Racial Bias in Motor Vehicle Searches: Additional Theory and Evidence

Knowles, Persico, and Todd (2001) develop a model of police search and offender behavior. Their model implies that if police are unprejudiced the rate of guilt should not vary across groups. Using data from Interstate 95 in Maryland, they find equal guilt rates for African-Americans and whites and conclude that the data is not consistent with racial prejudice against African-Americans. This paper generalizes the model of Knowles, Persico, and Todd by accounting for the fact that potential offenders are frequently not observed by the police and by including two different levels of offense severity. The paper shows that for African-American males the data is consistent with prejudice against African-American males, no prejudice, and reverse discrimination depending on the form of equilibria that exists in the economy. Additional analyses based on stratification by type of vehicle and time of day were conducted, but did not shed any light on the form of equilibria that best represents the situation in Maryland during the sample period.

Legal Change and the Social Value of Lawsuits

This paper integrates the literatures on the social value of lawsuits, the evolution of the law, and judicial preferences to evaluate the hypothesis that the law evolves toward efficiency. The setting is a simple accident model with costly litigation where the efficient law minimizes the sum of accident plus litigation costs. In the steady state equilibrium, the distribution of legal rules is not necessarily efficient but instead depends on a combination of selective litigation, judicial bias, and precedent.

Did Impending War in Europe Help Destroy the Gold Bloc in 1936? An Internal Inconsistency Hypothesis

This paper investigates the gold bloc operated between France, the Netherlands, Switzerland and Belgium, especially over the period after the USA left the gold standard in March 1933 to its end in September 1936. It enquires into the effect of military-political developments in Germany and Italy on the sustainability of the gold bloc between its members. Juxtaposed is the view of leading political scientists, such as Henry Kissinger, who see impending war in Europe as deeply and adversely affecting psychology in Europe, and what may be called the standard "economists' view" that sees the demise of the gold bloc as being caused almost exclusively by economic factors. Developing concepts of external and internal inconsistency of the gold bloc, this investigation concludes that both economic and military-political developments played important roles in destroying the last vestiges of the gold standard.

US Corporate Default Swap Valuation: The Market Liquidity Hypothesis and Autonomous Credit Risk

This paper develops a reduced form three-factor model which includes a liquidity proxy of market conditions which is then used to provide implicit prices. The model prices are then compared with observed market prices of credit default swaps to determine if swap rates adequately reflect market risks. The findings of the analysis illustrate the importance of liquidity in the valuation process. Moreover, market liquidity, a measure of investors. willingness to commit resources in the credit default swap (CDS) market, was also found to improve the valuation of investors. autonomous credit risk. Thus a failure to include a liquidity proxy could underestimate the implied autonomous credit risk. Autonomous credit risk is defined as the fractional credit risk which does not vary with changes in market risk and liquidity conditions.