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Chapter 1: Western stakeholders are increasingly demanding that multinationals sourcing from developing countries be accountable for labor rights and working conditions upstream in their supply chains. In response, many multinationals privately enforce labor standards in these countries, but the effects of their interventions on local firms and workers are unknown. I partnered with a set of multinational retail and apparel firms to enforce local labor laws on their suppliers in Bangladesh. I implemented a randomized controlled trial with 84 Bangladeshi garment factories, randomly enforcing a mandate for worker-manager safety committees in 41 supplier establishments. The intervention significantly improves compliance with the labor law. It also has a small, positive effect on indicators of safety committees' effectiveness, including measures of physical safety and awareness. Factories with better managerial practices drive these improvements. In contrast, factories with poor managerial practices do not improve compliance or safety, and in these factories, workers' job satisfaction declines.Chapter 2 (joint with Rachel Heath and Tyler McCormick): Many workers in large factories in developing countries are internal migrants from rural areas. In collaboration with Rachel Heath and Tyler McCormick, I examine the relationship between workers' migration status and the working conditions they face in a household survey of garment workers in Bangladesh. We document that migrants are in firms with higher wages but worse working conditions, but as their careers progress, they have higher mobility than locals as they move towards firms with better conditions. These facts are consistent with a model in which migrants are poorly informed about working conditions upon beginning work but learn more as they gain experience in the industry. Chapter 3: I test for the presence of compensating wage differentials for factory building safety in Bangladesh's apparel sector. I find no evidence in support of a compensating wage differential for building safety. This descriptive fact is not explained by heterogeneity in workers' or factories' observable characteristics. Instead, I show that workers have incomplete information about factories' compliance with building safety standards, which I argue is difficult for workers to observe. Workers at high compliance factories underestimate their factories' performance on building safety audits, while workers at low compliance factories dramatically overestimate their factories' performance. I implement a pilot field experiment with 308 garments workers in which I randomly intervene to provide workers with information about their factories performance on the audits relative to other factories nearby. The information causes workers to correctly update their beliefs about their factories' safety. It reduces turnover among workers at high compliance factories. Among workers at low compliance factories, turnover is unaffected, but workers are less likely to make referrals to their factory.

Imprisonment and monetary rewards for non-convictions can similarly incentivize potential offenders to refrain from committing crime. Although imprisonment is expensive, it may still enjoy a cost advantage over rewards. This is because only detected criminals are imprisoned, whereas rewards need to be provided to the remaining, much larger, population. In this article, I demonstrate that the possible cost disadvantages of rewards are mitigated when people are offered a choice between an enforcement scheme involving no rewards and another involving rewards coupled with longer imprisonment sentences. Specifically, by using rewards in this manner, one can jointly reduce crime, time served per convict, and the tax burden of the criminal justice system, under the same conditions as one could by introducing rewards without choice in an environment where there is perfect detection. Moreover, monetary rewards provide incentives through wealth transfers, but imprisonment operates by destroying wealth. This leads choice-based reward regimes to be optimal unless the imprisonment elasticity of deterrence is higher than is empirically observed.

Legal sanctions cause reputational losses in addition to the direct losses. Lowering the probability of punishment reduces these reputational losses by diluting the informational value of verdicts. These considerations better align the positive as well as normative implications of law enforcement models with intuition and empirics: violations of the law are more responsive to the certainty rather than the severity of punishment even absent risk-seeking offenders (positive), which causes extreme Beckerian punishments to be inefficient when sanctions are socially costly to impose (normative). Moreover, in some cases optimal enforcement is “anti-Beckerian”: punishment is symbolic, and detection costs are incurred solely to provide reputational incentives.

I study how supplier contracting frictions shape the patterns of intermediate input use and quantify the impact of these distortions on aggregate productivity. Using the frequency of litigation between US firms as a novel measure to capture the need for formal enforcement, I find a robust relationship between countries' input-output structure and their quality of legal institutions. In countries with high enforcement costs, firms have lower expenditure shares on intermediate inputs in sector pairs where US firms litigate frequently for breach of contract. A quantitative model shows that improvement of contract enforcement institutions would lead to sizable welfare gains.

We study a fiscal policy model in which the government is present‐biased towards public spending. Society chooses a fiscal rule to trade off the benefit of committing the government to not overspend against the benefit of granting it flexibility to react to privately observed shocks to the value of spending. Unlike prior work, we examine rules under limited enforcement: the government has full policy discretion and can only be incentivized to comply with a rule via the use of penalties which are joint and bounded. We show that optimal incentives must be bang‐bang. Moreover, under a distributional condition, the optimal rule is a maximally enforced deficit limit, triggering the maximum feasible penalty whenever violated. Violation optimally occurs under high enough shocks if and only if available penalties are weak and such shocks are relatively unlikely. We derive comparative statics showing how rules should be calibrated to features of the environment.

Effective enforcement of competition laws on a global scale is a prerequisite for open economies, fair trading conditions, and level playing fields, and ultimately, inclusive economic development for improved and better lives. Improving enforcement co-operation between competition authorities has been a priority for the Organization for Economic Co-Operation and Development, United Nations Conference on Trade and Development, and International Competition Network for many years. This article argues that there is increased scope for competition authorities in Africa to effectively regulate cross-border cartel activities under the Africa Continental Free Trade Area (AfCFTA). It is recognized that for the AfCFTA to meet its general objectives under Article 3 of the AfCFTA framework agreement, States Parties must develop a framework on competition policy which is part of the second phase of the negotiations that will culminate into a Protocol on Competition Policy. Following a review of competition policies and laws of selected African countries in Southern African Development Community, East African Community, Economic Community of West African States, and Common Market for Eastern and Southern Africa, this article suggests an appropriate competition law and policy for Africa, particularly one that will enhance capability to combat cross-border cartels.

This article contributes to the discussion of the implications of different objectives pursued by the competition authorities (CAs) for their optimal structure in terms of whether one or more functions (or activities) should be assigned to them. Different areas of enforcement activity that can be assigned to CAs may differ in the extent to which they contribute to welfare-enhancing or reputation-enhancing objectives. In their recent paper, Avdasheva et al. (Rev Ind Organ 54:251–282, 2019) showed that when the CAs are reputation-maximizing, it may then be optimal to have activities undertaken by specialist authorities, each specializing in one activity. In this article, we generalize the utility function of the CAs, allowing also the welfare impact of the decisions made to influence their utility, and show that if the CAs are welfare maximizers, then all the activities should be undertaken by one generalist authority.

Globalization transforms not just the economics of production and exchange in the world, but also the political economy of public policies. We analyze how wine regulations, and more specifically planting rights restrictions, have been affected by globalization, in particular colonial expansions of wine producing empires. We study several historic cases and find that (a) planting right restrictions and compulsory uprooting of vineyards are introduced to deal with falling wine prices as colonial wine production takes off and expands; (b) that enforcement of the restrictions and uprooting was difficult and often imperfect; and (c) that there was a strong persistence of the policies: after their introduction the restrictions remain in place for a long time (often centuries) and they are only removed after major shocks to the political economy equilibrium.

SYNOPSIS This paper examines comment letters on firms' annual reports in an emerging market. The literature primarily focuses on comment letters issued by the U.S. Securities and Exchange Commission (SEC), although many other market regulators also use SEC-style comment letters. Comment letters can potentially be very impactful in emerging markets due to weak institutions and low disclosure quality in these markets. Using comment letters in China from 2015 to 2019, I find that the market response to the receipt of comment letters is significantly negative and associated with the severity of the comment letters. The receipt (severity) of comment letters is associated with adverse regulatory consequences, CEO turnover, corrective actions to remedy financial reporting, and poor future financial performance in the propensity score matched sample (recipient sample). Overall disclosure quality in the post-review year does not increase, but some comment letter topics prompt topic-specific financial reporting changes.

We consider a differential game which models the competition between a genuine and a counterfeit producer. The genuine manufacturer acts as a leader, first announcing the price of the product and the investments in advertising. After observing the leader’s decisions, the counterfeiter sets the selling price of the fakes. We assume that the demand of the good is driven by the brand-name goodwill. We calculate the Stackelberg feedback equilibria and the social welfare, defined by the unweighted sum of the genuine and fakes consumers, the profit of the genuine firm, minus the enforcement costs borne by the social planner. The purpose of this paper is twofold. Firstly we study the dependence of social welfare on the amount of the fines established in the IPR law and monitoring efforts. Then, we compare prices, profits and social welfare under Nash and Stackelberg framework.

We study the emergence of norms and their enforcement in a public goods game with private information about endowments. Subjects were randomly assigned a Low or High endowment and, across treatments, endowments were either Observed or Unobserved. In both treatments subjects could enforce contributions with peer punishment. We use punishment decisions to estimate contribution norms and then estimate the expected costs of noncompliance. In Observed, both Low and High types enforce a “contribute-your-endowment” norm, adjusting the costs of noncompliance to account for each type’s endowment. In Unobserved we find that groups adapt to incomplete information by adopting a “contribute-the-Low-endowment” norm, and our expected cost calculations suggest that the enforcement of this norm balances the benefits of cooperation with the risk of misguided punishment. When at least one High type pools with Low types (by contributing less than or equal to the Low endowment), contributions of zero are punished as if they come from a High type, while contributions equal to the Low endowment are not punished in expectation (in case they come from a cooperative Low type). This enforcement strategy prevents cooperation from unraveling, but it also enables High types to hide behind the Low endowment. Our results dovetail with results from bargaining games and suggest that in settings with incomplete information, norms can attenuate but not eliminate non-cooperative behavior.

During the colonial era, the French colonial government in Canada experimented with paper money printed on the back of playing cards. The first experiment lasted from 1685 to 1719. In the first years, there was little inflation in spite of a rapidly expanding stock of playing card money. It is only in the later years of the experiment that prices rose. The behavior of the money stock and nominal output suggest that velocity fluctuated throughout the period. We argue here that these fluctuations can be explained by variations in the enforcement of legal tender laws. This interpretation provides insights into the debate over the inflationary impact of paper money in the colonial United States.

Criminal prosecution of monopolistic activities in the form of market cartelization is the most sensitive tool for individuals, which can have both a serious deterrent effect and limit behavior that is beneficial to public welfare. This paper discusses the theoretical aspects of the issue of choosing a regime of antitrust enforcement in connection with the design of amendments and enforcement of the norms of Article 178 of the Criminal Code of the Russian Federation, taking into account possible differences between the initialization, conclusion of a cartel agreement and participation in it. The article shows that there are various options for the relationship between the concept of conclusion and participation in the agreement, including anti-competitive one. However, this requires the application of realistic assumptions regarding the behavior of individuals. Practical issues of designing criminal penalties for cartels are considered taking into account various legal concepts, including the form and types of guilt, as well as on the basis of a comparison with other articles of the Criminal Code that punish collective unlawful acts. In connection with the problem of reproduction of an inhospitable tradition, the Russian antitrust identified the risks of imputed imputation (risks of I type errors) and insufficient punishment of the cartel organizer (risks of II type errors) in case of underestimating the importance of economic concepts based on the principle of methodological individualism and the assumption of bounded rationality of individuals.

This paper examines the effect of enforcement on taxpayer behavior using administrative data from Ecuador. To overcome confounding factors, a regression discontinuity design that exploits a discrete increase in the probability of receiving a non-compliance notification is used. Results indicate that the notification significantly increases reported taxes but does not affect tax revenues. The evidence suggests that refiling explains this situation. Additional findings indicate that this intervention also increases taxes reported in the year following it and that some taxpayers strategically attempt to evade taxes while trying to avoid being notified. Collectively, these findings suggest that continuous monitoring and limiting refiling might reduce tax evasion, especially in developing countries.

The paper defines the features of the collective dominance institute in Russia as well as the relation between collective dominance and oligopoly in the spheres of law and economic theory. The article evaluates the grounds and consequences of the collective dominance legal norm application; it suggests an approach to examining the relation between effects and expected results of this legal norm application and outlines the potential ways to harmonize the best international practices of the collective dominance norm application with the existing economic standards of product market analysis for the purpose of competition law enforcement. Results of the oligopoly theory and the Russian version of collective dominance institution key elements comparison show: the collective dominance institution concept is inadequately applied to identify individual abuse of dominant position due to possible law enforcement errors. The Russian version of collective dominance institution reflects one fundamental tendency intrinsic to Russian antitrust: examined more closely, law enforcement, which is de jure aimed at protecting competition, appears to be economic regulation, which de facto can lead to competition restriction. One of the possible structural alternatives for the collective dominance institution reforming is based on presumption of the need to analyze the joint impact exerted by a group of undertakings on the market.

We present a formal model in which individuals want the government to tolerate tax evasion because, in a context of limited state capacity, evasion provides insurance. Also, preferred tolerance of tax evasion increases with income, because government programs are redistributive, and decreases with perceived state capacity, because taxation is less distortionary in more capable states. We test the model using a question in the World Values Survey (WVS) about how justifiable cheating on taxes is. We find that tax evasion justifiability views present an inverted-U shape in perceived risk and increase with individuals’ income.

How precise should accounting measurements be, if management has discretion to strategically withhold? We examine this question by nesting an optimal persuasion mechanism, which controls what measurements are conducted, within a voluntary disclosure framework a la Dye (85) and Jung and Kwon (1988). In our setting, information has real effects because the firm uses it to make a continuous operating decision, increasing in the market's belief. Absent frictions other than uncertainty about information endowment, we show that imprecision can reduce strategic withholding but always decreases firm value. We then examine plausible environments under which, by contrast, there is an optimal level of imprecision featuring coarseness at the marginal discloser. We offer additional implications in the contexts of enforcement against strategic withholding and financing with collateralized assets.

We examine the role of the enforcement of property rights, human capital formation, and the efficiency of various components of state governments' developmental expenditure on states’ economic growth and interstate income inequality. Together with private sector investment in rural areas, property rights enforcement, human capital, government expenditures on economic services, and health and education are found to have positive effects on states’ growth. We also observe that the interstate difference in the provisioning of government economic services is the leading factor in contributing to interstate income divergence in India. These findings can serve as vital technical inputs for formulating economic policies to achieve faster economic growth and mitigate regional income inequality in transitioning developing economies like India and hold greater relevance for other developing economies on their way to experiencing similar social and economic transitions.

This article uniquely examines the drivers of government impersonation across US states. Government impersonation is a relatively new white-collar crime that is slowly being recognized by policy makers and largely ignored by researchers. Results show that it is the decentralized government structure, rather than government size, that significantly affects government impersonation. Greater diffusion of the Internet and economic freedom also contribute to impersonation fraud, while urbanization has a mitigating effect. The share of elderly residents, democratic governorships, or the distance of a state from the nation’s capital did not appreciably impact government impersonation but impacted overall fraud. Interestingly, greater enforcement employment results in more fraud coming to light. Some of the factors impacting government impersonation fraud differ from those affecting overall fraud. Therefore, blanket policies to combat overall fraud would not necessarily be effective in checking government impersonation.

Each essay in this dissertation analyzes an original data set to empirically investigate widely held beliefs about the enforcement of contracts in a domestic and in an international context.Chapter 1 tests the assumption that sophisticated parties prefer arbitration over litigation in international agreements. Relying on over half a million contracts filed with the SEC between 2000 and 2016, the results suggest that arbitration clauses are less frequently adopted than clauses referring parties to the domestic court system. If they are included, arbitration clauses serve the specific purpose of strategically reducing the discretion granted to the courts enforcing the decision. Absent serious threats to enforcement, parties prefer courts over arbitration, making arbitration a second-best alternative to a well-functioning domestic judiciary.A striking result arising out of the investigation in Chapter 1 is that most commercial contracts lack a choice-of-forum provision altogether, even though the stakes in these contracts are typically very high. Chapter 2 investigates the reasons for this omission and shows that it is the consequence of a ``sticky'' drafting process used by the representing law firms. This phenomenon leads to the widespread use of incomplete and suboptimal agreements between even the most sophisticated commercial actors. The deficiency is the result of a lack of firm-level policies on how contracts should be drafted, paired with a strong tendency for law firms to stick to existing but often deficient templates. The findings imply that default rules matter not only for the distribution, but also for the final allocation of goods, even if the parties are highly sophisticated and the transaction costs are negligible.Chapter 3 shifts the focus from contracts between parties to contracts between states. Scholars have argued that there is little use in the treaty instrument as a modern policy tool and that the executive agreement is a more reliable commitment device that comes at a reduced cost. In contrast, Chapter 3 uses survival time analysis to demonstrate that agreements concluded in the form of a treaty are more durable than those concluded as executive agreements. The analysis suggests that this is the result of increased political costs imposed by the treaties' Advice and Consent procedure. Together, the findings imply that treaty usage signals a higher level of commitment than executive agreements. Abolishing the treaty would lock negotiators out of the possibility to indicate their intended level of compliance, potentially leading to fewer agreements with less favorable terms.Chapter 4 addresses a long-standing debate about the relative merits of lawyers and non-lawyers as adjudicators in international dispute settlement. Some argue that lawyers would encourage predictability and coherence in jurisprudence. Others believe that non-lawyers would better protect state interests. Both sides of the debate assume that lawyers are more formalist, while non-lawyers are more instrumentalist. However, combining multiple-imputation, matching, and post-matching regression analysis, the analysis shows that panel chairs without a law degree and without much experience make a greater effort to signal adherence to formalist rules and competence in WTO jurisprudence than lawyers. The Appellate Body deems the signal credible, in turn rewarding inexperienced non-lawyers with a decrease in reversal rates. Overall, the results suggest that non-lawyers display similar (if not greater) levels of formalism as lawyers, calling into question a central reservation against non-lawyers in adjudicatory positions.

Typically, nudging is a technique for steering the choices of people without giving reasons or using enforcement. In benevolent cases, it is used when people are insufficiently responsive to reason...

I develop an extension of a canonical epidemiology model in which the policy in place determines the probability of transmission of an epidemic disease during economic and social interaction. I use the model to evaluate the effects of isolating symptomatic individuals, of increasing social distancing and of tests such as polymerase chain reaction – PCR – or Rapid Diagnostic Test that discriminate between currently infected agents, and its combination with a serology test like Neutralization Assay that is able to discriminate between immune and vulnerable healthy individuals, together with the role of enforcement to prevent interactions involving infected but asymptomatic agents. I find that isolating symptomatic individuals has a large effect at delaying and reducing the pick of infections. The combination of this policy with a PCR test is likely to represents only a negligible improvement in the absence of enforcement, whereas with full enforcement there is an additional delaying and reduction in the pick of infections. Social distancing alone cannot achieve similar effects without incurring in enormous output losses. I explore the combined effect of social distancing at early stages of the epidemic with a following period of tests and find that the best outcome is obtained with a light reduction of human interaction for about three months together with a subsequent test of the population over 40 days.

Though now almost entirely forgotten, Herbert Spencer was among the most widely read thinkers during the late nineteenth century. As part of his system of synthetic philosophy, Herbert Spencer addressed the topics of money and banking. This philosophic system articulates a concept of justice based on the principle of equal freedom. Invoking this principle, Spencer rejected a government-superintended regime of money and banking as unjust. Instead, he morally favored a system of free banking. Spencer also defended this system on economic grounds. His argument was that banks could be self-regulating in their management of the money supply, on the condition that the government limit its activities in the financial sphere to the enforcement of contracts. While Spencer’s case is not beyond questioning on philosophic and political grounds, he offers a distinctive and forceful analysis.

We study the impact of deterrence, tax morale, and simplifying information on tax compliance. We ran five experiments spanning the tax process which varied the communication of the tax administration with all income taxpayers in Belgium. A consistent picture emerges across experiments: (i) simplifying communication increases compliance, (ii) deterrence messages have an additional positive effect, (iii) invoking tax morale is not effective. Even tax morale messages that improve knowledge and appreciation of public services do not raise compliance. In fact, heterogeneity analysis with causal forests shows that tax morale treatments backfire for most taxpayers. In contrast, simplification has large positive effects on compliance, which diminish over time due to follow-up enforcement. A discontinuity in enforcement intensity, combined with the experimental variation, allows us to compare simplification with standard en-forcement measures. Simplification is far more cost-effective, allowing for substantial savings on enforcement costs, and also improves compliance in the next tax cycle.

This article considers the suitability of the remedy of divestiture in non-merger cases, particularly in markets where high concentration levels may embolden incumbents to engage in abusive conduct. The article observes that the prevailing practice in competition-law enforcement is that, while divestiture is an acceptable remedy in merger cases, it is generally eschewed in non-merger cases. The article argues that economic conditions in South Africa provide justification for the use of the divestiture remedy in non-merger cases, particularly in cases of abuse of dominance in concentrated markets. The article observes that there is sufficient legal authority and history supporting the use of the remedy in non-merger cases.

This study assesses the impact on price informativeness of the market abuse directive adopted by European economic area member-states. Price informativeness is measured by the future earnings response coefficient that captures the ability of stock prices to reflect firms’ fundamentals and future profitability. A difference-in-differences analysis is performed to compare the evolution of this coefficient in countries that adopted the directive with that of countries from a control group. The preliminary findings suggest a decline in information content of stock prices about firms’ future profitability in the aftermath of the directive’s entry-into-force. Further exploration suggests however that the detrimental impact is concentrated on countries that neither improved the quality of enforcement regimes nor reinforced the supervisory powers and resources available to national financial authorities following the Directive’s adoption. The pre-existing state of the legal framework has also influenced the obtained results. The impact was particularly detrimental in countries with weaker legal institutions that did not undertake a shift in enforcement with respect to the new law, suggesting that the negative influence of inefficient bureaucracy and weak legal institutions on price informativeness was exacerbated by the adoption of the new rules.

This paper proposes to develop a parallel reading of the banking supervision system and the framework for the enforcement of competition law, with the purpose of setting out points of convergence and divergence between the two, analyzing their institutional architecture and various issues pertaining to the relevant, applicable law. This approach might prove fruitful for a better understanding of each of the two systems, and for filling the gaps left open and unresolved by legislative texts. It might also offer some contribution in view of a more general analysis of the key-issues that those who design the systems meant to govern the European economy should consider.

Fifty-six percent of the US taxpaying population uses a paid tax preparer, but the effect of these tax preparation services on tax compliance is not well understood. Although governments conceal the algorithms they use to determine which taxpayers to audit, tax preparation firms with large client bases may be able to infer these algorithms and therefore offer strategic advice to taxpayers. This paper formalizes this role, using a simple asymmetric information model where agents can purchase information about the government’s enforcement rules. In a competitive market for tax preparation services, demand for tax preparers is selective and increases in taxpayer income. Moreover, the presence of tax preparers always reduces compliance when tax preparers have perfect information. Perhaps surprisingly, if the demand for strategic advice is high enough, the government can mitigate evasion by revealing full information about its audit rule. Alternatively, when the tax preparers have imperfect information about the audit rule, if the top income within an audit class is low enough, the government can utilize tax preparer firms to increase compliance by influencing the audit information available to these firms.

Most tax agencies use letters as the method of communicating with taxpayers. Still, other technologies exist that could be more effective. This paper reports the results of a field experiment conducted by the National Tax Agency of Colombia (DIAN), using phone calls to reduce tax delinquencies. DIAN randomly assigned 34,000 tax debtors to a phone call operation using a fixed script to communicate existing debts and invite taxpayers to a meeting at the local tax agency office. Phone calls were very effective to increase collection of unpaid taxes. Conditional on the phone call being made, the effect on the treatment is about 25 percentage points higher than the control group (about a fivefold increase). We also find suggestive evidence that the personal interaction seems to be an important channel for explaining taxpayers’ behavior. Faced with a tax agent, taxpayers tend to commit to attending the meeting and paying the tax owed. However, many taxpayers who commit do not make payment effective. The findings complement a nascent literature that shows that there are plenty of gains from innovating in the communication strategy. They also indicate that personal interactions are important, but they have to be paired with easy-to-follow and immediate actions. Paying taxes is easier said than done.

Stringent environmental regulation can impact corporations in both positive and negative ways. However, how external auditors respond to the changes in environmental regulation, and alter their assessment of the audit and client environmental risk accordingly, remains underexplored. This study exploits the promulgation of China’s new Environmental Protection Law (EPL) as an exogenous shock, and adopts a difference-in-differences approach to examine the effect of environmental regulation on audit fees. We find that the new EPL increases environmental and audit risk for heavy-polluting firms, to which auditors charge higher audit fees for compensation. The impact of environmental regulation on audit fees is stronger for firms with low-quality environmental disclosure, those in regions with strong regulation and legal enforcement, and those without political connections. Overall, our findings indicate that stringent environmental regulation can generate extra costs and risks for firms and their external auditors.