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Credit Rationing and the Welfare Gain from Usury Laws

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Author Info

  • Coco, G.

Abstract

This paper demonstrates that when a rationing equilibrium occurs in credit markets due to adverse selection effects of the interest rate, it is necessarily a multiple contracts (i.e. multiple interest rates) equilibrium with rationing at one contract. Some consequent arguments for a welfare improving role of usury laws, based on the possibility of increasing the share of low-risk projects carried out in equilibrium, are then examined.

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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 9715.

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Length: 16 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:exe:wpaper:9715

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Postal: Streatham Court, Rennes Drive, Exeter EX4 4PU
Phone: (01392) 263218
Fax: (01392) 263242
Web page: http://business-school.exeter.ac.uk/about/departments/economics/
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Related research

Keywords: INFORMATION ; REGULATION;

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Cited by:
  1. Arnold, Lutz G. & Reeder, Johannes & Trepl , Stefanie, 2010. "Single-Name Credit Risk, Portfolio Risk, and Credit Rationing," University of Regensburg Working Papers in Business, Economics and Management Information Systems 448, University of Regensburg, Department of Economics.
  2. Giuseppe Coco & David de Meza, 2001. "In defence of usury laws," LSE Research Online Documents on Economics 25042, London School of Economics and Political Science, LSE Library.

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