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Legal system efficiency, information production, and technological choice: a banking model

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Author Info
Davide Iacoboni
Alberto Zazzaro ()

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Abstract

Recent empirical studies have shown that the structure of the legal system and the efficiency in law enforcement influence the financial structure of the firms, their ability to gain access to capital markets, and the growth rate of economic systems. This paper uses a simple banking model with ex-ante and ex-post information asymmetries between borrowers and lenders to analyse the effects that the efficiency of the legal system may exert on the credit market. Its main conclusions are: (i) an efficient legal system reduces loan interest rates and, in the majority of cases, the average amount of defaults on loans; (ii) an improvement in the efficiency of legal institutions improves banks' selection procedures only provided the efficiency of the legal system is already high.

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Paper provided by Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica in its series Heterogeneity and monetary policy with number 0005.

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Length: pages 37
Date of creation: Apr 2000
Date of revision:
Handle: RePEc:mod:modena:0005

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Related research
Keywords: Judicial enforcement of laws; information production; stochastic debt contracts;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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