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Financial Contracts and the Political Economy of Investor Protection

Listed author(s):
  • Pavel Ševcík

This paper studies the joint dynamics of investor protection and economic development in a political economy model with capital accumulation and occupational choice. Less investor protection implies higher costs of external financing for entrepreneurs. This excludes poorer agents from entrepreneurship, increasing the profits of the remaining entrepreneurs. The main determinants of investor protection policy preferences are the agent's net worth and the expected return from entrepreneurship. When the policy is chosen by the simple majority rule, the model generates several implications consistent with the observed variation of investor protection over time and across countries. (JEL D72, E22, E32, G18, G38, J24, L26)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mac.4.4.163
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File URL: http://www.aeaweb.org/aej/mac/data/2011-0058_data.zip
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File URL: http://www.aeaweb.org/aej/mac/app/2011-0058_app.pdf
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Article provided by American Economic Association in its journal American Economic Journal: Macroeconomics.

Volume (Year): 4 (2012)
Issue (Month): 4 (October)
Pages: 163-197

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Handle: RePEc:aea:aejmac:v:4:y:2012:i:4:p:163-97
Note: DOI: 10.1257/mac.4.4.163
Contact details of provider: Web page: https://www.aeaweb.org/aej-macro
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  1. Rui Castro & Gian Luca Clementi & Glenn Macdonald, 2009. "Legal Institutions, Sectoral Heterogeneity, and Economic Development," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 529-561.
  2. Bonfiglioli, Alessandra, 2012. "Investor protection and income inequality: Risk sharing vs risk taking," Journal of Development Economics, Elsevier, vol. 99(1), pages 92-104.
  3. Philippe Aghion & Thibault Fally & Stefano Scarpetta, 2007. "Credit constraints as a barrier to the entry and post-entry growth of firms," Economic Policy, CEPR;CES;MSH, vol. 22, pages 731-779, October.
  4. Jeremy Greenwood & Juan M. Sanchez & Cheng Wang, 2010. "Financing Development: The Role of Information Costs," American Economic Review, American Economic Association, vol. 100(4), pages 1875-1891, September.
  5. Aldo Musacchio, 2008. "Laws versus Contracts: Shareholder Protections and Ownership Concentration in Brazil, 1890–1950," Business History Review, Harvard Business School, vol. 82(3), pages 445-473, September.
  6. Rui Castro & Gian Clementi, 2009. "The economic effects of improving investor rights in Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 8(2), pages 59-97, August.
  7. Rui Castro, 2006. "Economic Development Under Alternative Trade Regimes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 611-649, 05.
  8. Rui Castro & Gian Luca Clementi & Glenn MacDonald, 2004. "Investor Protection, Optimal Incentives, and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 1131-1175.
  9. Caroline Fohlin, 2005. "The History of Corporate Ownership and Control in Germany," NBER Chapters,in: A History of Corporate Governance around the World: Family Business Groups to Professional Managers, pages 223-282 National Bureau of Economic Research, Inc.
  10. Ari Hyytinen & Iikka Kuosa & Tuomas Takalo, 2003. "Law or Finance: Evidence from Finland," European Journal of Law and Economics, Springer, vol. 16(1), pages 59-89, July.
  11. Andrés Erosa & Ana Hidalgo Cabrillana, 2008. "On Finance As A Theory Of Tfp, Cross-Industry Productivity Differences, And Economic Rents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(2), pages 437-473, 05.
  12. Aldo Musacchio, 2010. "Law and Finance c. 1900," NBER Working Papers 16216, National Bureau of Economic Research, Inc.
  13. Musacchio, Aldo, 2008. "Can Civil Law Countries Get Good Institutions? Lessons from the History of Creditor Rights and Bond Markets in Brazil," The Journal of Economic History, Cambridge University Press, vol. 68(01), pages 80-108, March.
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