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The de Soto Effect

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  • Timothy Besley
  • Maitreesh Ghatak

Abstract

This paper explores the consequences of creating and improving property rights so thatfixed assets can be used as collateral. This has become a cause célèbre of Hernando de Sotowhose views are influential in debates about policy reform concerning property rights.Hence, we refer to the economic impact of such reforms as the de Soto effect. We explore thelogic of the argument for credit contracts, both in isolation, and in market equilibrium. Weshow that the impact will vary with the degree of market competition. Where competition isweak, it is possible that borrowers will be worse off when property rights improve. Wediscuss the implications for optimal policy and the political economy of policy reform.

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Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Economic Organisation and Public Policy Discussion Papers Series with number 008.

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Date of creation: Apr 2009
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Handle: RePEc:cep:stieop:008

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

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  1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  2. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," American Economic Review, American Economic Association, vol. 92(5), pages 1335-1356, December.
  3. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
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  15. Markus Goldstein & Christopher Udry, 2005. "The Profits of Power: Land Rights and Agricultural Investment in Ghana," Working Papers 929, Economic Growth Center, Yale University.
  16. Rajan, Raghuram G & Zingales, Luigi, 2006. "The Persistence of Underdevelopment: Institutions, Human Capital or Constituencies," CEPR Discussion Papers 5867, C.E.P.R. Discussion Papers.
  17. Abhijit V. Banerjee & Esther Duflo & Kaivan Munshi, 2003. "The (Mis)Allocation of Capital," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 484-494, 04/05.
  18. Ghatak, Maitreesh & Morelli, Massimo & Sjostrom, Tomas, 2007. "Entrepreneurial talent, occupational choice, and trickle up policies," Journal of Economic Theory, Elsevier, vol. 137(1), pages 27-48, November.
  19. Genicot, Garance, 2002. "Bonded labor and serfdom: a paradox of voluntary choice," Journal of Development Economics, Elsevier, vol. 67(1), pages 101-127, February.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Competition, property rights and credit
    by Economic Logician in Economic Logic on 2009-10-23 14:01:00
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Cited by:
  1. Caio Piza & Mauricio José Serpa Barros de Moura, 2011. "How Does Land Title Affect Access to Credit? Empirical Evidence from an Emerging Economy," Working Paper Series 2211, Department of Economics, University of Sussex.

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