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Enforcement Problems and Secondary Markets

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  • Fernando A. Broner
  • Alberto Martin
  • Jaume Ventura

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13559.

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Date of creation: Oct 2007
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Handle: RePEc:nbr:nberwo:13559

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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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Cited by:
  1. Aitor Erce, 2012. "Selective sovereign defaults," Globalization and Monetary Policy Institute Working Paper 127, Federal Reserve Bank of Dallas.
  2. Fernando A. Broner & Jaume Ventura, 2010. "Rethinking the Effects of Financial Liberalization," NBER Working Papers 16640, National Bureau of Economic Research, Inc.
  3. Viral V. Acharya & Itamar Drechsler & Philipp Schnabl, 2011. "A Pyrrhic Victory? - Bank Bailouts and Sovereign Credit Risk," NBER Working Papers 17136, National Bureau of Economic Research, Inc.
  4. Aitor Erce Domiguez, 2010. "Debtor Discrimination During Sovereign Debt Restructurings," 2010 Meeting Papers 1324, Society for Economic Dynamics.
  5. Yeyati, Eduardo Levy & Schmukler, Sergio L. & Van Horen, Neeltje, 2007. "Emerging market liquidity and crises," Policy Research Working Paper Series 4445, The World Bank.
  6. Guembel, Alexander & Sussman, Oren, 2009. "Sovereign Debt without Default Penalties," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  7. Raddatz, Claudio & Schmukler, Sergio L., 2008. "Pension Funds And Capital Market Development:How Much Bang For The Buck?," Policy Research Working Paper Series 4787, 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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