law and economics – Page 2

Do Medical Marijuana Laws Increase Hard-Drug Use?

According to a recent study by Yu-Wei Luke Chu in the Journal of Law & Economics, the answer is not just “No,” but that medical marijuana laws may actually decrease heroin use as consumers substitute the legal marijuana for heroin. Below is the abstract:

Medical marijuana laws generate significant debate regarding drug policy. For instance, if marijuana is a complement to hard drugs, then these laws would increase the usage not only of marijuana but also of hard drugs. In this paper I study empirically the effects of medical marijuana laws by analyzing data on drug arrests and treatment admissions. I find that medical marijuana laws increase these proxies for marijuana consumption by around 10–15 percent. However, there is no evidence that cocaine and heroin usage increases. From the arrest data, the estimates indicate a 0–15 percent decrease in possession arrests for cocaine and heroin combined. From the treatment data, the estimates show a 20 percent decrease in admissions for heroin-related treatment, although there is no significant effect for cocaine-related treatment. These results suggest that marijuana may be a substitute for heroin, but it is not strongly correlated with cocaine.

SCOTUS Rejects USDA’s Raisin Cartel

A couple years ago I posted (here) about a lawsuit progressing through the courts concerning the USDA’s raisin marketing order. The Raisin Administrative Committee (RAC) basically sets a quota on the amount of raisins that can be marketed in a given year as a way of maintaining high-priced raisins. The RAC requires producers to turn a portion of their crop over to the RAC, which then markets the “excess” raisins to other countries or uses.

Today, the US Supreme Court ruled in Horne v. Department of Agriculture that the USDA-sponsored Raisin Administrative Committee’s process amounts to an unconstitutional governmental “taking”. Apparently the decision is limited to the raisin program and it opens the doors to other ways for the USDA to control the raisin market, but the decision also raises questions about the constitutionality of other agricultural commodity programs.

Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism

About a year ago I posted a couple of pieces (here and here) related to auto dealers’ attempts in various states to shut down Tesla’s direct-to-consumer distribution system. Dan Crane (Michigan Law) has a recent paper on the issue available at SSRN. Below is the abstract:

Tesla Motors is fighting the car dealers’ lobby, aided and abetted by the legacy Detroit manufacturers, on a state by state basis for the right to distribute its innovative electrical automobiles directly to consumers. The Tesla wars showcase the important relationship between product innovation and innovation in distribution methods. Incumbent technologies may block competition by new technologies by creating legal barriers to innovative distribution methods necessary to secure market acceptance of the new technologies. While judicial review of such special interest capture is generally weak in the post-Lochner era, the Tesla wars are creating new alliances in the political struggle against crony capitalism that could contribute to a significant re-telling of the conventional public choice story.

10th Annual Conference on Empirical Legal Studies

The 10th Annual Conference on Empirical Legal Studies will be held October 30-31, 2015, at Washington University in St. Louis. Sponsored by the Society for Empirical Legal Studies, and hosted by Washington University School of Law and the Center for Empirical Research in the Law, the conference will bring together hundreds of scholars from law, economics, political science, psychology, policy analysis, and other fields who are interested in the empirical analysis of law and legal institutions. The Call for Papers will be published in April. Submissions are due June 26. See the conference page for more details.

Ex Ante vs Ex Post Licensing

Ralph Siebert has an article in the Journal of Competition Law & Economics on “What Determines Firms’ Choices Between Ex Ante and Ex Post Licensing Agreements,” which looks at the timing of technology licensing agreements around research joint ventures in the semiconductor industry. He finds that expectations about potential patent blocking affect the decision of when to license, as do transaction costs, and technology and product market characteristics. His data don’t include much about the specifics of the licensing agreements, but the results are pretty interesting nonetheless. Below is the abstract:

I investigate whether licensing agreements are an appropriate tool for firms to resolve blocking and hold-up problems in high-tech industries. I use a novel and comprehensive database on licensing agreements as well as detailed firm-level information on revenues and patents in the semiconductor industry from 1989 to 1999. It would be interesting to evaluate the post-1999 time period, but data constraints prevent me from doing so. I estimate a bivariate probit model accounting for endogenous selection. I find that different types of licensing agreements, that is, ex ante and ex post licensing agreements, help firms eventually resolve realized blocking. Firms engage in licensing before inventing a new technology (ex ante licensing) if they believe competitors hold patents that can potentially block the commercialization of their technology. In contrast, firms engage in licensing after inventing the technology (ex post licensing) if other firms hold patents that block the commercialization of the technology. The estimation results also show that firms’ activity in technology and product markets plays an important role in explaining choices between ex ante and ex post licensing agreements. It should be kept in mind that the semiconductor industry is high-paced and the data patterns might have changed after 1999.

State Contract Law and Debt Contracts

An interesting paper by Colleen Honigsberg, Sharon Katz (both at Columbia) and Gil Sadka (Univ. of Texas at Dallas) in the November 2014 issue of the Journal of Law & Economics (available here) looks at differences in debt contract terms based on the state’s contract law which governs the debt contract. A number of papers have studied factors affecting the use of various types of covenants and contract terms for debt agreements, but none previously have accounted for variation in state contract laws. Below is the abstract:

This paper examines the relationship between debt contracts and state contract law. We first develop an index to evaluate whether each state’s law is favorable or unfavorable to lenders. We then analyze how the contract terms, the frequency of covenant violations, and the repercussions of covenant violations vary across states. We find that cash collateral is most likely to be used when the contract is governed by law that is favorable to debtors and that out-of-state borrowers who use favorable law pay higher yield spreads. In addition, when the law is favorable to lenders, there are significantly fewer covenant violations, and the repercussions of covenant violations—measured as changes in the borrower’s investment policy—are more severe. We also compare the characteristics of relevant parties across states, and the results provide support for the theory that there is a market for contracts similar to the market for incorporations.

Regulation and Contract Choice in the Distribution of Wine

That’s the title of a new working paper with one of my former students, Michelle (Mullins) Santiago. You can access the full paper here. The abstract follows:

The wine industry in the United States has grown tremendously over the past few decades, from fewer than 1,000 wineries in 1980 to upwards of 7,700 today. The growth has occurred over a period that has seen substantial changes in the structure of the wine industry, the modes of distribution available to wineries, and the regulations governing them, perhaps most notably the advent of direct-to-consumer shipping of wine across state boundaries. Most economic research, however, has focused on supply relations between wineries and wine grape growers rather than between wineries and their downstream markets. In this paper we examine wineries’ contracting behavior with downstream distributors and the effects of industry structure, winery organizational structure, and state laws regarding direct shipment and distribution franchise laws.