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The Distributive Impact of Reforms in Credit Enforcement: Evidence From Indian Debt Recovery Tribunals

  • Ulf von Lilienfeld‐Toal
  • Dilip Mookherjee
  • Sujata Visaria

It is generally presumed that strengthening legal enforcement of lender rights increases credit access for all borrowers, by expanding the set of incentive compatible loan contracts. This is based on an implicit assumption of infinitely elastic supply of loans. With inelastic supply, strengthening enforcement generates general equilibrium effects which reduce credit access for small borrowers while expanding it for wealthy borrowers. We find evidence from a firm-level panel data set of such adverse distributional impacts of an Indian judicial reform which increased banks’ ability to recover non-performing loans in the 1990s.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 80 (2012)
Issue (Month): 2 (03)
Pages: 497-558

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Handle: RePEc:ecm:emetrp:v:80:y:2012:i:2:p:497-558
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  1. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2002. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Centro de Alti­simos Estudios Ri­os Pe©rez(CAERP) 2, Centro de Altisimos Estudios Rios Perez (CAERP).
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  10. Patrick Bolton & Howard Rosenthal, 2002. "Political Intervention in Debt Contracts," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1103-1134, October.
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