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The de Soto Effect

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Author Info
Besley, Timothy J.
Ghatak, Maitreesh

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Abstract

This paper explores the consequences of creating and improving property rights so that fixed assets can be used as collateral. This has become a cause célèbre of Hernando de Soto whose 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 the logic of the argument for credit contracts, both in isolation, and in market equilibrium. We show that the impact will vary with the degree of market competition. Where competition is weak, it is possible that borrowers will be worse off when property rights improve. We discuss the implications for optimal policy and the political economy of policy reform.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7259.

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Date of creation: Apr 2009
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Handle: RePEc:cpr:ceprdp:7259

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Related research
Keywords: collateral; credit markets; Hernando de Soto;

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Find related papers by JEL classification:
G20 - Financial Economics - - Financial Institutions and Services - - - General
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
K11 - Law and Economics - - Basic Areas of Law - - - Property Law
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

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  1. Dilip Mookherjee & Debraj Ray, 2002. "Contractual Structure and Wealth Accumulation," American Economic Review, American Economic Association, vol. 92(4), pages 818-849, September. [Downloadable!]
    Other versions:
  2. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," NBER Working Papers 8852, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. 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. [Downloadable!] (restricted)
  4. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February. [Downloadable!] (restricted)
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  5. Francesco Caselli & Nicola Gennaioli, 2008. "Economics and Politics of Alternative Institutional Reforms," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 1197-1250, August. [Downloadable!] (restricted)
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  6. Innes, Robert D., 1990. "Limited liability and incentive contracting with ex-ante action choices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 45-67, October. [Downloadable!] (restricted)
  7. Sebastian Galiani & Ernesto Schargrodsky, 2005. "Property Rights for the Poor: Effects of Land Titling," Business School Working Papers proprightspoor, Universidad Torcuato Di Tella. [Downloadable!]
  8. 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. [Downloadable!] (restricted)
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  9. Erica Field, 2005. "Property Rights and Investment in Urban Slums," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 279-290, 04/05. [Downloadable!] (restricted)
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