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The Distributive Impact of Reforms in Credit Enforcement: Evidence from Indian Debt Recovery Tribunals

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  • Ulf von Lilienfeld-Toal

    (Stockholm School of Economics)

  • Dilip Mookherjee

    ()
    (Boston University)

  • Sujata Visaria

    ()
    (Boston University)

Abstract

It is generally presumed that strengthening legal enforcement of lender rights increases credit access for all borrowers, by expanding the set of incentive compatible loan contracts. This is based on an implicit assumption of infinitely elastic supply of loans. With inelastic supply, strengthening enforcement generates general equilibrium effects which reduce credit access for small borrowers while expanding it for wealthy borrowers. We find evidence from a firm-level panel data set of such adverse distributional impacts of an Indian judicial reform which increased banks’ ability to recover non-performing loans in the 1990s.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - The Institute for Economic Development Working Papers Series with number dp-183.

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Length: 43
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:bos:iedwpr:dp-183

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  1. Philippe Aghion & Robin Burgess & Stephen Redding & F Zilibotti, 2005. "The Unequal Effects of Liberalization: Evidence fromDismantling the License Raj in India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers, Suntory and Toyota International Centres for Economics 45, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  3. Bruno Biais & Thomas Mariotti, 2009. "Credit, Wages, and Bankruptcy Laws," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(5), pages 939-973, 09.
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  5. Christopher James & David C. Smith, 2000. "Are Banks Still Special? New Evidence on Their Role in the Corporate Capital-Raising Process," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 13(1), pages 52-63.
  6. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, Econometric Society, vol. 75(6), pages 1525-1589, November.
  7. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1768, Harvard - Institute of Economic Research.
    • La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
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  8. Timothy Besley & Robin Burgess, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers, Suntory and Toyota International Centres for Economics 33, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  9. Gropp, Reint & Scholz, John Karl & White, Michelle J, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 217-51, February.
  10. Patrick Bolton & Howard Rosenthal, 2002. "Political Intervention in Debt Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(5), pages 1103-1134, October.
  11. Sujata Visaria, 2009. "Legal Reform and Loan Repayment: The Microeconomic Impact of Debt Recovery Tribunals in India," American Economic Journal: Applied Economics, American Economic Association, American Economic Association, vol. 1(3), pages 59-81, July.
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Cited by:
  1. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, Elsevier, vol. 107(C), pages 157-174.
  2. Guilherme Lichand & Rodrigo R. Soares, 2011. "Access to justice and entrepreneurship: evidence from Brazil’s Special Civil Tribunals," Textos para discussão, Department of Economics PUC-Rio (Brazil) 591, Department of Economics PUC-Rio (Brazil).
  3. World Bank & International Finance Corporation, 2013. "Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises," World Bank Publications, The World Bank, number 16204, August.
  4. Herrala, Risto, 2014. "Forward-looking reaction to bank regulation," Working Paper Series, European Central Bank 1645, European Central Bank.
  5. Aloisio Araujo & Bruno Funchal, 2013. "How much should debtors be punished in case of default?," Fucape Working Papers, Fucape Business School 41, Fucape Business School.

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