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In Defense of Usury Laws

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  • GIUSEPPE COCO
  • DAVID DE MEZA

Abstract

Usury law is often criticized by economists for curtailing lending and thus creating deadweight costs. This paper shows that if moral hazard leads to credit rationing, a just-binding usury law creates a deadweight "gain." This property also holds in most market-clearing equilibria. Independent of social insurance benefits, or curbing present-biased preferences, interest rate caps have merit. Copyright (c) 2009 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2009.00274.x
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 41 (2009)
Issue (Month): 8 (December)
Pages: 1691-1703

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Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:8:p:1691-1703

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Cited by:
  1. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2011. "The Inhibition of Usury (Riba An-Nasi'ah) and the Economic Underdevelopment of the Muslim World," Working Papers 11002, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  2. Michel Bellet, 2011. "Saint-Simonism and Utilitarianism : the history of a paradox. Bentham’s Defence of Usury under Saint-Amand Bazard’s Interpretation," Working Papers 1135, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
  3. Arnold, Lutz G. & Reeder, Johannes & Trepl , Stefanie, 2010. "Single-Name Credit Risk, Portfolio Risk, and Credit Rationing," University of Regensburg Working Papers in Business, Economics and Management Information Systems 448, University of Regensburg, Department of Economics.
  4. Michel Bellet, 2011. "Saint-Simonism and Utilitarianism: the history of a paradox. Bentham's Defence of Usury under Saint-Amand Bazard's Interpretation," Working Papers halshs-00654847, HAL.

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