New Economics Papers
on Law and Economics
Issue of 2006‒06‒17
four papers chosen by
Jeong-Joon Lee, Towson University

  1. Arrest Avoidance: Law Enforcement and Price of Cocaine By Beth A. Freeborn
  2. The Right to Work and the Political Economy of Human Rights By Manuel Couret Branco
  3. Unique Equilibrium in a Model of Rule of Law By Randolph Luca Bruno
  4. Governing the Co-Existence of GM Crops - Ex-Ante Regulation and Ex-Post Liability under Uncertainty and Irreversibility By Volker Beckmann; Claudio Soregaroli; Justus Wesseler

  1. By: Beth A. Freeborn (Department of Economics, College of William and Mary)
    Abstract: Contrary to one goal of drug law enforcement, cocaine prices decreased between the years 1986 and 2000. This paper discusses how arrest avoidance behavior can affect cocaine consumer and dealer response to law enforcement. Dealers may avoid arrest by incurring quick and easy sales; thus pure gram price is negatively related to dealer enforcement. Consumers avoid arrest by accepting high prices rather than search for lower prices. Thus pure gram price is increasing in consumer enforcement. Because the implications from arrest avoidance conflict with traditional models of how enforcement should affect prices, I study the relationship using empirical analysis. Using purchase level data from the Drug Enforcement Administration and legal penalty data, I find a negative and significant relationship between dealer enforcement and pure gram price, which is consistent with the intuition of arrest avoidance.
    Keywords: admission Drug law enforcement, Incarceration, Drug prices, Arrest Rates
    JEL: I1 K4 L2
    Date: 2006–06–08
  2. By: Manuel Couret Branco (Department of Economics, University of Évora)
    Abstract: The second part of the paper is dedicated to the presentation of arguments that attempt to legitimize the right to work. For those members of the international community that have signed and ratified the proclamations described above the process through which they were approved confers the right to work plenty enough legitimacy. But given the highly political nature of the process that led to their adoption it should not come as a surprise that, especially among economists, economic rights are considered just a legal ornament. Therefore, it may be useful to search for different sources of legitimacy for human rights, and economic rights in particular, other than political and philosophical if one intends to make economics take economic rights seriously. The first argument is based on the inequality established in the capitalist system between the two contractors in the labour market, in this case freedom to work, in other words freedom to engage in contract, becomes meaningless without a right to work. The second argument arises from a basic ethical principle of economics. In order to live, that is in economic terms to consume, in other words, to satisfy needs or to acquire utility, one has to consent in sacrifice of an equivalent amount of utility of a different kind. In our society the sacrifice demanded from individuals for the satisfaction of one’s needs is the supply of a certain amount of work, or of a socially useful activity, except in cases of incapability resulting from misfortune. There is, therefore, an obligation to work. Now by definition, if work is an obligation in order to live, no one should be deprived of the access to it. The third argument in favour of the right to work concerns the social utility of the existence of such a right. The third part of the paper concerns the possibility of the existence of a competition between the right to work and the right to property. After concluding that this is not a problem I will focus on the conflict that seems more obvious, which is the conflict between the interests of capital and labour. There are two aspects of this conflict. The microeconomic aspect of this conflict concerns the fact that for firms unemployment is useful to attain certain objectives. For a long time unemployment, and the spectrum of hunger, has been seen as some sort of menace to workers in order to make them work harder and stay in line. At the macro economic level, unemployment appears to be an instrument in controlling inflation and full employment no longer a goal, regardless of the theory one professes, Philips curve or Natural Rate of Unemployment in any of its versions. The fourth part of the paper concerns the responsibility for ensuring the right to work. Is it a state or a corporate responsibility? Generally it is admitted that in terms of human rights the responsibility is the State’s. But this would also means that firms would then externalise the social costs of their activity which is not coherent with the new wave of Corporate Social Responsibility. Finally the last part of the paper will concern the policy implications of the right to work. Sustaining that ensuring the right to work means to promote full employment with decent jobs I will analyse the traditional instruments used to create jobs in the advanced countries and conclude that not all public action aiming to just creating jobs qualifies to right to work securing policy if it contributes to an erosion of the rights at work. In the end I will suggest that the only policy that seems to qualify in present economic circumstances is to share the asset work by substantially reduce the working hours.
    Keywords: Right to Work, Human Rights, Political Economy, Employment, Unemployment
    JEL: A10 A12 A13 J20 J23 K00
    Date: 2006
  3. By: Randolph Luca Bruno
    Abstract: This paper presents a model of Rule of Law in which a continuum of agents plays against the State for the appropriation of the economic assets of a stylised economy. The model shows how each agent can either challenge the State or acquiesce, with the latter having the choice of either protecting property rights or abandoning the economy to anarchy. Players' payoffs are affected by strategic complementarities, not only between State and agents but also among agents themselves. As a consequence of this, a Coordination Failure is generated. The solution of the game is given by two Pareto-ranked Nash equilibria emerging from the context. Introducing idiosyncratic information and sequential play generates a unique equilibrium, according to the global game approach. On the one hand, this model predicts that high uncertainty and sunk costs in law enforcement have a negative effect, pushing the economy towards a Pareto-dominated equilibrium. On the other hand, the high value given to the economy's assets (embedded social norms) has a positive influence, leading to a Pareto-dominant equilibrium.
    Keywords: Rule of Law, Coordination Failure, Global Games
    Date: 2006–06–12
  4. By: Volker Beckmann (Humboldt Universität zu Berlin, Institut für Wirtschafts- und Sozialwissenschaften des Landbaus, Fachgebiet Ressourcenökonomie, Luisenstr. 56, 10099 Berlin); Claudio Soregaroli (Università Cattolica del Sacro Cuore, Piacenza, Italy); Justus Wesseler (Environmental Economics and Natural Resources Group, Wageningen University, 6700 EW Wageningen, The Netherlands)
    Abstract: The future institutional environment for the co-existence of genetically modified (GM) crops, conventional crops and organic crops in Europe combines measures of ex-ante regulation and ex-post liability rules. Against this background we ask the following two questions: How does ex-ante regulation and ex-post liability under irreversibility and uncertainty affect the adoption of GM crops? What are the implications for regional agglomeration of GM and non-GM crops? Ex-ante regulations and ex-post liabilities for using GM crops will induce additional costs. These costs are modelled in a classical way. The model is advanced by including irreversibility and uncertainty and taking into account transaction costs of negotiating possible solutions with neighbouring farmers which are assumed to be partially irreversible. The results show that the design of ex-ante regulation and ex-post liability increases the value of waiting and results in less immediate adoption of the GM technology. Additionally, the rules and regulations in the EU do provide incentives for the regional agglomeration of GM and non-GM crops that are mainly driven by the irreversibility effect of the ex-ante regulatory and ex-post liability costs.
    Keywords: Co-existence, GM crops, liability law, public regulation, technology adoption
    JEL: K13 O33 Q18
    Date: 2006–03

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