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Incentives and the De Soto Effect

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  • Timothy J. Besley
  • Konrad B. Burchardi
  • Maitreesh Ghatak

Abstract

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 hazard to 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. Copyright 2012, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 127 (2012)
Issue (Month): 1 ()
Pages: 237-282

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Handle: RePEc:oup:qjecon:v:127:y:2012:i:1:p:237-282

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Cited by:
  1. Stefania Lovo, 2013. "Tenure insecurity and investment in soil conservation. Evidence from Malawi," Grantham Research Institute on Climate Change and the Environment Working Papers 114, Grantham Research Institute on Climate Change and the Environment.
  2. Deininger, Klaus & Goyal, Aparajita, 2010. "Going digital : credit effects of land registry computerization in India," Policy Research Working Paper Series 5244, The World Bank.
  3. Diego Puga & Daniel Trefler, 2013. "International Trade And Institutional Change: Medieval Venice’S Response To Globalization," Working Papers wp2013_1307, CEMFI.
  4. Juan Carlos Muñoz-Mora & Santiago Tobón-Zapata & Jesse d'Anjou, 2014. "Does land titling matter? The role of land property rights in the war on illicit crops in Colombia," HiCN Working Papers 168, Households in Conflict Network.
  5. Andreas Madestam, 2009. "Informal Finance: A Theory of Moneylenders," Working Papers 2009.69, Fondazione Eni Enrico Mattei.
  6. Xu, Guo, 2013. "Development through Empowerment: Delivering Effective Public Services – a Literature Review," ADB Economics Working Paper Series 382, Asian Development Bank.
  7. Kodila-Tedika, Oasis, 2012. "Entrepreneurship and property right: de Soto'r right
    [Entrepreneuriat et droit de propriété : de Soto a raison]
    ," MPRA Paper 43464, University Library of Munich, Germany.

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