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Incentives and the De Soto Effect
London School of Economics and Canadian Institute for Advanced Research.
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies.
London School of Economics.
2012 (English)In: Quarterly Journal of Economics, ISSN 0033-5533, E-ISSN 1531-4650, Vol. 127, no 1, 237-282 p.Article in journal (Refereed) Published
Abstract [en]

This paper explores the consequences of improving property rights to facilitate the use of fixed assets as collateral, popularly attributed to the influential policy advocate Hernando de Soto. We use an equilibrium model of a credit market with moral hazardto characterize the theoretical effects and also develop a quantitative analysis using data from Sri Lanka. We show that the effects are likely to be nonlinear and heterogeneous by wealth group. They also depend on the extent of competition between lenders. There can be significant increases in profits and reductions in interest rates when credit markets are competitive. However, since these are due to reductions in moral hazard, that is, increased effort, the welfare gains tend to be modest when cost of effort is taken into account. Allowing for an extensive margin where borrowers gain access to the credit market can make these effects larger depending on the underlying wealth distribution.

Place, publisher, year, edition, pages
2012. Vol. 127, no 1, 237-282 p.
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URN: urn:nbn:se:su:diva-84088DOI: 10.1093/qje/qjr056OAI: diva2:578339
Available from: 2012-12-18 Created: 2012-12-18 Last updated: 2013-01-28Bibliographically approved

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Besley, Timothy J.Burchardi, Konrad B.
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