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Courts and Banks: Effects of Judicial Enforcement on Credit Markets

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Author Info
Magda Bianco () (Banca d'Italia)
Tullio Jappelli () (CSEF, Università di Salerno, and CEPR)
Marco Pagano () (CSEF, Università di Salerno, and CEPR)

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Abstract

The 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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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 58.

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Date of creation: 01 Jun 2001
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Publication status: Published in The Journal of Money, Credit, and Banking, April 2005, vol. 37, issue 2, pages 223-244
Handle: RePEc:sef:csefwp:58

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Related research
Keywords: enforcement; judicial efficiency; credit market; lending; interest rates;

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Find related papers by JEL classification:
G2 - Financial Economics - - Financial Institutions and Services
K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
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  2. Terrence M. Clauretie, 1987. "The Impact of Interstate Foreclosure Cost Differences and the Value of Mortgages on Default Rates," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(3), pages 152-167. [Downloadable!] (restricted)
  3. Clauretie, Terrence M & Herzog, Thomas N, 1990. "The Effect of State Foreclosure Laws on Loan Losses: Evidence from the Mortgage Insurance Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(2), pages 221-33, May. [Downloadable!] (restricted)
  4. Chiuri, Maria Concetta & Jappelli, Tullio, 2003. "Financial market imperfections and home ownership: A comparative study," European Economic Review, Elsevier, vol. 47(5), pages 857-875, October. [Downloadable!] (restricted)
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  5. Gropp, Reint & Scholz, John Karl & White, Michelle J, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 217-51, February.
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  6. Manove, Michael & Padilla, Atilano Jorge & Pagano, Marco, 2000. "Collateral Vs. Project Screening: A Model Of Lazy Banks," CEPR Discussion Papers 2439, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Daniela Fabbri & Mario Padula, 2001. "Judicial Costs and Household Debt," CSEF Working Papers 65, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  8. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May. [Downloadable!] (restricted)
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  9. Fabiani, S. & Pellegrini, G., 1997. "Education, Infrastructure, Geography and Growth: An Empirical Analysis of the Development of Italian Provinces," Papers 323, Banca Italia - Servizio di Studi.
  10. Andrew Powell & Marcela Cristini & Ramiro Moya, 2001. "The Importance of an Effective Legal System for Credit Markets: The Case of Argentina," RES Working Papers 3125, Inter-American Development Bank, Research Department. [Downloadable!]
  11. 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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  12. Alston, Lee J, 1984. "Farm Foreclosure Moratorium Legislation: A Lesson from the Past," American Economic Review, American Economic Association, vol. 74(3), pages 445-57, June. [Downloadable!] (restricted)
  13. Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 83-109, February. [Downloadable!] (restricted)
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