Bankruptcy Law, Bonded Labor And Inequality
AbstractShould the law restrict liability of defaulting borrowers? We abstract from possible benefits arising from limited rationality or risk-aversion of borrowers, contractual incompleteness, or lender moral hazard. We focus instead on general equilibrium implications of liability rules with moral hazard among borrowers with varying wealth. If lenders are on the short side of the market, weakening liability rules lower lender profits, may cause additional exclusion among the poor, but generate additional rents for wealthier borrowers. For certain changes in liability rules (such as a ban on bonded labor, or weakening bankruptcy rules below a wealth threshold) they also raise productivity among borrowers of intermediate wealth. Hence they can be interpreted as a form of efficiency-enhancing redistribution from lenders and poor borrowers to middle class borrowers. Our model provides a possible rationale for why weaker liability rules are observed in wealthier countries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2005-035.
Length: 49 pages
Date of creation: Sep 2005
Date of revision:
Other versions of this item:
- Dilip Mookherjee & Ulf von Lilienfeld-Toal, 2005. "Bankruptcy Law, Bonded Labor and Inequality," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series DP-155, Boston University - Department of Economics.
- Mookherjee, Dilip & von Lilienfeld-Toal, Ulf, 2006. "Bankruptcy law, bonded labor and inequality," Proceedings of the German Development Economics Conference, Berlin 2006 18, Verein für Socialpolitik, Research Committee Development Economics.
- NEP-ALL-2006-03-18 (All new papers)
- NEP-ECM-2006-03-18 (Econometrics)
- NEP-ETS-2006-03-18 (Econometric Time Series)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Basu, Kaushik & Van, Pham Hoang, 1998. "The Economics of Child Labor," American Economic Review, American Economic Association, vol. 88(3), pages 412-27, June.
- David Andolfatto, 1999.
"A Theory of Inalienable Property Rights,"
99004, University of Waterloo, Department of Economics, revised Nov 1999.
- Braverman, Avishay & Stiglitz, Joseph E, 1982. "Sharecropping and the Interlinking of Agrarian Markets," American Economic Review, American Economic Association, vol. 72(4), pages 695-715, September.
- Genicot, Garance, 2002. "Bonded labor and serfdom: a paradox of voluntary choice," Journal of Development Economics, Elsevier, vol. 67(1), pages 101-127, February.
- Dilip Mookherjee, 1997.
"Wealth Effects, Incentives and Productivity,"
Boston University - Institute for Economic Development
77, Boston University, Institute for Economic Development.
- Basu, Kaushik, 2003.
"The Economics and Law of Sexual Harassment in the Workplace,"
03-07, Cornell University, Center for Analytic Economics.
- Kaushik Basu, 2003. "The Economics and Law of Sexual Harassment in the Workplace," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 141-157, Summer.
- Jeremy Berkowitz & Michelle J. White, 2002. "Bankruptcy and Small Firms' Access to Credit," NBER Working Papers 9010, National Bureau of Economic Research, Inc.
- Reint Gropp & John Karl Scholz & Michelle White, 1996.
"Personal Bankruptcy and Credit Supply and Demand,"
NBER Working Papers
5653, National Bureau of Economic Research, Inc.
- Patrick Bolton & Howard Rosenthal, 2002. "Political Intervention in Debt Contracts," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1103-1134, October.
- Stiglitz, J.E., 1988. "Sharecropping," Papers 11, Princeton, Woodrow Wilson School - Discussion Paper.
- Kanbur, Ravi, 2001. "Obnoxious Markets," Working Papers 127655, Cornell University, Department of Applied Economics and Management.
- Fan, Wei & White, Michelle J, 2003. "Personal Bankruptcy and the Level of Entrepreneurial Activity," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 543-67, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Courtney Sullivan).
If references are entirely missing, you can add them using this form.