Courts and Banks: Effects of Judicial Enforcement on Credit Markets
AbstractThe costs of enforcing contracts is a key determinant of market performance. We document this point with reference to the credit market. We start by presenting a model of opportunistic debtors and inefficient courts. According to the model, improvements in judicial efficiency reduce credit rationing and increase lending, while have an ambiguous effect on interest rates, depending on banking competition and on the type of judicial reform. These predictions are supported by panel data on Italian provinces and by cross-country evidence. In Italian provinces with longer trials or large backlogs of pending trials, credit is less widely available than elsewhere. International evidence also shows that the depth of mortgage markets is inversely related to costs of mortgage foreclosure and other proxies for judicial inefficiency.
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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 58.
Date of creation: 01 Jun 2001
Date of revision: 09 Apr 2002
Publication status: Published in The Journal of Money, Credit, and Banking, April 2005, vol. 37, issue 2, pages 223-244
enforcement; judicial efficiency; credit market; lending; interest rates;
Other versions of this item:
- Jappelli, Tullio & Pagano, Marco & Bianco, Magda, 2005. "Courts and Banks: Effects of Judicial Enforcement on Credit Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 223-44, April.
- Bianco, Magda & Jappelli, Tullio & Pagano, Marco, 2002. "Courts and Banks: Effects of Judicial Enforcement on Credit Markets," CEPR Discussion Papers 3347, C.E.P.R. Discussion Papers.
- G2 - Financial Economics - - Financial Institutions and Services
- K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-11-05 (All new papers)
- NEP-LAW-2001-11-05 (Law & Economics)
- NEP-MFD-2001-11-05 (Microfinance)
- NEP-REG-2001-11-05 (Regulation)
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