New Economics Papers
on Law and Economics
Issue of 2012‒12‒15
two papers chosen by
Jeong-Joon Lee, Towson University

  1. Costly Litigation and Optimal Damages By A. Mitchell Polinsky; Steven Shavell
  2. Specificity of Control: The Case of Mexico's Ejido Reform By Paul Castãneda Dower; Tobias Pfutze

  1. By: A. Mitchell Polinsky; Steven Shavell
    Abstract: A basic principle of law is that damages paid by a liable party should equal the harm caused by that party. However, this principle is not correct when account is taken of litigation costs, because they too are part of the social costs associated with an injury. In this article we examine the influence of litigation costs on the optimal level of damages, assuming that litigation costs rise with the level of damages.
    JEL: K13 K41
    Date: 2012–12
  2. By: Paul Castãneda Dower (New Economic School); Tobias Pfutze (Oberlin College)
    Abstract: An important aspect of property rights is specificity, the ability of a third party to enforce rights. The empirical literature rarely isolates the effect of specificity because exogenous changes, due to land reforms, either simultaneously change both control and specificity or exclusively change control. We investigate the effect of specificity in the context of the 1992 Salinas land reforms in Mexico, which constitutionally changed individual control rights for all communal landholders but reserved changes to specificity for a subsequent voluntary land certification program. We are able to address selection into the program by taking advantage of the peculiarities in the certification process. Using agricultural production data from before and after the reform, we demonstrate that land certification significantly increases agricultural investments but only for investments directly affected by the changes in control. We explain the results using a simple model that shows how specificity can better coordinate landholders' beliefs about the implementation of changes in control.
    Keywords: Property Rights, Specicity, Land Reform, Mexico, Ejido
    JEL: K49 O10 O12
    Date: 2012–11

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