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Enforcement Problems and Secondary Markets

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Author Info

  • Broner, Fernando A
  • Martin, Alberto
  • Ventura, Jaume

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 paper shows that trading in secondary markets counteracts the effects of weak enforcement institutions and, in the absence of further frictions, restores efficiency.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6498.

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Date of creation: Sep 2007
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Handle: RePEc:cpr:ceprdp:6498

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Related research

Keywords: default; enforcement; secondary markets; sovereign risk; weak law enforcement;

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References

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  1. Fernando Broner & Alberto Martin & Jaume Ventura, 2006. "Sovereign Risk and Secondary Markets," NBER Working Papers 12783, National Bureau of Economic Research, Inc.
  2. Jaume Ventura & Fernando Broner, 2008. "Rethinking the effects of financial liberalization," 2008 Meeting Papers 747, Society for Economic Dynamics.
  3. Fernando Broner & Jaume Ventura, 2011. "Globalization and Risk Sharing," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 49-82.
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Citations

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Cited by:
  1. Jaume Ventura & Fernando Broner, 2008. "Rethinking the effects of financial liberalization," 2008 Meeting Papers 747, Society for Economic Dynamics.
  2. Oren Sussman & Alexander Guembel, 2005. "Sovereign Debt Without Default Penalties," OFRC Working Papers Series 2005fe17, Oxford Financial Research Centre.
  3. Aitor Erce, 2012. "Selective sovereign defaults," Globalization and Monetary Policy Institute Working Paper 127, Federal Reserve Bank of Dallas.
  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. 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.
  7. Yeyati, Eduardo Levy & Schmukler, Sergio L. & Van Horen, Neeltje, 2007. "Emerging market liquidity and crises," Policy Research Working Paper Series 4445, The World Bank.
  8. 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.
  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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