Volume 21, Issue 2 - Experiments in Law and Economics, Part I

This study examines the impact of online dispute resolution (ODR) on the efficiency of the Indian judiciary, focusing on an online platform used in Lok Adalats, community-based legal forums in India. The study addresses the challenges posed by India’s extensive case backlog and the additional strain caused by the COVID-19 pandemic. It employs a Randomized Control Trial (RCT) methodology to evaluate the integration of chatbots in ODR processes. The findings suggest that chatbot integration maintains resolution time while enhancing user engagement. This research highlights the potential of leveraging technology to incorporate procedural justice principles, thereby improving public trust and the effectiveness of the legal system.

This paper provides experimental evidence on how various law enforcement designs impact legal compliance and detection avoidance behaviors. Our three experiments explore differences in enforcement based on two factors: whether the fine revenue is allocated to the victim or the enforcer, and whether the enforcer has an active role in influencing enforcement. While the overall results indicate that these design variations have minimal impact on behavior on average, data from our most comprehensive study reveals contrasting effects on taking rates between men and women.

This paper presents a behavioural investigation into music piracy using experimental data, to our knowledge one of the few studies of its kind. Employing experimental methods, we elicited preferences for legal and burned CDs, alongside hypothetical choices for further consumption behaviours such as downloading music. The subjects were university students, deemed the most appropriate sample for analysing legal and illegal music consumption patterns. We focus on how gender influences copyright infringement, specifically examining differences between men and women in their piracy behaviours. The results reveal significant gender disparities: women engage in piracy less frequently than men. However, once they do engage in illegal behaviour, that is, once they start to download music files illegally, the number of such files does not differ between men and women. Both genders perceive original CD prices as unfair, but women express stronger feelings of unfairness and place more value on legality. Women’s reluctance toward piracy seems driven by ethical concerns, while men place greater value on the product’s originality. In this context, our paper aims to provide valuable insights for policymakers, offering tools to develop more effective legal strategies while shedding light on a specific aspect of economic behaviour.

Policy holders who engage in loss inflation by reporting higher than actual losses are a significant challenge for the insurance market. Based on a behavioral game-theoretic model, we analyze in an online experiment whether prevention taken by policy holders can provide a signal on loss inflation. We argue that the willingness for loss inflation depends on lying costs, other-regarding preferences and moral licensing. We consider treatment groups where subjects themselves decide whether to invest in prevention and control groups where a random computer draw decides on investment. We thereby disentangle the impacts of the aforementioned factors. First, we find evidence that other regarding-preferences influence loss inflation. Second, the impact of moral licensing goes in the direction predicted by our model but is not statistically significant. Third, and aligned with our model, our data suggest that other-regarding preferences and moral licensing countervail each other. We find no impact of whether the experiment is framed neutrally or in an insurance context.

The stigma attached to any criminal record, including for those found not guilty, can lead to reduced job prospects and economic hardship long after judicial proceedings conclude. This paper examines discriminatory behavior of experimental participants who are given the opportunity to base an investment or employment decision on their trustee’s/worker’s criminal record. Similar to the real world, our experiment shows that employers and investors discriminate against those with criminal convictions. Surprisingly, we find they also discriminate against those with acquittals. We find that a subject’s reciprocity corresponds significantly to the true guilt or innocence of an accused, but not to conviction or acquittal of a crime. Because reciprocator behavior does not depend on a person’s criminal record, no rational basis exists for the observed statistical discrimination against those who have been accused. Our results raise serious concerns about the practice of using criminal records in hiring, as convictions are often poor indicators of actual culpability.

Cartel decisions are made by managers. These decisions result in an increase in company earnings at the expense of the earnings of a third party, typically consumers or business partners. Using laboratory experiments, this article studies the behavioral foundations of individuals’ willingness to engage in a cartel, in a context in which engaging in such agreements increases the cartelists’ earnings, but reduces the earnings of a third participant. This reduction in earnings is a loss for the third participant but it can also be seen as a moral cost for the cartelists. In addition, the impact of different sanctions schemes–monetary, leniency, compliance, and exclusion–is investigated. The results show that forced compliance and exclusion sanction schemes are more effective deterrents than monetary and leniency sanction schemes. These results are robust to varying levels of moral costs and of probabilities of detection and fines. Although the impact of moral costs is statistically significant, it is limited in magnitude, showing that participants are more sensitive to the monetary gains associated with cartel agreements than to the reduction in earnings imposed on the third participant. Finally, being a woman and being risk-averse is associated with a lower propensity to engage in such agreements.

We undertake a laboratory experiment to evaluate whether the corporate bankruptcy procedure employed under the current Indian law simultaneously achieves the dual objectives of efficiency and fairness. As the baseline scenario, we deploy the procedure used under the current Indian bankruptcy law. The law adopts a unique mandatory auction mechanism, which combines the claim distribution mechanism with the asset deployment process of the bankrupt firm. Results reveal that, under the existing mechanism, there exists a fairness-efficiency trade-off. If the outcome is efficient, i.e. if the value of the firm is maximized, then it is often distributionally unfair, i.e. the operational creditors do not get their fair share of claim recovery. In contrast, if the outcome is distributionally fair, then it may be inefficient. We introduced a mechanism that separates the deployment and distribution processes. Efficiency and fairness simultaneously improve under the modified mechanism.

Our paper experimentally tests whether ‘soft regulatory devices’ that rely on advisor identifiability and reciprocity are able to reduce misconduct by financial advisors. We also test whether advisor ability is negatively related to misconduct. We indeed find that low ability advisors are more likely to engage in misconduct in all treatments including the Baseline. Interestingly, a subset of advisors strategically exploits the identifiability mechanism in order to ‘game the system’, which undermines the effectiveness of the treatment. Furthermore, we find that reciprocity affects advisors heterogeneously, which causes a group of advisors to increase their misconduct and leads to a significant loss in efficiency in comparison to the Baseline treatment. Additionally, we discuss how low ability advisors have different incentives within each treatment compared to high ability advisors. Our analysis reveals substantial disparities in advisor misconduct across various contexts as interventions influence misconduct in a nuanced manner. Finally, we argue for the use of segmented policy approaches in order to respond to complex market environments involving heterogeneous advisors.

We experimentally study whether conciliation, a dispute resolution mechanism where a neutral third party makes non-binding suggestions of resolution to the parties, can improve bargaining efficiency. In conciliation, a neutral third party collaborates with the parties by suggesting resolutions to promote agreements. Unlike delegation or arbitration, conciliation fully preserves the autonomy of the parties. Unlike mediation, the conciliator cannot filter information. Whether conciliation can improve bargaining efficiency is an open question. In our laboratory experiment, two “litigants” bargain over the split of a loss in an unstructured protocol. In case of failure, a random split is implemented. In some conditions, a third party, the conciliator takes part in the bargaining by submitting non-binding suggestions to the litigants. We find that, on average, conciliation does not reduce the likelihood of failure, and does not affect the splits that are agreed upon by litigants. However, conciliation reduces bargaining delays: the time and the number of offers necessary to converge to an agreement are significantly reduced in the presence of a conciliator. In addition, conciliation has a heterogeneous effect: while its average effect is null, for bargaining pairs composed of selfish litigants, it results in more equal agreements. The social preferences of the conciliator matter too, both for the likelihood and nature of agreements.

We explore the relationship between tax culture and tax rate structure preferences among migrants and non-migrants in Germany. A vignette study is used to examine (1) whether migrants bring their country of origin’s tax culture to the destination country and (2) whether second-generation migrants assimilate with the host society’s tax culture. Our findings provide evidence for the impact of tax culture. Migrants tend to prefer a less-progressive tax rate structure, especially those from flat tax countries. Additionally, while second-generation migrants align their preferences with those of the host society, differences remain. This research provides insights into the dynamics of tax culture in heterogeneous societies.

Using an original experimental survey, we analyze how people perceive punishments generated by artificial intelligence (AI) compared to the same punishments generated by a human judge. We use two vignettes pertaining to two different albeit relatively common illegal behaviors, namely not picking up one’s dog waste on public roads and setting fire in dry areas. In general, participants perceived AI judgements as having a larger deterrence effect compared to the those rendered by a judge. However, when we analyzed each scenario separately, we found that the differential effect of AI is only significant in the first scenario. We discuss the implications of these findings.

Automated decision-making is increasingly prevalent, prompting discussions about AI replacing judges in court. This paper explores how machine-made sentencing decisions are perceived through an experimental study using a public good game with punishment. The study examines preferences for human versus automated punishers and the perceived fairness of penalties. Results indicate that rule violators prefer algorithmic punishment when penalty severity is uncertain and violations are significant. While human judges are typically reluctant to delegate, they are more likely to do this when they do not have discretion over the sanction level. Fairness perceptions are similar for both humans and algorithms, except when human judges choose a less severe penalty, which enhances perceived fairness.

We conduct a laboratory experiment to analyze the influence of whistleblower protection on the cooperative behavior between a manager and an employee. Before taking part in a trust game with her employee, a manager has the opportunity to embezzle money at the expense of a third party. The employee observes her decision and may trigger an investigation by blowing the whistle. The treatments vary with respect to immunity and anonymity for the whistleblower. We compare misbehavior, reporting, and cooperative behavior across the treatments. The results suggest that whistleblower protection could deter wrongdoing, but could also have a detrimental effect on cooperation in organizations if it increases the probability for whistleblowing.

We examine the contribution of institutional integration to a country’s institutional capacity. To this end, we examine the effects of remaining outside of the European integration process for 28 Ukrainian provinces in the period 1996–2020. We construct novel, machine-learning supported subnational estimates of institutional capacity and quality for Ukraine and for central and eastern European countries that have completed institutional integration. Based on the latent residual component extraction of institutional quality from the existing governance indicators, we use Bayesian posterior analysis under non-informative objective prior function to construct institutional quality indicators from more than 1.8 million randomly sequenced samples across Markov chain Monte Carlo simulations. By comparing the residualized institutional quality trajectories of Ukrainian provinces with their central and eastern European peers that were admitted to the European Union in 2004 and after, we assess the institutional quality cost of failing to institutionally integrate with the EU. Based on the large-scale synthetic control and difference-in-differences analysis, we find evidence of large-scale negative institutional quality and capacity effects of missing the European integration path such as heightened political instability and rampant deterioration of the rule of law and control of corruption. The statistical significance of the estimated effects is evaluated across a comprehensive placebo simulation with more than 34 billion placebo averages for each institutional quality outcome.