New Economics Papers
on Law and Economics
Issue of 2011‒09‒16
five papers chosen by
Jeong-Joon Lee, Towson University

  1. Smoke Signals and Mixed Messages: Medical Marijuana & Drug Policy Signalling Effects By Niko de Silva; Benno Torgler
  2. Product reliability, consumers’ complaints and market performance: the case of consumers’ associations By Joaquín Coleff
  3. Turning Legal Pluralism into State-Sanctioned Law: Assessing the Implications of the New Constitutions and Laws in Bolivia and Ecuador By Anna Barrera
  4. Trial experience, satisfaction and incentive to bring another lawsuit: Does aspiration level influence winners and losers? By Yamamura, Eiji
  5. Juridical and financial considerations on the public recapitalisation and rescue of financial institutions during periods of financial crises (Part II) By Ojo, Marianne

  1. By: Niko de Silva; Benno Torgler
    Abstract: Liberal drug policy reform is often criticized for ‘sending the wrong message’, particularly to youth. Reform opponents argue that liberal policies such as decriminalisation and medical marijuana laws will cause marijuana to be perceived as less risky and lead to an increase in use. We seek to test this claim empirically, exploiting the timing and unique properties of state level medical marijuana laws in the US to isolate policy signalling effects. We use survey-derived state-level estimates of youths’ marijuana risk-perceptions and use prevalence, and find evidence of signalling effects on aggregate risk-perceptions of marijuana use that correspond to the introduction of medical marijuana laws. These effects, however, do not conform to what reform opponents predict - medical marijuana provisions appear to send the ‘right’ message. Further, we find no robust effects on nonmedical marijuana use.
    Keywords: Medical marijuana, drug policy, ballot initiatives, policy signalling
    JEL: K14 K42 I18 Z19
    Date: 2011–09
  2. By: Joaquín Coleff
    Abstract: In their dealings with retailers and suppliers, regulations and warranties ensure that consumers can seek a repair, a replacement or a refund if the good they have purchased is faulty. The evidence, however, indicates that few consumers pursue any form of compensation, suggesting that, for most consumers, transaction costs are high and providing a rationale for the role that consumers’ associations play. In this paper, we analyze the monopolist’s pricing and product reliability problem when consumers are entitled to product replacement and assess the implications of a decrease in consumers’ transaction costs. Our results suggest that the appearance of the consumers’ associations could, instead, lower product reliability. We draw empirical evidence from the pattern of recalls and complaints in the U.S. car market around 1995 (the year in which the National Highway Traffic Safety Administration (NHTSA) incorporated on-line filings) and find that it appears consistent with this prediction.
    Keywords: product reliability, consumers’ association, consumers’ claims, liability cost
    JEL: K42 D71 D42 D21 L12
    Date: 2011–08
  3. By: Anna Barrera (GIGA Institute of Asian Studies)
    Abstract: Ethnically diverse societies have long faced the challenge of accommodating distinct and often conflictive normative orders within a single polity. Leaving the ideal of a single, ho-mogeneous legal order aside, many Latin American states have recently acknowledged the right of indigenous peoples to practice and generate proper law. The ensuing question of how to address the challenges implied by this state-sanctioned form of legal pluralism is examined by a comparison of Bolivia and Ecuador in this paper. Similarities between cases can be identified as to the definition and limits of indigenous jurisdictions and the coordi-nation among legal authorities. Marked differences exist with regard to the status of in-digenous law, the ability to appeal indigenous rulings, and the incorporation of indige-nous legal cultures into the state’s legal system. While the new frameworks constitute re-markable progress, their effects in the longer term will depend on the broader political context and the willingness to alter the long-established attitudes of justice operators and broader societies alike.
    Keywords: legal pluralism, constitutional change, judicial reform, indigenous peoples, plurinational state, Bolivia, Ecuador
    Date: 2011–08
  4. By: Yamamura, Eiji
    Abstract: This paper used individual level data in Japan to explore how a complainant’s past trial experience influences their satisfaction and incentive to bring a future lawsuit. Controlling for kinds of incidents and a complainant’s individual characteristics, the major findings were; (1) there is a positive relationship between the experience and satisfaction for winners, whereas there is a significant negative relationship for losers, and (2) experience exerts a positive effect on the intention to bring a future lawsuit, not only for winners but also for losers. These results imply that, for losers, a past experience enhances the incentive to bring a future lawsuit, although the experience decreases a complainant’s satisfaction.
    Keywords: Trial experience; Lawsuit satisfaction; future lawsuit; winner
    JEL: K40 L52 K41
    Date: 2011–07–28
  5. By: Ojo, Marianne
    Abstract: In response to the recent Financial Crisis - after it had been widely accepted that “a serious disturbance in the economy of Member States” had occurred, and that several measures were required to remedy this disturbance, various Commission communications were adopted. The Communications include: The first Communication which (initially), was the only one that the Commission adopted intentionally: the Communication on the application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis (hereinafter "the Banking Communication"). However, faced with the pressure to issue more guidelines (such pressure being exerted by Member States), the Commission adopted three further Communications: the Communication on the re capitalisation of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortions of competition (hereinafter "the Recapitalisation Communication"); the Communication “On the treatment of impaired assets in the Community banking sector” (hereinafter, “the Toxic Assets Comunication”) and finally, the Communication on the return to viability and the assessment of restructuring measures in the financial sector in the current crisis under the State aid rules (hereinafter "the Restructuring Communication").” Whilst the Banking and Re capitalisation Communications constituted the focus of study in Part I to this paper, this paper will focus on the impact of shadow banking and Basel III on regulatory arbitrage, the corresponding need for greater transparency and disclosure within financial markets – particularly within OTC markets, and impediments to the successful implementation of capital requirements which are aimed at fostering financial stability, coordination and harmonisation. Further, it will consider the extent to which regulators are prepared to deviate from regulations during the implementation of stress-testing and rescue programmes which are aimed at restoring stability to the financial system. The redefinition of quantitative and qualitative standards for capital, in implementing the Supervisory Capital Assessment Programme (SCAP), as illustrated in the paper, should demonstrate the extent to which regulators, independent of shadow banking practices, are prepared to deviate from capital regulations under adverse scenarios where certain regulations prove to be unduly stringent.
    Keywords: Financial Crisis; state aids; recapitalisation; regulatory arbitrage; shadow banking; Basel III; supervision; financial stability; OTC markets; counter party risks; stress testing; Supervisory Capital Assessment Program (SCAP); market discipline
    JEL: D0 K2 D8 E3
    Date: 2011–09–09

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