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Enforcement Problems and Secondary Markets

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  • Fernando A. Broner
  • Alberto Martin
  • Jaume Ventura

Abstract

There is a large and growing literature that studies the effects of weak enforcement institutions on economic performance. This literature has focused almost exclusively on primary markets, in which assets are issued and traded to improve the allocation of investment and consumption. The general conclusion is that weak enforcement institutions impair the workings of these markets, giving rise to various inefficiencies. But weak enforcement institutions also create incentives to develop secondary markets, in which the assets issued in primary markets are retraded. This article shows that trading in secondary markets counteracts the effects of weak enforcement institutions and, in the absence of further frictions, restores efficiency. (JEL: F34, F36, G15) (c) 2008 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 6 (2008)
Issue (Month): 2-3 (04-05)
Pages: 683-694

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Handle: RePEc:tpr:jeurec:v:6:y:2008:i:2-3:p:683-694

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References

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  1. Fernando A. Broner & Jaume Ventura, 2010. "Rethinking the Effects of Financial Liberalization," NBER Working Papers 16640, National Bureau of Economic Research, Inc.
  2. Fernando Broner & Alberto Martin & Jaume Ventura, 2006. "Sovereign Risk and Secondary Markets," NBER Working Papers 12783, National Bureau of Economic Research, Inc.
  3. Fernando A Broner & Jaume Ventura, 2006. "Globalization and Risk Sharing," Working Papers 307, Barcelona Graduate School of Economics.
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Cited by:
  1. Fernando Broner & Jaume Ventura, 2010. "Rethinking the Effects of Financial Liberalization," Working Papers 509, Barcelona Graduate School of Economics.
  2. Ricardo Bebczuk & Maria Lorena Garegnani, 2012. "Real State as Housing and as Financial Investment: A First Assessment for Argentina," Department of Economics, Working Papers 095, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
  3. Claudio Raddatz & Sergio Schmukler, 2010. "Pension Funds And Capital Market Development: How Much Bang For The Buck?," Working Papers 38, Superintendencia de Pensiones, revised Feb 2010.
  4. Aitor Erce Domiguez, 2010. "Debtor Discrimination During Sovereign Debt Restructurings," 2010 Meeting Papers 1324, Society for Economic Dynamics.
  5. Acharya, Viral V & Drechsler, Itamar & Schnabl, Philipp, 2011. "A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk," CEPR Discussion Papers 8679, C.E.P.R. Discussion Papers.
  6. Miguel Palomino Bonilla & Rudy Wong Barrantes, 2011. "Housing Finance in Peru: What is Holding it Back?," Research Department Publications 4748, Inter-American Development Bank, Research Department.
  7. Eduardo Levy Yeyati & Sergio L. Schmukler & Neeltje Van Horen, 2008. "Emerging Market Liquidity and Crises," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 668-682, 04-05.
  8. Aitor Erce, 2012. "Selective sovereign defaults," Globalization and Monetary Policy Institute Working Paper 127, Federal Reserve Bank of Dallas.
  9. Mario Cuevas & Sigfrido Lee & Maria Isabel Bonilla, 2011. "The Missing Foundations of Housing Finance: Incomplete Markets, Fragmented Policies and Emerging Solutions in Guatemala," Research Department Publications 4750, Inter-American Development Bank, Research Department.

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