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The Distributive Impact Of Reforms In Credit Enforcement: Evidence From Indian Debt Recovery Tribunals

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Author Info

  • Dilip Mookherjee

    ()
    (Department of Economics, Boston University)

  • Ulf von Lilienfeld-Toal

    ()
    (Stockholm School of Economics)

  • Sujata Visaria

    ()
    (Hong Kong University of Science and Technology)

Abstract

It is generally presumed that stronger legal enforcement of lender rights increases credit access for all borrowers because it expands the set of incentive compatible loan contracts. This result relies on an assumption that the supply of credit is in nitely elastic. In contrast, with inelastic supply, stronger enforcement generates general equilibrium e ects that may reduce credit access for small borrowers and expand it for wealthy borrowers. In a rm-level panel, we nd evidence that an Indian judicial reform that increased banks' ability to recover non-performing loans had such an adverse distributive impact.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2010-034.

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Length: 66 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:bos:wpaper:wp2010-034

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Related research

Keywords: credit enforcement; general equilibrium e ect; inelastic credit supply; distributive impact.;

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References

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  1. Bruno Biais & Thomas Mariotti, 2009. "Credit, Wages, and Bankruptcy Laws," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 939-973, 09.
  2. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
  3. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
  4. Zilibotti, Fabrizio & Redding, Stephen & Burgess, Robin & Aghion, Philippe, 2008. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," Scholarly Articles 4554127, Harvard University Department of Economics.
  5. Besley, Timothy J. & Burgess, Robin, 2002. "Can Labour Regulation Hinder Economic Performance? Evidence from India," CEPR Discussion Papers 3260, C.E.P.R. Discussion Papers.
  6. 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.
  7. 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, vol. 13(1), pages 52-63.
  8. Igor Livshits & James MacGee & Michele Tertilt, 2005. "Consumer Bankruptcy: A Fresh Start," Discussion Papers 04-011, Stanford Institute for Economic Policy Research.
  9. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2002. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Centro de Alti­simos Estudios Ri­os Pe©rez(CAERP) 2, Centro de Altisimos Estudios Rios Perez (CAERP).
  10. Gropp, Reint & Scholz, John Karl & White, Michelle J, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 217-51, February.
  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, vol. 1(3), pages 59-81, July.
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Citations

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Cited by:
  1. Aloisio Araujo & Bruno Funchal, 2013. "How much should debtors be punished in case of default?," Fucape Working Papers 41, Fucape Business School.
  2. Lichand, Guilherme & Soares, Rodrigo R., 2011. "Access to Justice and Entrepreneurship: Evidence from Brazil's Special Civil Tribunals," IZA Discussion Papers 5917, Institute for the Study of Labor (IZA).
  3. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
  4. Herrala, Risto, 2014. "Forward-looking reaction to bank regulation," Working Paper Series 1645, European Central Bank.
  5. 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, October.

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