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Debtors’ prisons in America: An economic analysis

  • Baker, Matthew J.
  • Cosgel, Metin
  • Miceli, Thomas J.

Debtors’ prisons have been commonplace throughout history, including in the United States. While imprisonment for debt no doubt elicited some repayment by benefactors of the debtor, we argue that its primary function was to deter default in the first place by giving borrowers an incentive to disclose hidden assets. Because of its cost, however, imprisonment was destined to be replaced by more efficient ways of preventing borrowers from sheltering assets. Empirical analysis of state laws banning imprisonment for debt provides some support for this argument. In particular, the results suggest that states in which the publishing industry developed sooner (thus facilitating the flow of information) were more likely to enact early bans on imprisonment for debt.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 84 (2012)
Issue (Month): 1 ()
Pages: 216-228

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Handle: RePEc:eee:jeborg:v:84:y:2012:i:1:p:216-228
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Mathias Dewatripont & Patrick Bolton, 2005. "Contract theory," ULB Institutional Repository 2013/9543, ULB -- Universite Libre de Bruxelles.
  2. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
  3. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  4. A. Mitchell Polinsky & Steven Shavell, 1982. "The Optimal Use of Fines and Imprisonment," NBER Working Papers 0932, National Bureau of Economic Research, Inc.
  5. Bester, Helmut, 1987. "The role of collateral in credit markets with imperfect information," European Economic Review, Elsevier, vol. 31(4), pages 887-899, June.
  6. Rea, Samuel A, Jr, 1984. "Arm-breaking, Consumer Credit and Personal Bankruptcy," Economic Inquiry, Western Economic Association International, vol. 22(2), pages 188-208, April.
  7. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 647-63, October.
  8. Levitt, Steven D., 1997. "Incentive compatibility constraints as an explanation for the use of prison sentences instead of fines," International Review of Law and Economics, Elsevier, vol. 17(2), pages 179-192, June.
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