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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 stronger legal enforcement of lender rights increases credit access for all borrowers because it expands the set of incentive compatible loan contracts. This result relies on an assumption that the supply of credit is in nitely elastic. In contrast, with inelastic supply, stronger enforcement generates general equilibrium e ects that may reduce credit access for small borrowers and expand it for wealthy borrowers. In a rm-level panel, we nd evidence that an Indian judicial reform that increased banks' ability to recover non-performing loans had such an adverse distributive impact.
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  • Ulf von Lilienfeld‐Toal & Dilip Mookherjee & Sujata Visaria, 2012. "The Distributive Impact of Reforms in Credit Enforcement: Evidence From Indian Debt Recovery Tribunals," Econometrica, Econometric Society, vol. 80(2), pages 497-558, March.
  • Handle: RePEc:ecm:emetrp:v:80:y:2012:i:2:p:497-558
    DOI: ECTA9038

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    References listed on IDEAS

    1. Philippe Aghion & Robin Burgess & Stephen J. Redding & Fabrizio Zilibotti, 2008. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," American Economic Review, American Economic Association, vol. 98(4), pages 1397-1412, September.
    2. Sujata Visaria, 2009. "Legal Reform and Loan Repayment: The Microeconomic Impact of Debt Recovery Tribunals in India," American Economic Journal: Applied Economics, American Economic Association, vol. 1(3), pages 59-81, July.
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    7. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, vol. 75(6), pages 1525-1589, November.
    8. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
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    13. 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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    1. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
    2. Aboal, Diego & Noya, Nelson & Rius, Andrés, 2014. "Contract Enforcement and Investment: A Systematic Review of the Evidence," World Development, Elsevier, vol. 64(C), pages 322-338.
    3. Gregory F Udell, 2015. "SME Access to Intermediated Credit: What Do We Know and What Don't We Know?," RBA Annual Conference Volume,in: Angus Moore & John Simon (ed.), Small Business Conditions and Finance Reserve Bank of Australia.
    4. Baghai, Ramin & Becker, Bo, 2016. "Non-rating revenue and conflicts of interest," CEPR Discussion Papers 11508, C.E.P.R. Discussion Papers.
    5. Calomiris, Charles W. & Larrain, Mauricio & Liberti, José & Sturgess, Jason, 2017. "How collateral laws shape lending and sectoral activity," Journal of Financial Economics, Elsevier, vol. 123(1), pages 163-188.
    6. Campbell, John Y. & Ramadorai, Tarun & Ranish, Benjamin Michael, 2012. "How Do Regulators Influence Mortgage Risk: Evidence from an Emerging Market," Scholarly Articles 12168178, Harvard University Department of Economics.
    7. Kaushik Basu & C Marks, 2011. "Understanding Inflation and Controlling It," Working Papers id:4481, eSocialSciences.
    8. Ugo Troiano & Ricardo Perez-Truglia, 2015. "Tax Debt Enforcement: Theory and Evidence from a Field Experiment in the United States," 2015 Meeting Papers 134, Society for Economic Dynamics.
    9. World Bank & International Finance Corporation, 2013. "Doing Business 2014 : Understanding Regulations for Small and Medium-Size Enterprises," World Bank Publications, The World Bank, number 16204.
    10. Ongena, Steven & Cerqueiro, Geraldo & Roszbach, Kasper, 2016. "Collateral damage? On collateral, corporate financing and performance," Working Paper Series 1918, European Central Bank.
    11. Gabriel Madeira, 2014. "Legal enforcement, default and heterogeneity of project-financing contracts," Annals of Finance, Springer, vol. 10(4), pages 569-602, November.
    12. repec:eee:irlaec:v:52:y:2017:i:c:p:29-43 is not listed on IDEAS
    13. Bing Xu, 2017. "Permissible collateral and access to finance: evidence from a quasi-natural experiment," Working Papers 1750, Banco de España;Working Papers Homepage.
    14. repec:eee:finsta:v:33:y:2017:i:c:p:1-22 is not listed on IDEAS
    15. Hainz, Christa Maria & Danzer, Alexander, 2015. "Property rights, collateral and interest rates. Evidence from Vietnam," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112880, Verein für Socialpolitik / German Economic Association.
    16. Degryse, Hans & Ioannidou, Vasso & Liberti, Jose Maria & Sturgess, Jason, 2016. "When Do Laws and Institutions Affect Recovery Rates on Collateral?," CEPR Discussion Papers 11406, C.E.P.R. Discussion Papers.
    17. Aloisio Araujo & Bruno Funchal, 2015. "How Much Should Debtors be Punished in Case of Default?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(2), pages 229-245, April.
    18. Guilherme Lichand & Rodrigo R. Soares, 2014. "Access to Justice and Entrepreneurship: Evidence from Brazil's Special Civil Tribunals," Journal of Law and Economics, University of Chicago Press, vol. 57(2), pages 459-499.
    19. Herrala, Risto, 2014. "Forward-looking reaction to bank regulation," Working Paper Series 1645, European Central Bank.
    20. Kanz, Martin, 2012. "What does debt relief do for development ? evidence from India's bailout program for highly-indebted rural households," Policy Research Working Paper Series 6258, The World Bank.
    21. Anastasia Cozarenco & Ariane Szafarz, 2016. "Microcredit in Industrialized Countries: Unexpected Consequences of Regulatory Loan Ceilings," Working Papers CEB 16-021, ULB -- Universite Libre de Bruxelles.
    22. Favara, Giovanni & Morellec, Erwan & Schroth, Enrique & Valta, Philip, 2017. "Debt enforcement, investment, and risk taking across countries," Journal of Financial Economics, Elsevier, vol. 123(1), pages 22-41.
    23. Nuri Ersahin & Rustom M. Irani & Katherine Waldock, 2016. "Creditor Rights and Entrepreneurship: Evidence from Fraudulent Transfer Law," Working Papers 16-31, Center for Economic Studies, U.S. Census Bureau.
    24. Denyer Willis, Graham & Mota Prado, Mariana, 2014. "Process and Pattern in Institutional Reforms: A Case Study of the Police Pacifying Units (UPPs) in Brazil," World Development, Elsevier, vol. 64(C), pages 232-242.
    25. Murillo Campello & Mauricio Larrain, 2015. "Enlarging the Contracting Space: Collateral Menus, Access to Credit, and Economic Activity," NBER Working Papers 21690, National Bureau of Economic Research, Inc.

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