim Sadka
Journal of Public Economics, October 2009, Pages 1027-1035

In this paper, we discuss a novel aspect of affirmative action policy. We examine its redistributive role, asking whether in an egalitarian society, supplementing the tax-transfer system with an affirmative action policy would enhance social welfare. We demonstrate that affirmative action could be a desirable policy tool even if racial discrimination does not exist in the labor market.


The Number of States and the Economics of American Federalism

Steven Calabresi & Nicholas Terrell
Northwestern University Working Paper, June 2009

In 1789 it was possible to speak of a federation of distinct States joined together for their mutual advantage, but today it is rather the Nation that is divided into subnational units. What caused this shift in focus from the States to the Federal Government? Surely the transformation from a collection of thirteen historically separate States clustered along the Atlantic seaboard to a group of fifty States largely carved out of Federal territory has played a role. Building on previous analysis of the economics of federalism, this essay considers the dynamic effects of increasing the number of states on the efficient allocation of government authority between the State and Federal Governments. When the number of States is low, the externalities imposed by state level actions are more limited — and so is the scope of Federal power. When the number increases, however, the scope of efficient Federal power expands because the States face collective action problems. In the second part of this essay, these insights from the economics of federalism are applied to the question of the optimal number of states in a federal system. Having too few states will lead to insufficient cohesion at the federal level, risking secession and ensuring weak government. On the other end of the scale, having too many states encourages the centralization of power. While the optimal number of state in a federal system will ultimately depend on geography, legal culture, and technology, the available data suggest that the ten provinces of Canada may be too few but the fifty of the US may well be too many.


The Uneasy Case for Product Liability

Steven Shavell & Mitchell Polinsky
Harvard Working Paper, September 2009

We explain in this Article that the benefits of product liability may well be outweighed by its costs in a wide range of circumstances. One benefit is that the threat of liability may induce firms to improve product safety. However, this benefit is limited: even in the absence of product liability, firms would often be motivated by market forces to enhance product safety because their sales are likely to fall if their products harm consumers; moreover, their products must frequently conform to safety regulations. Consequently, product liability might not be expected to exert a significant additional influence on product safety — and the available empirical evidence suggests that such liability does not in fact have a measurable effect on the frequency of product accidents. A second benefit of product liability is that it causes product prices to increase to reflect the riskiness of products and thereby may improve consumer purchase decisions. But this benefit also involves a detriment, because product prices may rise excessively and undesirably chill purchases. A third benefit of product liability is that it compensates victims of product-related accidents for their losses. Yet this benefit is only partial, for accident victims are already often compensated by their insurers for some or all of their losses. Potentially offsetting the benefits of product liability are its costs, which are great. To transfer a dollar to a victim of a product accident requires more than a dollar on average in legal expenses. Given the limited benefits and the high costs of product liability, we conclude that it may be socially undesirable — especially for widely sold products, with respect to which market forces and regulation are relatively strong. This judgment is in tension both with the broad social endorsement of product liability and with proposals for its reform, which generally do not question its existence. Our more critical assessment of product liability stems from the fact that we engage in an analysis of its benefits and costs, whereas neither the proponents of product liability nor its reformers undertake to do so.


Product market regulation, innovation, and distance to frontier

Bruno Amable, Lilas Demmou & Ivan Ledezma
Industrial and Corporate Change, forthcoming

This article contributes to the literature on competition and innovation. It tests the impact of market regulation on innovation conditional to the closeness to the technological frontier with a panel of 15 industries for 17 OECD countries over the period 1979-2003. One of the main conclusions of this literature is that of a negative impact of regulation growing in intensity with the proximity to the frontier. A simple model of innovation and growth shows that one should not necessarily expect this result. Empirical tests on a variety of specifications show that the impact of regulation can be positive when industries are close to the technological frontier. We argue that this result is in fact line with previous evidence.


Restricting consumer credit access: Household survey evidence on effects around the Oregon rate cap

Jonathan Zinman
Journal of Banking & Finance, forthcoming

Many policymakers and some theories hold that restricting access to expensive credit helps consumers by preventing overborrowing. I examine some effects of restricting access, using household panel survey data on payday loan users collected around the introduction of binding restrictions on payday loan terms in Oregon. Borrowing fell in Oregon relative to Washington, with former payday borrowers shifting partially into plausibly inferior substitutes: bank overdrafts and late bill payment. Additional evidence suggests that restricting access caused deterioration in the overall financial condition of Oregon households. Overall the results are consistent with restricted access harming, not helping, consumers on average.


Product Recalls, Imperfect Information, and Spillover Effects: Lessons from the Consumer Response to the 2007 Toy Recalls

Seth Freedman, Melissa Schettini Kearney & Mara Lederman
NBER Working Paper, July 2009

In 2007, the Consumer Product Safety Commission (CPSC) issued 276 recalls of toys and other children's products, a sizeable increase from previous years. The overwhelming majority of the 2007 toy recalls were due to high levels of lead content and almost all of these toys were manufactured in China. This period of recalls was characterized by substantial media attention to the issue of consumer product safety and eventually led to the passage of the Consumer Product Safety Improvement Act of 2008. This paper examines consumer demand for toys following this wave of dangerous toy recalls. The data reveal four key findings. First, the types of toys that were involved in recalls in 2007 experienced above average losses in Christmas season sales. Second, Christmas sales of infant/preschool toys produced by manufacturers who did not experience any recalls were about 25 percent lower in 2007 as compared to earlier years, suggesting industry-wide spillovers. Third, a manufacturer's recall of one type of toy did not lead to a disproportionate loss in sales of their other types of toys. And, finally, recalls of toys that are part of a brand had either positive or negative effects on the demand for other toys in the property, depending on the nature of the toys involved. Our examination of the stock market performance of toy firms over this period also reveals industry wide spillovers. The finding of sizable spillover effects of product recalls to non-recalled products and non-recalled manufacturers has important implications for regulation policy.


The State-Federal Dichotomy in the Effects of Minimum Wages on Teenage Employment in the United States

Stephen Bazen & Julie Le Gallo
Economics Letters, forthcoming

For the period 1984-1997, we find that state level minimum wages hikes had no negative employment impact whereas federal hikes did. This dichotomy may account for the differences between the results of the 'new economics of the minimum wage' and time series studies.


Unintended Consequences from Nested State & Federal Regulations: The Case of the Pavley Greenhouse-Gas-per-Mile Limits

Lawrence Goulder, Mark Jacobsen & Arthur van Benthem
NBER Working Paper, September 2009

Fourteen U.S. states recently pledged to adopt limits on greenhouse gases (GHGs) per mile of light-duty automobiles. Previous analyses predicted this action would significantly reduce emissions from new cars in these states, but ignored possible offsetting emissions increases from policy-induced adjustments in new car markets in other (non-adopting) states and in the used car market. Such offsets (or "leakage") reflect the fact that the state-level effort interacts with the national corporate average fuel economy (CAFE) standard: the state-level initiative effectively loosens the national standard and gives automakers scope to profitably increase sales of high-emissions automobiles in non-adopting states. In addition, although the state-level effort may well spur the invention of fuel — and emissions-saving technologies, interactions with the federal CAFE standard limit the nationwide emissions reductions from such advances. Using a multi-period numerical simulation model, we find that 70-80 percent of the emissions reductions from new cars in adopting states are offset by emissions leakage. This research examines a particular instance of a general issue of policy significance — namely, problems from "nested" federal and state environmental regulations. Such nesting implies that similar leakage difficulties are likely to arise under several newly proposed state-level initiatives.


Effects of State-Level Firearm Seller Accountability Policies on Firearm Trafficking

Daniel Webster, Jon Vernick & Maria Bulzacchelli
Journal of Urban Health, July 2009, Pages 525-537

Criminals illegally obtaining firearms represent a great risk to many urban residents. This cross-sectional study of 54 US cities uses data on state laws governing gun sales, a survey of law enforcement agencies' practices to promote compliance with gun sales laws, and crime gun trace data to examine associations between these policies and practices with gun trafficking indicators. Higher levels of local gun ownership were linked with greater intrastate gun trafficking. Regression models estimate that comprehensive regulation and oversight of gun dealers and state regulation of private sales of handguns were each associated with significantly lower levels of intrastate gun trafficking. Discretionary permit-to-purchase licensing laws' negative association with intrastate trafficking disappeared when local gun ownership is controlled. The effects of these relatively restrictive gun purchase laws on trafficking may be mediated by the laws' lowering of gun ownership. Relatively low prevalence of gun ownership may also be a prerequisite for passage of discretionary purchase. We observed no effect on intrastate trafficking of laws limiting handgun sales to a maximum of one per person per month.


Dismissals for Cause: The Difference That Just Eight Paragraphs Can Make

Pedro Martins
Journal of Labor Economics, April 2009, Pages 257-279

This article presents evidence about the effects of dismissals-for-cause requirements, a specific component of employment protection legislation that has received little attention. I study a quasi-experiment generated by a law introduced in Portugal: out of the 12 paragraphs in the law that dictated the costly procedure required for dismissals for cause, eight did not apply to small firms. Using matched employer-employee longitudinal data and difference-in-differences methods, I examine the impact of that differentiated change in firing costs upon several variables. The results do not indicate robust effects on job or worker flows, although some estimates suggest an increase in hirings. However, firms that gain flexibility in their dismissals exhibit sizable increases in their relative performance. This finding suggests that reducing firing costs of the type studied here increases workers' effort.

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