LectNotes-6-Oct25-2330-InstitutLawEcon

LectNotes-6-Oct25-2330-InstitutLawEcon - APPROACHES TO THE...

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1 APPROACHES TO THE ECONOMICS OF LAW AND POLICY A focus on Institutional Law & Economics Prof. Salazar Sosc 2330 Session/Week 6 October 25, 2010
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2 OBJECTIVES 1. Transaction cost rationale of law as a neoclassical analysis 2. Articulate the view of the institutional law and economics Market is embedded in social context (institutional environment) and non-economic factors are taken into account, thereby suggesting a broader role for the law 3. Assess and compare neoclassical/ transaction cost and institutional analysis
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INTRODUCTORY DISCUSSION 3
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Anti-Smoking Warning Laws Are we missing the gender, race, social class aspects? Are we assuming ‘rational’ behavior? 4 Smoking rampant among pregn According to the study, between 25 to 32 percent of former and current smokers lit up regularly during their most recent pregnancy. The national average is 19 to 22 per cent. This, despite a provincial government strategy to reduce 2000-01 smoking rates in pregnant women from 32 per cent to 12 per cent in 2010-11 http://snus-news.blogspot.com/2008_12_21_archive.html
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gender, race, culture, class, loyalty, social prestige, mistakes, low/high-income situation, bounded rationality, customs, ethnicity, need for social reputation (=institutions) affect market transactions for good (greater efficiency, equity) or bad (inefficiency, inequality)? Not just price, supply, demand, information, externalities, transaction costs, …?
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APPROACHES TO ECON OF LAW Pure Economics v Beyond Pure Economic 6 MARKET TRANS. COST APPROACH Inform=Trans. Cost MARKET FAILURE APPR. Inform= M Failure RACE CLASS Income GENDER CULTURE Values SOCIAL POWER
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7 Transaction Cost and Market Failure approaches are largely based on neoclassical economics and do not largely capture social aspects Institutional Law & Economics attempts to capture social aspects…
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INSTITUTIONAL LAW AND ECONOMICS Departing from neoclassical analysis Embed market relations in social context Recognize the influence of non-economic factors (social, etc = institutions) Question the assumption that individuals are rational maximizers Treat law as semi-autonomous system that has its own rationality (rules, values, objectives) which does not necessarily serve economic objectives. As such law may communicate with economics and social aspects (do not begin with economics and set an economic agenda for the law like market failures or transaction cost approaches) so that there is a mutual influence (not one-side influence). 8
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INSTITUTIONAL LAW AND ECONOMICS Three Departures 1. Factor new problems (institutions) into the analysis of the market economy and the role of law Market is embedded in social context (=“institutional environment”) Law + social norms, customs, gender, culture, etc. = “institutions”: also affect the functioning of markets Legal rights and obligations also distribute (legal) power Beyond a narrow list of market failures and a economics-based typology of transaction costs 9
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INSTITUTIONAL LAW AND ECONOMICS Three Departures 1. Question the neoclassical assumptions of the
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LectNotes-6-Oct25-2330-InstitutLawEcon - APPROACHES TO THE...

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